Analyst: Canada’s housing market is ‘Loonie Tunes’

by |
In the most colourful language to date, an American analyst agrees Canada’s housing market is nearly 50 per cent overvalued – and it’s not just an Alberta problem.
 
Another well-respected analyst has added his voice to the conversation about an unprecedented housing boom, one he argues is likely to bust – and when it does…
 
“It’s not unreasonable that we could see house prices fall by 30 to 50 per cent,” Vikram Mansharamani, a global equity investor and lecturer at Yale University, told MBN sister publication, CREW. “It will pinch the entire economy and have an impact on consumers. There is a material risk that it will spread across the country.”
 
Naysayers who have refuted other claims of overvaluation – most notably by the Bank of Canada and the International Monetary Fund – point out the regional nature of the Canadian economy, problems felt in Alberta, for instance, won’t reverberate to hot markets like Toronto and Vancouver.
 
But Mansharamani wrote on his website that, during a recent visit to Canada, he “noticed a schizophrenic oscillation between housing exuberance and oil-price despair” and concluded that “Canada is now among the most vulnerable large economies in the world.”


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  • Davelle Morrison on 2015-03-26 12:11:34 PM

    I love it when all of these naysayers who actually don't understand our market and why it's different than the US market come across the border to wag their finger at how great our market is doing. What I'd love to see is a year by year account over the last few years of what the negative pundits said about the housing market compared with how much it escalated that year. Why don't we ever follow-up with these negative predictors and see where they are the following year?

  • Hal Tagg on 2015-03-26 12:12:20 PM

    He doesn't understand the oil market. The price of oil has plunged before and it will plunge again. Each time it bounces back.

    This time is especially different though. This plunge was not cause by a global market, but rather by Saudi Arabia who wanted a larger market share. When the Saudis get a new agreement on production reductions that they want, effectively strengthening OPEC, then production will be reduced, and prices will bounce back up. $50 a barrel is not the new norm.

    A 30% price reduction in housing is laughable, even in Alberta.

  • judy on 2015-03-26 12:26:58 PM

    Does this writer do the "shot-gun" approach to try and find these people who give him and his employer the sensational news they want to publish? I'll bet I could find the same quality experts at a barstool in the local tavern!

  • Terry Lynch on 2015-03-26 12:32:30 PM

    Another 'ANAL yst' putting in his 5 cents worth of opinion! Serving to underline the old adage of 'An expert is someone who is more than 25 miles from home or someone who has his ignorance well-organized'.

  • Debbie on 2015-03-26 12:39:06 PM

    This coming from a guy who"recently visited" Canada. Yeah probably a 2 hr layover in Toronto in the middle of a snow storm wondering why anyone would live "way up North" You've all done so well predicting the US housing bubble. Lets be clear, you have a 50-50 chance of being correct just like everyone else....EH?

  • Henry on 2015-03-26 12:47:54 PM

    As long as there is low interest rates there is affordability despite of high prices.
    The collapse happens when most people can not buy the properties in these very high prices.

  • Ray on 2015-03-26 12:48:38 PM

    if we keep the paste of immigrants(investor & skilled workers) inflow at the rate 250,000/year, we're safe, if not, then we may have to face the consequence of losing on demand and investment side and ...!

  • Pete Capitulo on 2015-03-26 3:20:29 PM

    The U.S. housing market grew out of greed and lack of government regulations which cause its bubble and finally succumbed to these 2 factors and burst.
    This is totally not the case with Canada.

  • Jim Walker on 2015-03-27 12:41:07 PM

    Generally the price of homes is dictated by the monthly housing cost vs monthly income - roughly that 35% ratio. Rates can go up, and jobs can be lost, both will impact the housing industry - but there are other influences that affect pricing. Years ago, both the 1999 Hong Kong lease expiring, and the dual income family becoming the standard and caused prices to greatly increase. The other influence that we are seeing now as a standard, that really doesn't depend on the Canadian economy is the foreign investor, and the "mom & pop" support for their kids in a home. The more affluent "boomers" are more capable of keeping their kids above water, then their parents were for them. Plus stricter lending policies over the past 7-8 years provide for a much more stable homeowner then what existed before the credit crunch.

