A Toronto homebuyer takes his frustrations to the blogosphere

By Erica Alini - Monday, January 30, 2012 at 12:26 PM - 0 Comments

Last week, we wrote about whether Canada’s real estate market is on the cusp of a painful though not disastrous pop or an all-out meltdown like the ones that hit the U.S. and Ireland. Econowatch would like to kick off this week by drawing your attention to FML Listings, an anonymous blog launched by a self-described frustrated Toronto homebuyer. It’s based on a simple, brilliant idea: Pick a modest house or condo with an outrageous price tag, and rail against it in 50-100 words. Here’s today’s gem about a one-bedroom, one-bathroom going for $548,000: Continue…

Merrill Lynch warns of Canada housing bubble

By macleans.ca - Tuesday, December 20, 2011 at 2:20 PM - 0 Comments

Canada’s housing market is showing all the “classic signs” of a bubble, according to a report released Monday by Bank of America’s Merrill Lynch. “We estimate housing prices nationwide are about 10 per cent over valued,” the report says. Even so, the bank doesn’t expect Canada to go through a large-scale housing crash as the U.S. did during the recent recession. The report, however, does predict housing prices will dip five per cent in 2012. This drop will be spurred by increasing household debt in Canada, as well as potential jumps in joblessness as the global economy flirts with recession, according to the report. Much of the “over valuation, speculation and over supply” cited in the report relates to the condo industry, which has been booming in cities like Toronto. Once the investment surge in condos cools off, there will be an oversupply of units, and some people who purchased condos “will be left holding vacant units,” says the report. As a worst-case scenario, the report points to a housing price drop of 10 per cent nationwide in 2012 alongside soaring household debt and job losses.

The Globe and Mail

The real problem with Vancouver's outrageous house prices

By Jason Kirby - Wednesday, June 1, 2011 at 4:50 PM - 56 Comments

A Chesterman Beach home in Tofino, B.C., listed for $7.6 million, is shown on Thursday, June 9, 2005. High house prices in the Vancouver Island town are driving some residents out. One realtor said 12 Tofino residents have bought Ucluelet properties in the past two years, and five more are looking. (CP PHOTO/Keven Drews)

The international media have finally clued in to the wackiness on Canada’s west coast, otherwise known as the Vancouver real estate market. Last month Bloomberg noted that when compared to median household incomes Vancouver homes are more expensive than even New York. The story linked soaring prices to the influx of wealthy buyers from mainland China. Today the Wall Street Journal retraces the exact same material. The warning in both pieces is clear: Vancouver’s housing market has become disconnected from reality and is primed to crash.

This little 3 bedroom, 1 bathroom bungalow in Vancouver is priced at $1.5 million. The listing suggests buyers just tear it down and build a new home.

This is a well worn theme for many Canadian reporters. Here at Maclean’s we’ve reached the same conclusion several times going back to 2008, and, admittedly, we’ve been proven fully and completely wrong. I still think prices here in Vancouver are nuts, but each day as I walk to work past the high-end coffee shops and panhandlers I see more “For Sale” signs going up, along with plenty of “Sold” stickers, too.

But here’s the thing. The real threat to Vancouver isn’t that the housing market might crash. That’s happened here before. It undoubtedly will happen again. Such is the boom & bust nature of real estate in Lotusland.

Far more insidious is the impact housing unaffordability is having on employers and the broader economy. Continue…

Real estate porn: The 15 most expensive homes in Canada

By Jason Kirby - Thursday, May 19, 2011 at 2:40 PM - 4 Comments

According to a new report from Re/Max, sales of luxury homes in Canada—the land that the global housing correction, and gravity for that matter, forgot—are exploding. Here’s the breakdown from the release.

$2 million is nothing to sneeze at, but in Vancouver there are crack shacks worth nearly that much. If you really want to talk luxury, set your sights higher. So without further adieu, here’s a countdown of the 15 most expensive homes in Canada right now, as drawn from the real estate industry’s listing service, Realtor.ca, after the jump…

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The Canada bubble

By Jason Kirby with Erica Alini - Wednesday, March 16, 2011 at 9:05 AM - 48 Comments

Todd Korol/Reuters

Bob Haber and David Madani are foreigners who have spent a lot of time studying Canada. Haber, an American, was chief investment officer at fund giant Fidelity Canada for 12 years and tracked Canadian stocks from his base in Boston. Meanwhile, Madani, a New Zealander, spent a decade with the Bank of Canada as a forecaster and policy analyst. Both are outsiders with an acute understanding of the inner workings of the Canadian economy. That is where the similarity ends.

