I know I’m nearly alone in my view that Canada’s housing market is in a huge bubble, which will soon burst, just like the American housing market did two years ago. I’ll leave the details of my argument to another time, but for the moment, let me point readers to a press release I recently received, from Greater Homes, the people selling the Glen Arbour subdivision in Hammond’s Plains, a suburb of Halifax.
People that tour our model homes at the Knolls of Glen Arbour pretty much always make the same comments… WOW, this is a lot bigger than it looks! Or… Who is your interior decorator! Or… I will buy one when I win the lottery!
Let me address each one of these comments one at a time. 1.) Yes our homes are bigger than they look! They were designed to have minimal impact on their natural surroundings and to maximize their interior space through an open floor plan concept. 2.) If you like the model home finishes we will hook you up with our interior designer. It’s one of the perks of buying in our project. 3.) Our houses are not expensive! If you compare apples to apples you are going to see that we offer a unbeatable deal. The surrounding communities are not even close to being comparable and have much less to offer in terms of lifestyle and quality. You get what you pay for in life and this is no exception. Another way to look at this equation is to analyze what this will cost you each month versus what the total purchase price is. Currently if your credit score is above 600 you could qualify for a variable 1.75% interest rate over a 35 year amortization which would bring your monthly mortgage payment on this particular property to $1,273 per month. This is very affordable considering that the market rent for this particular home is $2,200 per month. On top of the low mortgage payment our property values have already increased by $30,000 so far this year and are projected to increase by at least another 30k by year’s end. At the moment interest rates are incredibly low and you can still purchase a property with either 5% down or in some cases even 0% down. This will all change very soon! So the more you talk yourself out of making a purchasing decision the more it will cost you later. So even if you did win the lottery it makes more economical sense to use the banks money to leverage your buying power than it would be to tie it all up in one property that you may not live in for the rest of your life. Not very many people left these days that stay in one place longer than 7 years.
So maybe your credit score is below 600 and currently you do not qualify on paper for a bank mortgage. Our lease to own program gives you 1-3 years to get all of your finances in order all while accruing equity by locking in the purchase price. All of our homes come with unfinished full walk-out basements which can be custom finished to suit your lifestyle and paid for later through the mortgage. We still have several that are in the final stages of construction where you can pick out all of your interior finishes. As an added incentive to purchase sooner rather than later we will hold your first years rent back to use towards a down payment or discount the purchase price. In addition you will NOT have to pay HST and during the first year you will NOT have to pay property taxes. So essentially you could live in this new luxury home free during the first year. Do you know anybody that can beat this lease to own deal? I know I can’t find anyone in Nova Scotia who can! The only catch is that you need to have the annual income to qualify for your eventual mortgage, be able to afford the monthly rent of $1,800 to $2,000 per month and be able to come up with a 5% deposit. Think of the deposit as your good faith effort to show that you intend to purchase. You get it back anyway when you do.
This has all the indicators of a bubble at the bursting point. “Our property values have already increased by $30,000 so far this year and are projected to increase by at least another 30k by year’s end”— but we’re not going to hold onto the property for another six months and make lots more money, because we’re an anti-capitalist real estate company, and need to sell these houses now, quickly, because otherwise we might make more money, and that’d be bad.
And you don’t want to be tying up your money in your new house, because you’re going to be flipping it in a few years and getting an even bigger house! So, just figure out the financing, and don’t worry your pretty little head that anything could possibly go wrong. Homeowners never end up upside-down, owing more that the value of their house, because Canadian banks are strong, the tar sands are deep, and Canadians have fine, fine accents. Just not possible here.
I could go on, but you get the point.
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This article appears in Jun 10-16, 2010.
If left-wingers don’t report enough real news to be gloomy about, they make gloomy stuff up. Tim seems particularly gloomy this week.
I’m sorry, but basing a theory of a oncoming bubble burst on one developer’s sales pitch is crappy journalism.
“Tim seems particularly gloomy this week.”
Yeah I noticed, too bad they put up those barriers on the bridge.