  • Jeff on 2015-03-27 1:28:45 PM

    What`s so good about non affordable housing, I wonder? "The U.S. housing grew out of greed and lack of government regulations". Nice rhetoric, or is it just too much of listening to radio from more than 25 miles away? I wonder if there is anything else that drives our real estate prices other than YOUR greed, and I hate to refer to it as the values, 'cause surely it is not. Never mind that our lives are so over regulated by government and foreign corporations. Canadians lost individualism and identity and are no longer responsible for their own actions. The government is now. You will criticize Americans when you need to, even laugh at and show your sympathy when need markets for your exports, than it is US who is going to safe you from misery of falling oil prices.

  • Jeff on 2015-03-27 1:29:27 PM

    What`s so good about non affordable housing, I wonder? "The U.S. housing grew out of greed and lack of government regulations". Nice rhetoric, or is it just too much of listening to radio from more than 25 miles away? I wonder if there is anything else that drives our real estate prices other than YOUR greed, and I hate to refer to it as the values, 'cause surely it is not. Never mind that our lives are so over regulated by government and foreign corporations. Canadians lost individualism and identity and are no longer responsible for their own actions. The government is now. You will criticize Americans when you need to, even laugh at and show your sympathy when need markets for your exports, than it is US who is going to safe you from misery of falling oil prices.

  • lynda on 2015-03-27 3:25:33 PM

    Canadians are fooling themselves by thinking we are "special snowflakes" & our prices are justified for real estate. this boom is nothing more than access to cheap money & it shows in how over extended canadians are. The banks are making huge profits as the tax payers will be on the hook when CMHC can't cover the losses. Get real, we are going down in a serious way when interest rates rise. We are a greedy nation obsessed with housing. Sad

  • Vic on 2015-03-27 4:02:25 PM

    I hope he is wrong... but I am not sure he is wrong.

  • Vic on 2015-03-27 4:02:27 PM

    I hope he is wrong... but I am not sure he is wrong.

  • Michael on 2015-03-27 5:03:30 PM

    I lived in the USA from 2005-2010, now live back in Vancouver. It's not different this time, it's exactly the same. I work in the resource industry, and a lot of guys work in Ft. Mac and airplane commute back to BC where their home and family reside. Now they are laid off, and in at least one case a friend of mine has put his house up for sale. There is no way to carry his huge mortgage without his six figure Oilsands job.

  • Andrii on 2015-03-27 8:40:59 PM

    We are completely different , like a snowflake . Immigration , skill workers , ha, ha ! Try to get lmo in Alberta ! Keep on dreaming about soft lending !

  • George on 2015-03-28 10:41:57 AM

    Well, most people are upset when they hear something like this, but they should've drawn their conclusions from US housing colapse back in 2008.
    It seems real estate investment is not such a good idea after all....

  • Jeff on 2015-03-28 5:59:01 PM

    Our real estate values got corrupted when Chinese mob decided to offshore dirty money in to Canadian real estate. It must have been more beneficial strategy than perhaps tax responsibility of their own income tax system or profits from illicit activities. It is our own government that decided to turned blind eye on these criminals and corrupted government officials and so called "businessmen" that drove prices of our houses to these unrealistic levels. Check this article and I am sure that there is more to come.

    http://www.vancouversun.com/news/alleges+Metro+Vancouver+homes+were+part+scheme+launder+money+embezzled+China/10926774/story.html

  • Joe Davidson on 2015-03-30 11:51:32 AM

    House prices falling? I just heard that it's a seller's market. Then I hear elsewhere it's set to fall by 50% Why is there never a consistent agreement on these things? http://vancouvertownhouse.ca/blog.html/vancouver-real-estate-shifts-to-sellers-market-3670984

  • adam markoff on 2015-04-11 2:19:03 PM

    Thats right canadians keep accumulating more and more debt.

  • anthony on 2015-04-24 6:41:26 PM

    You can bet your life that the shit is going to hit the fan and when it does all the builders stop building,the phones stop ringing, wall streeters short the banks and wipe them out, people stop spending,stocks will crash people will pull what little money out of banks. So stop dreaming and sell now

  • Ian - Ontarian on 2015-05-24 3:09:09 PM

    Unfortunately, oil is not "bouncing back" this time. Fracking is much cheaper than oil sands. Fracking is now doing to oil, what it did to natural gas. It's not just loss of oil jobs. There has been a steady erosion of manufacturing and natural resource jobs too. Also, even a "soft landing" in housing would cause major job losses. We are lowering interest rates, to forestall the burst. We cannot prevent it.

