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It's worse in places like Vancouver - there the ratio is over 10 (!) for single-family homes and about 8x for all residences.



Canada is in for a housing bust WORSE THAN OURS.

I have been to Vancouver several times. The bubble there makes the Florida and Las Vegas bubbles look like pimples.

Vancouver is a nice city and has some nice mining and oil resources pretty close by. But I hear the same attitudes there "This place is different", "This is a new plateau for housing", "My House is my retirement" and "Everyone wants to live here".

It is going to be SUCH a crash.

And it is going to take the Canadian Banks (rated SAFEST in the world) down with it.

I always wanted a Canadian villa.

Anybody got a title insurance, homebuilder, mortgage broker play whatever?

I lived in California during the bubble blowing years. The feeling towards housing and the general economic future here is the same crap that it was there.

By any metric I see, Canada's bubble is worse than it was in the U.S at the American bubble peak.

Also, keep in mind that due to the difference in tax benefits on mortgage interest, the full recourse nature of Canadian mortgages, and the fact that Canadian mortgage rates are not fixed for the life of the loan........Canada's house prices have historically been significantly lower than those in the U.S. as compared to income...........until recently, I suppose.

The other interesting thing I see in respect to Canadians mentality towards housing and their economy, is that the "average" Canadian is now almost as stupid and arrogant as their "average" American counterparts. Crazy times.

Vancouver BC is a nightmare to drive through. All surface streets, no main drags, Mostly a mix of residential homes and storefronts... multiple turns required to get from one freeway to the next, with signage at a minimum.

Withoug a GPS, add a minimum extra hour to get through the City from South to North, to make it to Whistler.

Yup, as I mentioned in the Breaking thread about the BNN announcement, not many think a couple years into the future about the 'rollover'. You don't get a 30 year fixed rate for a mortgage here. 3-5 years fixed rate is typical, though you can get slightly longer. But at the end of that term you have to get a new term for the remainder of your principal at whatever rates are at that time.

Alternatively, you can get a "variable" rate a couple points above the BoC rate (currently 0.25%). But, when rates go up, you pay more in interest.

In either case, its all about what you pay TODAY, and people figure they can fit it into their household budget. Individual Canadian's debt (as well as government) is still increasing and our economy is heavily tied to the prosperity of the US economy.

But who wants to think about the future, its all about the now, after all.

Kind of cold for the future homeless up there.

3-5 year "rollover" sounds like option ARM to me.

(Very nice interview on BNN.)

Ummm... 4.6x is bad? I think we have 7x down here, at least according to Steve Keen. Looks stable, has me confused to high hell. Some people get it when I talk about exponential growth and housing, but... others think that housing is awesome regardless. Say they have this awesome wealth management thing, diversified between housing and shares, 70% gearing in shares, 80% in housing...

Also, it's totally impossible to fix for more than 5 years on a home loan here. It's just not an offered service. Typically, people fix for 3 to get some measure of safety...?

Very impressive interview Karl.

And it is nothing short of amazing how much more open-minded the Canadian journalists are. Nothing short of amazing. Very clearly contrasted the CNBC style of idiocy.

Why is it the Canadian market doesn't have a 15- or 30-year fixed?

John

Whoa whoa whoa! Let a Canadian who has bought and sold a number of investment and single-family houses over the last few years give some perspective here.

First of all, I can tell you with some definite knowledge that there have been fraudulent representations made as to income and assets of borrowers, just like in the US. From simple undocumented claims (oh I also own a Lexus and $50K stock portfolio) all the way to forged documents. I saw this stuff happening a couple years ago.

Now before we go any further, this seems to have been curtailed a fair bit. The banks are requesting more and more documentation and are asking for "originals" of tax papers, etc. There is just a lot more verification of income now. Appraisals are done in many many cases and those appraisals are at least based on a modicum of real sales data. It isn't pie in the sky like California appraisals seem to have been.

Downpayments: You CAN get a loan with little or no down payment. But it is hard and expensive. Your average bellboy/McDonalds employee will not be able to use this as they could have in the US. Not without serious income misrepresentations which as I said are not sliding as they may have earlier. Most no money down situations are going to be "2nd home" investors who will rent the place out. Vacancy is pretty low throughout most urban areas of Canada as far as I know. Cap rates are tight - you have to be very aggressive and creative to be cash flowing much. But having said that, it is pretty easy to at least cover expenses through rental income. With real mortgages, with real payment schedules, at least you truly are paying the thing down. The minimum down payment is 20% - or you have to purchase expensive mortgage insurance.

Mortgages: there are more 35 year amortization mortgages being issued and I think people are using this in greater quantity. I'm sure the majority are still 25 year amortized. We don't have any sort of Option ARM type loans that I have heard of. Mortgage rates are very low (probably the main reason RE is holding up right now). I have a large mortgage locked in at 3.89% for 5 years.