Last December, Haber’s new book, Go Canada: The Coming Boom in the Toronto Stock Market and How to Profit From It, hit bookstores. Haber, who now runs his own investment firm in Boston and manages a series of Go Canada funds for Toronto-based Canoe Financial, has emerged as one of the most enthusiastic proponents of Canadian investments at a time when the world can’t seem to get enough of us. With Canada’s strong economy and wealth of resources, Haber predicts the S&P/TSX Composite Index could double to 30,000 points within 10 years. “Global growth and all the free money out there are coming together and investors are realizing the best place in the G7 for them to put their money is Canada,” he says. “Things are in gear for Canada to really outperform.”

Madani’s outlook couldn’t be more different, though it tends to get drowned out amid the Canuck euphoria. Last fall, he joined Capital Economics, a prominent U.K. investment research firm, to cover the Canadian market from Toronto. He says the boom in commodities is due for a reversal. More importantly, Canada’s red-hot housing market has soared into the danger zone. By his estimates, house prices are set to plunge at least 25 per cent, and will drag the economy down with them. “Housing has gotten crazy, it’s a bubble,” he says. “These things always have an unhappy ending, and Canada is not going to be any different.”

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Two charts you need to see about commodities and the housing market

By Jason Kirby - Thursday, March 10, 2011 at 4:33 PM - 29 Comments

Our latest issue should be hitting stands today or tomorrow with a story looking at the love-in that investors, both international and domestic, have for Canada at the moment. (Online-only readers will have to wait a week to read the piece at Macleans.ca. Better yet, go buy a copy of the mag.) You’ll have heard the “Buy Canada” thesis many times by now—our vast resources, supposedly prudent government finances, strong housing market and resilient job sector make us a stand-out in the global economy.

But there’s a weakness to that string of logic. All of those strengths we like to boast about are underpinned in one way or another by the phenomenal commodity bull market of the last decade, which has reshaped the Canadian economy. The thing to remember though is that commodities regularly go boom and bust. Always have. So is this time going to be any different? You be the judge. (click to enlarge.)

The above chart is from this week’s magazine story. It tracks the running 10 year annual returns in overall commodities. Through wars (both hot and cold), easy credit booms and even the U.S. industrial revolution, any time the commodity market has gone through a period like it just has, a nasty spill invariably followed. With the TSX down nearly 680 points or 4.7 per cent this week on softening commodity prices, there’s an argument to be made we’re cresting the peak once again.

Investors aren’t the only ones who should be hoping the commodity bull market keeps on a’runnin’. The real estate sector has benefited in a huge way from strengthening resource prices, thanks to low unemployment and higher incomes, not to mention the  overall sense of invulnerability that’s come to pervade the Canadian mindset. But to truly appreciate the stunning heights Canadian house prices have reached, history is helpful once again. For our story we spoke with Robert Shiller, the Yale professor famous for developing the Case-Shiller House Price Index in the U.S. which tracks prices going back to 1890. In the absence of solid historical Canadian data, Shiller suggested “an exercise” of fusing his index with the Canadian Teranet-National Bank House Price Index, on the assumption that house prices in the two countries behaved relatively similar prior to 1990. Here’s the result: (click to enlarge)

By the looks of that, we’re well into uncharted territory. As Shiller told me, “This is just to give an impression how unusual things are in Canada now. Canada is going through a major historic boom, at least in comparison with booms in the US before 1990.” For what it’s worth, you can see Shiller’s full U.S. chart, and how house prices fell back to earth after the bubble burst, here.

I should mention that before posting the Shiller chart, I ran it past Simon Côté at National Bank of Canada who devised the Teranet index. He cautioned that the price gains of the past decade should be taken in the context of Canada’s nominal GDP gains over the past half century. Here’s what he had to say:

“I think you may find that, yes house prices have increased a lot in the past 10-15 years, but the price increases since the 60s or 70s may be in line with the change in GDP, in other words houses prices might not have increased more than the overall wealth of Canadians.”

Decide for yourself how much to read into the above charts. I’d just say that we’d all be wise to remember one thing: both resources and real estate are commodities, and rule #1 in commodities is what goes up, eventually comes down.