  • Joe Slater on 2015-06-29 8:53:07 AM

    Poloz said "Canadian housing is not over-valued". A few months later, "It's over-valued by about 10%." Then later,"It's over-valued in some markets by as much as 30%, but we expect a soft landing." He also said Canada does not have to follow the U.S. in lockstep when they raise interest rates. That's true, if we want a 50 cent dollar. Prediction: Canada will experience the worst economic crisis in its history when the U.S. normalizes interest rates. The longer it takes for the U.S. to normalize, the worse it's going to be, because all the talking heads are pushing the "soft landing" theory for Canada instilling greater confidence in those buying million dollar homes in T.O. and Vancouver. The U.S. housing market crumbled in 2008 based on people being given mortgages they couldn't afford and the spark was Ben Bernanke raising interest rates to 5.5 % in 2007. The mortgage resets started happening a year later and people experienced a doubling of their monthly payments. It doesn't matter that we have a different economy or banking system than the U.S., the result will be the same, and the trigger will be U.S. interest rates. When that happens, there will be several Cdn banks asking themselves if 8 or 9% capitalization is enough. If you have a mortgage that consumes 45% of your disposable after-tax income and the mortgage payment doubles in one or two years, the only result will be a "for sale" sign on the lawn. The commenters who are taking the author of this article to task are probably living in denial. Good luck to them. Most of them are not old enough to remember the real-estate crash of the 1980's. Some of them are guilty of crowd think. Others have the opinion that if it all goes belly-up, the gov't will bail them out. My good friend used to ask me, "What's happening to my stock? You buy a stock and it goes up, isn't that how it's 'sposed to work?" A laughable philosophy when investing in stocks but one that people readily accept as the paradigm for housing. Anything else just doesn't fit into the equation. That's how crashes happen. The unexpected, the unwanted happens. Canadians can watch blithely as a dozen other countries experience the same crash and think that it won't happen to us. It reinforces my outlook that arrogance is the failing of man, and that the average Canadian is about as arrogant as any other citizen of the world.

  • commonsense on 2015-07-07 7:56:06 PM

    Some thoughts.

    In Canada I don't think homeowners can walk away when the value of the house is less than whats owing on the mortgage. So we may stay flat or a long slow grind down - until salaries catch up to prices. Homeowners are still on the hook for the $, whereas in the states they could walk away from any shortage in the sale VS whats owing.

    2) The Canadian govt can not increase rates as too many people will not be able to pay their mortgages and will impact economy negatively. Therefore, more likely they let the dollar slide to 50 cents. Most people don't think about dollar only home prices.

    3) Longer term the cost of many things will go up ( inflation ) due to low dollar.

    Comments?

  • Ian on 2015-07-08 7:31:46 AM

    What does it matter whether or not Canadians can "walk away"? I hear this quoted all the time as the reason why Canada's market won't crash. If somebody can't pay, they can't pay..they default! Then the bank owns the house. The bank will sell the house and sue the mortgage owner for the difference. Yes, either the homeowner (or the taxpayer) is still liable for the difference. However, the house still gets sold, putting downward pressure on the market, when it finally turns.

  • Ian on 2015-07-08 8:45:33 AM

    $50 oil is the new norm. An no, our housing market is not doing great. For every seller reaping a great price, there is a buyer who ever paid. This is a tax on our economy and our future.

  • Ian on 2015-07-08 8:52:23 AM

    How can millennials be expected to foot the bill for boomers health care costs, government pensions, etc over the next 25 years, when they have to pay crippling prices for a house? Something is going to give.

  • Dan on 2015-07-27 11:10:35 PM

    What people don't realize is that if your house value drops by 40% and its time to renew your mortgage, your not going to get a 3% renewal rate regardless of where interest rates are. It's because your mortgage will be partially in collateralized. You know what else is in collateralized is your credit card. Did credit card rates go down? Nope. So get ready to pay 10-12% interest on your mortgage. It's going to happen, especially to the ones with no equity in their home.

  • joe canadian on 2015-09-03 7:24:00 PM

    A lot of good comments. I think the writing is on the wall. Predictions from economists like Martin Armstrong almost seem unavoidable. The Canadian economy will turn ugly when US interest rates start to rise. Poloz has no choice but to hold rates and let the dollar tank until inflation takes over. Either way were screwed.

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