I’m more concerned about how the press release propositions a 35 year mortgage as a viable option as well as only 0% or 5% down. That’s what brought down the American market, as well as banks only being able to foreclose for the value of the home, not the mortgage value.
There’s no bubble; the housing market has been flat for the past few years, and while we might see a nominal drop in values in HRM (probably less than 5%), values have gone up in the 25% range since 2000. Bad news for people that have just bought, but in reality, values will catch up.
Check out the mostly empty development in north end Dartmouth where the homes were $239,000 in Oct 2008 and now are much less. The builder must be bleeding money because he is on his 3rd or 4th agent.
Nice houses but lousy location; exposed to the wind , rocks for a garden, and a 2 minute walk to a so -so elementary school.
That Glen Arbour release will infuriate Jim Flaherty because he is trying to stamp out the 0% down and 35 year mortgages.
Anyone who buys a house now is going to suffer later. The affordability index of housing in Canada is through the roof; it is currently cheaper to rent than buy.
Add to this that we are in the middle of the deepest recession since the great depression; Canadians are not receiving cost of living salary increases; Canadians are carrying record debt loads; increase in the perceived value of the Canadian dollar is damaging our manufacturing and commodities exporting businesses; our largest trading partner to the south is heaving its financial guts out and is no longer buying our exports due to the increase in the Loonie, which means higher unemployment in Canada; the unwinding of the baby boomers assets has begun, of which housing is the largest asset; the increase of taxes (HST) and the beginning of the increases to the mortgage rates as seen within the last few weeks.
All this points to the making of a depressed / buyer’s real estate market. Housing will be coming down in price within the next two years; real estate pundits say somewhere between 17% (CIBC) and 35% (David Rosenberg). Don’t listen to realtors if you’re thinking of buying a house, they want to make a commission and if they aren’t selling they don’t make any money. So rent for a couple of years and wait for the housing prices to come down and you will be rewarded when you purchase your house.
For those of you who currently own a house and are thinking of selling put it on the market now, before the correction occurs. Be prepared to take a lower price than you want, but you’ll still be profiting IF you can sell it. Buy low and sell high…now is the time to sell.
Anyone who buys a house now is going to suffer later. The affordability index of housing in Canada is through the roof; it is currently cheaper to rent than buy.
Add to this that we are in the middle of the deepest recession since the great depression; Canadians are not receiving cost of living salary increases; Canadians are carrying record debt loads; increase in the perceived value of the Canadian dollar is damaging our manufacturing and commodities exporting businesses; our largest trading partner to the south is heaving its financial guts out and is no longer buying our exports due to the increase in the Loonie, which means higher unemployment in Canada; the unwinding of the baby boomers assets has begun, of which housing is the largest asset; the increase of taxes (HST) and the beginning of the increases to the mortgage rates as seen within the last few weeks.
All this points to the making of a depressed / buyer’s real estate market. Housing will be coming down in price within the next two years; real estate pundits say somewhere between 17% (CIBC) and 35% (David Rosenberg). Don’t listen to realtors if you’re thinking of buying a house, they want to make a commission and if they aren’t selling they don’t make any money. So rent for a couple of years and wait for the housing prices to come down and you will be rewarded when you purchase your house.
For those of you who currently own a house and are thinking of selling put it on the market now, before the correction occurs. Be prepared to take a lower price than you want, but you’ll still be profiting IF you can sell it. Buy low and sell high…now is the time to sell.
JoeBlow, you answered your own question: the location of that development is the reason they are not selling. North-end Dartmouth is one of the least attractive neighborhoods around, infested with crime and drugs and gangs. Who would want to buy there?
Not A Sheeple— I doubt we’ll actually see decreases in those ranges, and in that short a time. Banks will typically predict high value decreases to limit their exposure to bad mortgages. Now really isn’t a good time to buy though; you’ll be sitting in negative equity for a bit before you see any decent equity. The only thing that’s attractive is the low rates, but those will jump shortly.