Now I'm no perma-bull. I downsized my RE recently and now simply own a nice home for my family - no side properties anymore. There are some pressures going forward. Rates are going to come up at some point. In Toronto last year we got a new land transfer tax which (for example) made my tax on buying a normal house (for Toronto) around $20,000. Our water rates have gone up, yearly property tax rates have gone up, and now we have to pay additionally for garbage service throughout the city. Cap rates are low now but like mortgage rates that can change fast. Our economy is doing alright right now, but is correlated quite a bit to the US and could get pulled off the cliff with you guys (if the **** hits the fan).

At the same time, you have to keep in mind Canada is a great country to live in (lived in the US and Canada and Canada is just a lot nicer for a lot of reasons, no offense, I like the US a lot too). We apparently have the soundest banking system in the world (or way up there) and we have an ok job picture currently.

Is it possible for a property to have a negative value?

I mean if somewhere was unsellable at a price of zero, and it was liable for taxation of some sort.

Then it might be worth paying someone to take it from you.

I guess that could explain the graph with negative ratios.

Unless of course some people are paid to work. Wasnt there a Woody Allen film where he had a job dressing and undressing strippers?

I recall the conversation went something like, "Ten Dollars a week for this job, that is really low!"

"It's all I could afford".

That too might explain a negative ratio.

Yes, a very well done interview, on both sides.

Imagine, letting someone speak their entire thought without interruption.

Templar,

I'm guessing that in a "normal" world without massive securitization scams, it may not be smart for a bank to guarantee too long of a term given that interest rate environments can swing wildly over long periods of time. Or that shorter maximum terms force periodic resets of the mortgage markets to prevent such bubbles from forming (?? maybe not ??).

Oxfordrick

The vast majority of mortgages are insured by the Canadian Mortgage and Housing Corporation - a federal gov agency. Others and I have some links and graphs about it here.
http://tickerforum.org/cgi-ticker/akcs-w....

Here is what you have to know:

- The CMHC allows any bank to provide a 5% down / 35 year amort mortgage to pretty much anyone. That mortgage must be CMHC insured and the mortgage gets turned into an MBS where the CMHC takes the hit on default. Canadian banks don't take the hit on mortgage defaults, the federal gov does through CMHC.

- We see exponential growth of CMHC-insured losses in the last 4 years.

The point is this:
The CMHC blowing up is a mathematical certainty. That loss will end up on the books of the federal government. It could reasonably double the federal debt by 2012 (guesstimate)

I think the best way to express that bet is a short on the CAD$. Shorting banks is sensible, but then who knows what the gov will do to keep them afloat. Sadly, the notion of a housing bubble might be such a stretch for the Canadian mind that sheeple might feel sorry for bankers caught in a credit collapse in 2010!!!

Oh I should add, great interview Karl. Here at work we sometimes have BNN on but often the guys put it to CNBC. What a joke. The strangest part of CNBC to me is all the graphics flying around in every direction. It's like watching ESPN or some crazy videogame.

Sometimes I run up to the tv and point at one that is completely superfluous and ask the room if anyone can tell me what the heck this rotating triangle here has to do with anything. Maybe I'm the only one who thinks it's funny - I usually just get blank stares back.

Whoever does production for CNBC needs to be shot.

The practice of putting an interviewee's mugshot on a floating flat-screen TV and then panning and tilting it around while they're talking is one of of the "first sins" you're taught NOT TO DO when producing material. "Busy for the sake of busy" simply distracts the viewer from the material being presented.

Distract viewers? That wouldn't be something they want to do on purpose while Cramer's last pick slides by the bottom of the screen down 6%...

I've been wondering for some time WTF was going on in Canada; thanks for shedding some light, Gen.

My wife and I like to watch those "House Hunters" and such shows on HGTV, and many of them take place in Canada. Even recent shows have been featuring what I always thought to be utterly absurd prices and behavior on the part of buyers.

Now I know why.

Maurevel - bang on.
Karl i'm glad they finally had you on, I put in a number of requests about a year ago to get you on there.

You really should look into the CMHC thing, it could definitely warrant a ticker. It's basically like fannie and freddie but it is explicitly backstopped by the federal gov't. I don't have backup at the moment, but I've heard numbers tossed around of $500 billion in mortgages guaranteed with $8 billion of capital. This also ties into the insurance ticker you did a few days ago very well.

Canuck, $600 billion, recently increased from $350 billion.

Oxfordrick, a couple of ideas here (a decent blog to read back on regarding the real estate situation).

http://www.howestreet.com/articles/index....

edit: source blog is here:

http://www.greaterfool.ca/

Canada also has several publicly traded REITs (mostly commercial property).

Sondog, thanks for the balance.

I'm going to Vancouver this weekend. Is there anything I should look out for?

A mushroom cloud.