1. The total outstanding volume of residential mortgage credit has expanded by a whopping 18.4% over a year and a half. This is an INCREDIBLY large number if one pauses to think about it.
2. 86% of those polled are NOT expecting any kind of drop in housing prices.
So in other words the increase in real estate prices has been supported by a spectacular increase in residential mortgage debt, without a corresponding increase in incomes.
What they don't say in the report is that at some point this trend will have to reverse.
1. Canada is going where the US has recently been. Our ~1.5 year lag is very apparent in some of the comparison charts.
2. I'm surprised how low our mortgage arrears numbers are. Even if they more than double, we're still just in mid-90s territory, which wasn't good for real estate, but wasn't terrible either.
2006 US housing starts: 2,000,000/year 2006-2008 Canada housing starts: 240,000/year Canada/US population ratio: ~ 0.11
So roughly the Canadian housing starts match 2006 US housing starts per capita. We now know that US has a massive oversupply due to overbuilding.
Now the question: Is the Canadian population growth/housing formation so much higher than in the US? Does anybody wonder what we are going to do with all this new housing?
In 2006 when the arrears started increasing everybody said they are coming from historically low rates. No worries. Look what happened in the following two years. Arreares are unlikely to increase before the prices peak (you can always sell at a profit), but when they do, all hell can break loose, as it actually happened in California.
1. Growth of mortgage credit in Canada is now close to what the peak was in the US. (see graph on page 7)
2. Stark difference in sentiment between Alberta and BC on the question "To What Extent Do You Think Housing Prices in Your Community Will Go Up or Down in the Next Year?" (page 12) shows that price trends matter.
3. Mortgage arrears (page 26) are freaking low. As a comparison here is San Diego's arrears, courtesy piggington. Food for thought.
What the heck is Rennie going on about. Housing affordability is not the same as real estate affordability.
The $500/sq.ft. new condos in "Coquitlam, Surrey, Port Moody, Port Coquitlam or Burnaby" are not taxing local incomes because people can choose not to buy them, and judging by the current market, that's what they're doing.
He says putting IKEA finishes in instead of granite and stainless steel will decrease price of these condos by 25%. So they're now $375 sq. ft. That's affordable? I don't know where to begin with that one.
Rennie, stick with your condo marketing. "Social housing" is not your area, stay out of it.
And don't worry, Rennie, the market will correct itself without your help.
2. Errors and omissions insurance just in case the guy who makes the application makes a "mistake" or he cannot remember what the appraised value of the home was worth even though you just told him.
I just put up the mortgage arrears for Alberta as a comparison to price. Very similar to the data that Mohican had published awhile ago. Mortgage arrears only started increasing in Alberta after house prices peaked in mid 2007. I anticipate mortgage arrears to start climbing back to historical cyclical averages of 0.4% (or worse) depending on how bad the down cycle is.
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ReplyDelete1. The total outstanding volume of residential mortgage credit has expanded by a whopping 18.4% over a year and a half. This is an INCREDIBLY large number if one pauses to think about it.
ReplyDelete2. 86% of those polled are NOT expecting any kind of drop in housing prices.
So in other words the increase in real estate prices has been supported by a spectacular increase in residential mortgage debt, without a corresponding increase in incomes.
ReplyDeleteWhat they don't say in the report is that at some point this trend will have to reverse.
I guess the report just happened to leave out the fact that there is unprecedented supply in the Canadian market at the moment.
ReplyDeletehttp://www.cbc.ca/money/story/2008/05/14/realestate.html
2 things popped out at me:
ReplyDelete1. Canada is going where the US has recently been. Our ~1.5 year lag is very apparent in some of the comparison charts.
2. I'm surprised how low our mortgage arrears numbers are. Even if they more than double, we're still just in mid-90s territory, which wasn't good for real estate, but wasn't terrible either.
Another interesting fact from the report:
ReplyDelete2006 US housing starts: 2,000,000/year
2006-2008 Canada housing starts: 240,000/year
Canada/US population ratio: ~ 0.11
So roughly the Canadian housing starts match 2006 US housing starts per capita. We now know that US has a massive oversupply due to overbuilding.
Now the question: Is the Canadian population growth/housing formation so much higher than in the US? Does anybody wonder what we are going to do with all this new housing?
Warren, regarding mortgage arrears, I don't know if you followed Calculated Risk. Take a look at the graph on this page:
ReplyDeletehttp://tinyurl.com/5n467r
In 2006 when the arrears started increasing everybody said they are coming from historically low rates. No worries. Look what happened in the following two years. Arreares are unlikely to increase before the prices peak (you can always sell at a profit), but when they do, all hell can break loose, as it actually happened in California.
Point taken. It seems like a lot of stats are like that: nothing is obvious until its already here.
ReplyDeleteEven our current inventory runup. Survey says it should lead to price drops, but we won't be sure until it is already happening (too late).
Agree with rentah, to add:
ReplyDelete1. Growth of mortgage credit in Canada is now close to what the peak was in the US. (see graph on page 7)
2. Stark difference in sentiment between Alberta and BC on the question "To What Extent Do You Think Housing Prices in Your Community Will Go Up or Down in the Next Year?" (page 12) shows that price trends matter.
3. Mortgage arrears (page 26) are freaking low. As a comparison here is San Diego's arrears, courtesy piggington. Food for thought.
More denial from Scotiabank and CMHC
ReplyDeletehttp://tinyurl.com/6ptehd
Bob Rennie's solution? Let make condos even smaller!
http://tinyurl.com/6cngjs
What the heck is Rennie going on about. Housing affordability is not the same as real estate affordability.
ReplyDeleteThe $500/sq.ft. new condos in "Coquitlam, Surrey, Port Moody, Port Coquitlam or Burnaby" are not taxing local incomes because people can choose not to buy them, and judging by the current market, that's what they're doing.
He says putting IKEA finishes in instead of granite and stainless steel will decrease price of these condos by 25%. So they're now $375 sq. ft. That's affordable? I don't know where to begin with that one.
Rennie, stick with your condo marketing. "Social housing" is not your area, stay out of it.
And don't worry, Rennie, the market will correct itself without your help.
OK....let me see,
ReplyDelete1. I had too many "waffles" yesterday,
2. Errors and omissions insurance just in case the guy who makes the application makes a "mistake" or he cannot remember what the appraised value of the home was worth even though you just told him.
CALIFORNIA.....here I come!
Hey, what can I say.
ReplyDeleteMistakes can happen.
DO YOUR OWN RESEARCH.
Let your imagination run completely wild.
ReplyDeleteVery, very serious trouble ahead?
I just put up the mortgage arrears for Alberta as a comparison to price. Very similar to the data that Mohican had published awhile ago. Mortgage arrears only started increasing in Alberta after house prices peaked in mid 2007. I anticipate mortgage arrears to start climbing back to historical cyclical averages of 0.4% (or worse) depending on how bad the down cycle is.
ReplyDeleteAlberta mortgage arrears on the rise