Garth Turner - Real Estate in Canada

[mcliu]

http://www.theglobeandmail.com/report-on-business/top-business-stories/bc-ontario-2-frothy-housing-markets-3-stats/article29070884/

I wonder how much of it is because of speculating and builders building inventory financed by credit. Credit continues to grow faster than GDP even though private debt is now = 100% of GDP for the first time.

I wonder about that too. It just seems like the housing market is too big for foreign capital to have such a big impact. Too bad there's no data on this.

I was looking at this BBC article on Australian housing: "Last year Chinese buyers spent a record A$12bn on Australian property, boosting house prices at a time when locals were already feeling anxious about the rocketing cost of property."

http://www.bbc.com/news/world-australia-35601102

Not sure if that's accurate, but if it is, then it's tiny compared to Australia's outstanding housing-related debt of $1.5 trillion. The growth in housing credit (7.6%) last year or $108 billion is significantly higher than the $12 billion of Chinese buyers.

http://www.rba.gov.au/statistics/tables/xls/d02hist.xls?v=2016-03-09-11-13-12

[JBTC]

http://www.theglobeandmail.com/report-on-business/top-business-stories/bc-ontario-2-frothy-housing-markets-3-stats/article29070884/

I wonder how much of it is because of speculating and builders building inventory financed by credit. Credit continues to grow faster than GDP even though private debt is now = 100% of GDP for the first time.

I wonder about that too. It just seems like the housing market is too big for foreign capital to have such a big impact. Too bad there's no data on this.

I was looking at this BBC article on Australian housing: "Last year Chinese buyers spent a record A$12bn on Australian property, boosting house prices at a time when locals were already feeling anxious about the rocketing cost of property."

http://www.bbc.com/news/world-australia-35601102

Not sure if that's accurate, but if it is, then it's tiny compared to Australia's outstanding housing-related debt of $1.5 trillion. The growth in housing credit (7.6%) last year or $108 billion is significantly higher than the $12 billion of Chinese buyers.

http://www.rba.gov.au/statistics/tables/xls/d02hist.xls?v=2016-03-09-11-13-12

mcliu,

I think two factors may help you understand the numbers cited better.

1) The Chinese buyers mentioned here could be foreigners buying only. Once you become a citizen/resident, you are likely counted as domestic buyers.

2) Roughly half of the Chinese population in Australia live in Sydney. So their buying is very concentrated and has a large impact to the local market. Sydney prices are far away the most expensive in Australia and serve as the most important guidepost for the overall Australian market.

[Liberty]

I thought it was interesting that the average new detached home in the US is about 400 square-feet larger than the average new detached house in Canada. Another thing to keep in mind when comparing prices.

http://www.demographia.com/db-intlhouse.htm

[wisdom]

I bet US house prices aren't rising by $100k each month unlike Vancouver either. In some cases, this is happening in a day.

I love it when people say this is expected.

[Liberty]

Prem Watsa in the recent Fairfax letter:

As we have said a few times before, the collapsing commodity prices will not spare Canada. Canadian housing prices, particularly in Toronto and Vancouver, have gone up significantly, driven by lax policies at CMHC (Canada’s equivalent to Fannie Mae and Freddie Mac). Canadians have accessed their increasing real estate wealth through lines of credit easily available from the banks. Sounds familiar? This is exactly what happened in the United States before the financial crisis in 2008/2009. If history is any guide, this will reverse and we continue to be shocked at the massive debt levels incurred by young people (below 45 years old), with no financial buffer against hard times as the C.D. Howe report, Mortgaged to the Hilt, shows.

[alertmeipp]

I bet US house prices aren't rising by $100k each month unlike Vancouver either. In some cases, this is happening in a day.

I love it when people say this is expected.

not only expected, but expected for the foreseeable feature.

[Liberty]

Thought this was interesting. According to the Canadian Real Estate Association (not exactly a transparent organization, but still), the average house in Canada was $470k as of January 2016.

http://www.crea.ca/housing-market-stats/national-average-price-map/

Van and Toronto are really driving it, though:

http://www.cbc.ca/news/business/housing-crea-january-1.3449838

According to Statscan, the median household income in 2013 was $76k (or about $38k per person if you assume two earners).

Median house price in the US seems to be around $185-215k depending on the source.

[JBTC]

Thought this was interesting. According to the Canadian Real Estate Association (not exactly a transparent organization, but still), the average house in Canada was $470k as of January 2016.

http://www.crea.ca/housing-market-stats/national-average-price-map/

Van and Toronto are really driving it, though:

http://www.cbc.ca/news/business/housing-crea-january-1.3449838

According to Statscan, the median household income in 2013 was $76k (or about $38k per person if you assume two earners).

Median house price in the US seems to be around $185-215k depending on the source.

So A does not equal B. I don't see anything interesting so far.

Where is the analysis? Can you arbitrage?

Economists call housing nontradable goods for a reason.

[JBTC]

Prem Watsa in the recent Fairfax letter:

As we have said a few times before, the collapsing commodity prices will not spare Canada. Canadian housing prices, particularly in Toronto and Vancouver, have gone up significantly, driven by lax policies at CMHC (Canada’s equivalent to Fannie Mae and Freddie Mac). Canadians have accessed their increasing real estate wealth through lines of credit easily available from the banks. Sounds familiar? This is exactly what happened in the United States before the financial crisis in 2008/2009. If history is any guide, this will reverse and we continue to be shocked at the massive debt levels incurred by young people (below 45 years old), with no financial buffer against hard times as the C.D. Howe report, Mortgaged to the Hilt, shows.

Just some blogger's data. Overall debt doesn't appear to be high. But there may be an issue with debt distribution as Watsa seems to suggest.

"Table 3 sets out some basic parameters by which to judge the vulnerability of the housing market from the perspective of household wealth. In the past 12 months, households' net worth to disposable income has increased by more than 2%. At the same time, debt-to-assets remain constant at a very low level of 17%. And, most importantly, owner's equity in their homes remains constant at 73%, indicating that homeowners have amassed a considerable amount of equity. Hence, there is an adequate buffer within the household sector, providing stability in the housing market."

http://soberlook.com/2016/03/canadas-changing-financial-landscape_13.html

[bizaro86]

If net worth to income is up, and debt to assets is constant, its necessary that debt to income is up as well. Debt servicing to income might not be since interest rates are down, but that makes any shock from rising rates worse.