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“Canada: Irrational Exuberance?” Wild Housing Speculation Drives Entire Economy

April 10, 2017

“Canada: Irrational Exuberance?” Wild Housing Speculation Drives Entire Economy

Everyone is afraid of breaking the addiction.

Here’s another data point on the Canadian housing bubble, how immense it really is, and how utterly crucial wild housing speculation has become to the Canadian economy.

Housing starts surged to 253,720 units in March seasonally adjusted, the highest since September 2007, according to Canada Mortgage & Housing Corp. Of them, 161,000 were multi-family starts of condos and rental units in urban areas. In Toronto, one of the hot beds of Canada’s house price bubble, housing starts jumped by 16,600 units, all of them condos and apartments, defying any expectation of a slowdown.

Housing starts are an indication of construction activity, a powerful additive to the local economy with large secondary effects. Housing construction gets fired up by the promise of ever skyrocketing housing prices, and thus big payoffs for developers, lenders, real estate agents, and the entire industry.

National home price data covers up the real drama in certain cities, particularly Vancouver (British Columbia) and Toronto (Ontario), but it does show by how much Canadian housing prices have overshot the already lofty US housing prices.

The chart below by Stéfane Marion, Chief Economist at Economics and Strategy, National Bank of Canada, compares US home prices per the Case-Shiller 20-City index to Canadian home  prices per the Teranet-National Bank 26-market index. Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. Note that during the housing crisis in the US, there was only a blip in Canada’s housing market:

Marion added in his note today:

Home price inflation has become THE hot topic of discussion in Canada. Surging prices are no longer confined to greater Toronto and Vancouver. As today’s Hot Chart shows, we estimate that close to 55% of regional markets in Canada are reporting price inflation of at least 10%.

…click on the above link to read the rest of the article…

 

There’s No Plateau in a Housing Bubble, Not Even in Canada

October 16, 2016

There’s No Plateau in a Housing Bubble, Not Even in Canada

Vancouver in turmoil, Toronto spikes.

Canadian house prices jumped 11.7% in September from a year ago, according to The Teranet–National Bank National Composite House Price Index released today. But the index papers beautifully over the dynamics in each metro.

In six of the 11 metro markets of the index, prices have been languishing or even declining over the past couple of years, as they’ve hit the wall of reality after often stupendous price gains in the prior decade: Montreal, Calgary, Edmonton, Quebec City, Halifax, and Ottawa-Gatineau.

In the two largest markets – Toronto and Vancouver, which combined account for 54% of the index – prices have blown through the roof. Both markets are among the hottest, most over-priced housing bubbles in the world. UBS recently ranked Vancouver Number 1 globally on that honor roll.

But suddenly the dynamics have changed.

Vancouver’s housing market is in turmoil, to use a mild word, as sales have crashed, after the implementation of a real-estate transfer tax this summer by British Columbia, aimed squarely at non-resident investors. In Vancouver, those investors are mostly Chinese. And where do these folks now go to inflate prices? Toronto.

Still, the national house price index (red line, right scale), after the 11.7% jump over the past 12 months (blue columns, left scale), has doubled since 2005!

canada-house-price-index-2016-09

The index, similar to the Case-Shiller Home Price index in the US, is based on repeat sales. It looks at properties that sold at least twice over the years to establish “sales pairs.” It then uses a proprietary formula to deduct price changes from these transactions and extrapolate them into an index for each of the 11 markets and nationally. It’s not perfect, but it offers an alternative view to median prices or Canada’s “benchmark” prices.

…click on the above link to read the rest of the article…

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