Canada's worst spenders

By Erica Alini - Wednesday, February 23, 2011 at 11:57 AM - 7 Comments

There’s been plenty of speculation that Vancouver’s hot housing market is in bubble territory, and as interest rates rise, that view is going to be put to the test. A new Toronto-Dominion Bank report says that one in 10 British Columbia households could find themselves scrambling to pay their bills if the Bank of Canada ups rates, as TD predicts it will—up to three per cent by the end of 2012.

The province has been Canada’s real estate debt champion since at least 1999, and it is the only one where the average savings rate is negative, according to TD. Vancouver in particular seems to most resemble the housing run-up seen in the U.S. Two weeks ago, Robert Shiller, an economist at Yale University who correctly forecast the U.S. housing bust and helped develop the influential Standard and Poor’s Case-Shiller real estate index, likened Vancouver to San Francisco, one of the areas worst hit by the slump in the States. Compare that to Manitoba, where families have strengthened their balance sheets since 2006, and will be putting 40 per cent less of every dollar toward debt repayments than households in B.C., notes TD. Continue…

Avoiding the crash

By Jason Kirby - Saturday, September 4, 2010 at 10:20 AM - 0 Comments

PHOTOGRAPH BY SIMON HAYTER

As the housing market stalls, several people who bought pricey Vancouver condos before they were built are suing to get out of the deals. In Toronto, condo sales during the first half of the year fell for the first time since 1994. And at least one homeowner near Halifax just offered to give away his house for free, so long as whomever took it assumed the $395,000 mortgage. Everywhere, tales of real estate woe and miserable sales data have prompted predictions of a crash. James Grant, a prominent U.S. investment newsletter author well known for his bearish outlook on the American economy, has warned house prices here are primed to fall: “The median Canadian house is, in fact, certifiably unaffordable.” Even if prices tumble, though, as happened in 2008—when the economy was also teetering and house prices were at record levels—they could still make another surprising comeback.

No question Canadian prices are outrageously high. As Grant points out, compared to rental rates, home prices in Canada are more than 60 per cent above the historical average. And with home ownership rates and household debt levels higher than they’ve ever been, Scotiabank economist Derek Holt says there’s nowhere for prices to go but down. “This time when we come off the boil, prices are going to stay lower,” he says.

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Home sales are falling fast, but the problem isn’t with record high prices

By Jason Kirby - Thursday, August 19, 2010 at 3:00 PM - 0 Comments

AP Photo/Ted S. Warren

Across Canada the housing market took a beating in July, but the only thing more prevalent than the “for sale” signs gathering dust everywhere were excuses for why buyers have suddenly vanished.

In Toronto, July sales fell 34 per cent. They were down by 42 per cent in Calgary. And in Vancouver and the lower mainland sales plunged by around 45 per cent. If those watching the housing market thought sky-high prices were to blame, though, realtors were quick to correct them.

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Mortgage mayhem, take two

By Jason Kirby - Thursday, April 29, 2010 at 4:40 PM - 0 Comments

AP/ Getty Images

Has the “great vampire squid” finally been harpooned? Until last week, the Wall Street investment bank Goldman Sachs had taken plenty of lumps in the court of public opinion—such as Rolling Stone writer Matt Taibbi’s famous and unflattering aquatic analogy—but largely dodged any serious fallout from the financial crisis. Now with the U.S.

Securities and Exchange Commission’s lawsuit, accusing the bank of committing outright fraud in the way it packaged and sold mortgage investments to some clients, the firm faces a crisis of its own.

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The real estate gamble

By Jason Kirby - Thursday, December 17, 2009 at 9:33 AM - 17 Comments

It may be winter, but Vancouver’s love affair with real estate is in full bloom. After a brief pause to mark the recession, the hot topic over lattes is once again square footage and million-dollar views. Which is roughly the price tag Michael Lin kept coming across last week as he and a friend sat in a Granville Street café surfing MLS, the real estate listing website, on his laptop.

Lin, a computer programmer in his late 20s, has watched the ups and downs, and then ups again, of Vancouver’s housing market from his rented apartment. Now, with the economy in repair mode and mortgage rates still near record lows, he’s eager to take the plunge into the city’s condo market. He admits prices are higher than he’d like, but believes he can easily cover the mortgage payments even if interest rates start to rise. But when asked whether he will have enough left over at the end of the month to save for retirement, he chuckles. He wasn’t saving much before, either. “This way,” he says, “I’ll be forced to save.”