JB— there’s legislation in the works to have 20% DP as the standard, which, if passed, will kill the market, seeing as 10% is the norm, and people can barely afford that now.
when the Chinese have had enough and want there money well there’s going to be a shit storm that’ll make the great depression look like a picnic 🙁
Is this a news story, or an opinion piece?
Tim is not alone is calling the real estate market a bubble. I would have appreciated him going into more specifics. I also see this market as being in a bubble and I’m calling for people I know who are in the real-estate game, to get out soon and rent for the time being. The global deflationary crisis in still in its infancy and commodity prices will fall and hurt the Canadian economy and we will see a second round of massive job loss. Ultimately Canadians’ huge amount of personal debt will catch up to them and banks will stop lending as is happening in many parts of the world save perhaps China for now because they live in a command and control economy where banks must follow orders from the heads of state. My best guess is we are still 1.5 – 2 years off a full-blown crisis, as are export economy is still being supported by stimulus packages at home and abroad. But ultimately in a time if deflation one cannot expect housing prices to rise.
I just want to point out that we are not presently in a time of deflation. Sure, inflation stalled a little last year, but our economy is not contracting.
Additionally, urging everyone to get let go of their real estate is a fantastic way of fulfilling your prophecy. When people start selling and panicking based on sensationalistic speculation, that’s when we get into trouble. The opposite is true too; we don’t want people to start entering a martket because they think it’s going to pay out big time for them in the end. That’s not healthy either.
The people who are calling it a bubble are the people who are interested in it by calling it a bubble, primarily the predatory US lenders that got boned in the recession. They need to rationalize continually dropping stock prices, and people like Tim in the media who use the “bubble” who use it as a tool to criticize consumerism.
If it happens, it’s not because it was going to naturally occur.
Was at Board of Trade Seminar this morning. All the Big Investors have Shorted Real Estate.
We are now in one of Canadas largest Real Estate Crash of all time. Hold onto your hats because this will be ugly. This will be versy fast and if one thinks they can sell their real estate now. Forget It. God Help us all and the CMHC is the next Fanny May……..
I believe Canada is headed for a crash. The only thing the bank’s have accomplished is to buffer the ultimate fall. The biggest problem to this farce is the media. Media giants have their own stake in the markets just like everyone else and if they can sustain a false sense of well being they will do it. I live in Toronto and listen to the #1 AM news station here. What is incredible is how they always get bankers or investors to analyze the daily market trends. I can predict exactly what they say before they come on….that’s because it’s a conflict of interest and they will never say anything that’s going to hurt the industry. It’s like asking someone on death row to comment on whether they should abolish the death penalty…for once I’d like the media to get some University Professor who doesn’t have a stake in anything to comment. Then we’d find out exactly where we stand.
The low interest rates created a mad frenzy to head out and purchase a house before “it’s too late!” The sellers said “hey now people can afford more so I’ll just raise my price accordingly”. So instead of a healthy market where a house should cost $250k the interest rates have gone down and inflated the market so that a house now costs $350k. So lowering rates did nothing to make buying a house more affordable!! What’s more it pushed everyone into a state that they needed to get on now before it’s too late….whether or not they were ready. The cost of owning a house for the time being is not cheaper (because rates have gone down – this is what real estate agents will tell you)…it’s higher because of the mad frenzy.
But one thing hasn’t changed. I haven’t seen my salary go up in the last decade, instead it’s gone down roughly 10%. For the first time ever I was unemployed last year and just couldn’t believe how difficult it was to find a job. I’ve changed jobs several times in the last 15 years and it was relatively painless. I’d send out several resumes and within a month I’d have something. Last year I went unemployed for almost a year but luckily found something. I could feel the tension in the job market….it wasn’t nice.
The advice I have for anyone staring out is to:
1) don’t have more than one credit card…and never keep a balance.
2) keep an emergency fund of several months salary
3) Rent until prices fall then buy the house with at least 25% down
4) buy furniture, tv sets, etc with cash! never on credit!
Good luck