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Canada’s housing market is the most expensive in the world – 60% overvalued by historical standards – and one simple reason explains it.
As the original title of this article* from advisoranalyst.com suggests, “Did Canada Just Pop Its Housing Bubble?” that just might be the case. [The following is presented by Lorimer Wilson, editor of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]The article goes on to say in further edited excerpts: Home Price to Rent & Home Price to Income by Country Comparisons Up until now Canada has been very open to foreign investors, which means that in an age of unprecedented global liquidity cash-rich wealthy individuals who are looking for places to park their excess funds can do so in its housing market. That is about to change, however, with the Canadian government announcing that it is scrapping its controversial investor visa scheme, which has allowed waves of rich Hongkongers and mainland Chinese to immigrate since 1986. Click on X to see table:
U.S. & Canada Home Price Index Comparisons Canada’s home price index hardly missed a beat over the past dozen years while the U.S. home price index plunged… (different scales but point is to illustrate drastic difference when financial crisis started – and where the liquidity went). Click on X to see chart:
Canadian Investor Visa Scheme Scrapped According to the South China Morning Post, “46,000 Chinese millionaires in the queue (out of a total of 59,000) will reportedly have their applications scrapped and their application fees returned. The decision came less than a week after the South China Morning Post published a series of investigative reports into the controversial 28-year-old scheme…revealing how the scheme spun out of control when Canada’s Hong Kong consulate was overwhelmed by a massive influx of applications from mainland millionaires. Applications to the scheme were frozen in 2012 as a result, as immigration staff struggled to clear the backlog. Under the scheme, would-be migrants worth a minimum of C$1.6 million (HK$11.3 million) loaned the government C$800,000 interest free for a period of five years. The simplicity and low relative cost of the risk-free scheme made it the world’s most popular wealth migration program… The Immigrant Investor Program, which has brought about 185,000 migrants to Canada, was instrumental in facilitating an exodus of rich Hongkongers in the wake of the 1989 Tiananmen massacre and in the run-up to the handover. More than 30,000 Hongkongers immigrated using the scheme, though SAR applications have dwindled since 1997. In Search of a Soft landing The Canadian government is looking a liquidity-splurging gift-horse in the mouth and saying “no, thanks” – an impressive decision to take given the potential weakness in the real economy. We’ll see how long it takes for the decision to be unwound or altered. [Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]*http://www.advisoranalyst.com/glablog/2014/02/13/did-canada-just-pop-its-housing-bubble.html (Copyright 2007 – 2013 AdvisorAnalyst.com / All rights reserved) Related Articles: [Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.] 1. Is a Real Estate Bust Coming to Canada – Finally? 
The Canadian housing market is headed for a significant bust, in my view. It’s going to be a repeat of the 2008 mortgage bubble deflation. Only it’s happening to the north. People will lose a lot of money but those who understand and are properly positioned may gain fortunes. Read More » 2. Canadian Debt-to-Income Ratio Has Entered the Danger Zone! Is a Housing Crash Imminent?  The Canadian ratio of debt to income hit 163.4% in the second quarter, up from 161.7% at the end of last year, according to figures released Monday by Statistics Canada. That’s the highest ratio of debt to income ever recorded in Canada, and more inflated than the levels witnessed in the U.S. and Britain before their housing market collapses in the mid-2000s. Words: 625 Read More » 3. Canada Could Be Developing a Minsky Moment In Real Estate – Here’s Why According to the Case-Shiller 10-City index Canadian house prices only appreciated by 84% between 1990 and 2006 compared to 181% in the U.S.. However, as U.S. prices plunged by almost 33% between the peak in April 2006 and the trough in May 2009, the chart below shows that Canadian home prices continued to rise, driven by very low interest rates and relatively benign unemployment. By July 2012, they had reached similar heights as U.S. prices before their decline and fall. I believe that house prices and consumer debt levels are overextended in Canada and that a “Minsky-moment” may be developing in Canadian credit markets. [Let me explain why I have come to that conclusion.] Words: 1892 4. Still NO Housing Bubble in Canada – So What Will Cause Prices to Finally Correct? Canada’s housing prices continue to escalate [there has been no housing collapse as there has been in the U.S., Spain, U.K., Australia and elsewhere over the past 4-6 years] but concern is rising as to whether they are now, finally, ‘in a bubble’ and about to correct either modestly or severely. This article discusses what would cause a change in direction in Canadian housing prices. Words: 500 5. Will Canada Soon See a 20-30% Correction in House Prices? Canadians are becoming increasingly vulnerable to a housing correction, exposing them to a perfect storm of high debt and falling assets, the Bank of Canada warns…suggesting that many Canadians have constructed their finances on a house of cards, with ever rising home values the key and vulnerable support. [Sound familiar?] Words: 770 6. Housing Collapse Coming to Canada? House Price-to-Rent Ratios vs. America’s At Peak Suggest So The ownership premium in Canada’s largest cities is unprecedented, dangerous to new buyers, and unlikely to persist – and if analogies to the U.S. situation at its peak back in 2005 are at all valid, this is bad news. [Let me explain.] Words: 430 7. American/Canadian Home Price Performance Comparisons by Major Cities The following charts indicate relative performance of US home prices in Phoenix, Los Angeles, San Francisco, Chicago, Las Vegas, New York and Miami to Canadian home prices in Vancouver, Calgary, Toronto, and Montreal. US home prices are reflected in Canadian dollars for comparison purposes. Words: 240 8. Unlike the U.S and U.K, Canada’s Home Prices Are STILL Rising! Canada, France and Switzerland stood alone among nine markets measured in recording annual price gains, based on second-quarter data, with inflation-adjusted price increases of 5%, 5% and 4%, respectively, compared to declines of 6% in the U.S., the U.K. and Australia, 10% in Spain and 14% in Ireland. In fact, Canada’s home prices have escalated 44% since 2005 – with a high of 68% in Vancouver – and they are up 7.7% in the past 12 months! Words: 1244 9. Are Surging Home Prices in Canada Finally Due For a Major Correction? Given the global economic backdrop, and in particular the sharp correction in energy prices to which Canada is highly exposed, the risks of a Canadian housing correction are rising. Home prices, which corrected about 10% during the recession, have surged again, making household balance sheets look increasingly fragile. Economists are becoming concerned. [Should Canadians be worried too? Let’s review the situation.] Words: 280 Read More » 10. Your House: A Home, An Investment or a Ponzi Scheme? In the past few decades, the concept of home ownership has been completely turned on its head. Previously, homes were considered a very long-term consumption good…[No one] ever considered tripling the value of their homes by retirement time and selling them to move beachside yet, somehow along the way, this became a reasonable investment expectation. Even today, home buyers still make their purchases with the hopes of escalating prices. [It begs answers to these questions: Is a house just a home? Should a house be expected to behave like an investment? Is the housing game nothing more than a Ponzi scheme where the end buyer before the market corrects becomes the “greater fool”? Let’s try and answer those questions.] Words: 935 Read More »
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