Lin has plenty of company. A growing number of Canadians have come to view their homes as the ticket to a secure retirement. There’s a lot to be said for that approach. Your house is the biggest investment you’ll ever make, and it compels you to watch your pennies. It’s also true that those Canadians who had all their money tied up in their homes instead of stock markets have come through the financial crisis with their household balance sheets largely intact.

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The shocking truth about the value of your home

By Duncan Hood - Monday, February 23, 2009 at 6:50 PM - 238 Comments

There are still people out there who don’t believe Canada is about to be hit by a devastating housing crisis, but Riaz Kassam isn’t one of them. For him, the crisis has already arrived.

Last July, he made an $80,000 pre-sale payment on a $1.5-million penthouse condominium in Vancouver’s tony H&H Yaletown building, just a few blocks away from where he lives. Kassam, a 42-year-old computer analyst, who’s married with no kids, expected to move in by the end of 2008. But when he put his current apartment on the market, he didn’t get a single offer. He thought maybe he had priced it a little high, so he knocked a bit off. Still, no offers. He lowered it again, and again, until eventually he was offering his apartment for a full $120,000 less than his initial asking price. That’s when he realized he was in trouble. “We reached the point where we couldn’t drop the price any more,” he says, “or we wouldn’t have enough for the down payment on the new property.”

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What kind of house can $500,000 buy you?

By macleans.ca - Thursday, February 19, 2009 at 3:53 PM - 72 Comments

Freedom 95?

By Duncan Hood and Jason Kirby - Thursday, October 9, 2008 at 12:00 AM - 0 Comments

For more than a decade, Trish McAuliffe and her husband, Jim, have lived with a financial sword hanging over their heads.

Trish and Jim went to work for General Motors in Windsor, Ont., right around the same time in the early 1980s. It was 1996 when they got their first termination letters—notices that they would be put on “indefinite layoff” within a few months. They had a toddler and a baby at home, and had just bought a house. Jim, who was 31 at the time, came down with shingles, which his doctor attributed to extreme stress.

Their jobs were saved when thousands of older workers accepted voluntary buyouts, cutting down the number of layoffs. But soon, another termination notice arrived, then another, and another. Finally, in 2004, after years of flirting with financial ruin, the McAuliffes decided to move to Oshawa, Ont. GM was cutting back operations in southwestern Ontario, but had just invested $2.2 billion in its Oshawa facilities. They pulled up stakes, said goodbye to family and friends and moved four hours east in search of stability. They were in their new home for a year before the axe fell again, then again and again—three termination notices in about 36 months. Each time they received what amounts to a stay of execution. “We’ve had these death notices over us for three years now,” she says. “We’re terminally ill, but we haven’t died yet.”

But with the global economy now slinking inexorably toward recession and worldwide financial markets lapsing in and out of panic, Trish, now 47, admits she’s wondering if and when that next letter might arrive, and what it will mean when it does. She alternates between worry and resignation. Her kids are 13 and 14, and will be off to university soon. She knows that they’ll have to rack up significant debt to get a degree. She knows that if she and Jim lose their jobs, “the house will be the first thing to go . . . we’ll have to downsize.”

“It’s like a feeling of gut rot that sits in your stomach,” she says. “When you get the letter, it feels like people are pitying you. I hate that feeling. My kids hate it.”

It’s little comfort to know that in the past month, millions of Canadians have come to share her sense of dread. Canada’s stock market has plunged and all the latest economic numbers point to recession. This week economists confirmed that they expect Canada’s GDP to contract through the remainder of 2008 and the first few months of 2009. That certainly means more job cuts, less consumer spending and no end of anxiety.

What started as a brush fire among heavily indebted U.S. homeowners who bought wildly overpriced homes they couldn’t afford has grown and spread into an international conflagration that threatens the stability of the world’s biggest lending institutions, and every company that relies on credit to fund its operations. That, combined with the stunning market declines of the past two months, raises frightening scenarios for the millions of Canadians who, over the past 20 years, bought hundreds of billions of dollars in mutual funds, pouring their retirement savings into the stock market in the hope and belief that a generation of steady economic growth would translate into a retirement of beach vacations, summers at the cottage, and a hefty legacy left for the kids. Instead, millions find themselves with decimated retirement funds, declining real estate values and uncertain job prospects—all of it hitting at the very moment that they expected to be cruising toward an easier pace of life.

It used to be that McAuliffe, a third-generation auto worker, worried mainly about the next year’s mortgage payments, and whether she could afford to give her kids all the things they wanted. Now her fears are bigger, and more far-reaching. She worries for her job. “You know, I used to say I wouldn’t even get out of bed for $10 or $12 an hour. I really used to wonder how people survived on that kind of money,” she says. “Now sometimes I think I might just have to.” She’s desperately hoping she can hang on at GM until her pension kicks in five years from now. Even then, she wonders if GM can weather this storm to pay her retirement benefits.

It could happen here: inside Canada’s brewing real estate storm.

By Jason Kirby - Monday, August 25, 2008 at 12:00 AM - 0 Comments

Perhaps it’s best to start with the good news. The sudden slowdown in Canada’s housing market in recent months could simply turn out to be a hiccup. The carnage racking real estate markets around the world might yet spare this country similar pain. And tighter lending standards affecting first-time homebuyers might not knock the foundation out from beneath Canadian house prices. Or maybe, after living through one of the wildest housing booms this country has ever seen, the whole bonanza could be about to completely unravel. For nervous homeowners sitting on a lot of pricey real estate, it’s increasingly difficult to tell if the glass is half full, or completely empty.

Until very recently, Canada’s real estate sector looked like it would weather the current economic storm and emerge more or less intact. The boom certainly rewarded homeowners, at least on paper. Double-digit annual growth in the value of the average home over the last six years meant that, at their peak in the spring, residential properties in Central Canada were worth 74 per cent more than at the start of the decade, while in the West home prices jumped by more than 130 per cent. There was plenty of talk about a slowdown. But thanks to our relatively strong economy, most economists predicted house prices would hold up.

Few were quite prepared for what happened next. In June, the average price of existing homes in Canada’s major markets dipped 0.4 per cent from the year before—a tiny slip, but the first decline in nine years, and quite possibly the first major crack in the edifice of Canada’s real estate market. Then, like a series of bad sequels to a horror movie, the market continued to fall in July, and then August. As of last week, when the Canadian Real Estate Association reported the average price of homes in major markets was $316,052, prices were already down 7.3 per cent from where they were in June. At the same time sales volume has tumbled, leaving many city streets cluttered with “For Sale” signs for the first time in years. In western markets such as North Vancouver, the inventory of homes for sale on the Multiple Listing Service website has doubled in the last six months. And in Edmonton, where prices in July fell 5.3 per cent from a year ago, the city’s real estate board felt compelled to urge calm. “Edmonton’s resale housing market is not ‘plunging,’ ” the board said in a terse statement. “There is no cause for concern.” Of course, when you issue a press release insisting there’s no reason to panic, that’s often a reason to panic.

Those who share the realtors’ optimistic outlook are a shrinking bunch. Merrill Lynch economist David Wolf recently published a biting analysis of the housing market that predicted not just a slowdown, but significant price declines in many cities, particularly in the West. On a national basis, Wolf says houses are 9.2 per cent overvalued, while markets in Vancouver and Victoria are inflated by as much as 35 per cent. As for Regina and Saskatoon, a doubling in house prices over the last two years has put those cities into the “extreme zone,” says Wolf. His findings were echoed late last month in a report by researchers at the University of British Columbia’s Sauder School of Business, which found housing markets in many Canadian cities are seriously out of balance when compared to rental rates. While housing markets in Toronto and Edmonton appear sound when compared to rents, in cities such as Halifax, Montreal, Ottawa, Regina and Winnipeg prices must drop at least 25 per cent in order to be in balance. “Nobody likes to see their property values go down, but those values are inevitably tethered to economic reality,” Wolf told Maclean’s. “The reality is that after a wonderful few years, we’ve finally reached the end.”

For now, Wolf and others like him are in the minority. The warnings stand in stark contrast to the repeated assurances of realtors and bullish economists, and the ubiquitous armchair experts you tend to meet at dinner parties. The two most common and reassuring explanations for this have been echoed a lot lately. First of all, the argument goes, Canada will not experience a U.S.-style housing crisis because our mortgage industry was more conservative and restrained. Secondly, even if the current slump continues, it won’t be as severe as downturns that happened in the late 1980s, because interest rates are expected to remain low. Both statements have been repeated so often they’re regarded as absolute fact. But a closer look at the realities of Canada’s recent housing boom, say experts, shows holes in both arguments. It’s becoming painfully clear that the party has ended. The question is how bad will the housing hangover get, and how long could it last?