Throwing Caution to the Wind

We have discussed the dangerous housing and consumer credit bubble in Canada in these pages on several previous occasions in some detail (see “Carney’s Legacy” and “A Tale of Two Bubbles” as examples). Since we first wrote about Canadian real estate, the bubble has continued to grow with nary a pause. Why are we calling it a bubble? The gap between incomes and house prices is widening ever more, and has been far above what is considered normal for several years already.

This decline in affordability is the result of monetary pumping and ultra-low administered interest rates imposed by Canada’s central bank. Moreover, the boom is subsidized by a giant state-owned mortgage insurer, an institution that has the potential to severely impair the government’s finances once the bubble bursts.

 

van-twilightVancouver skyline at night – no doubt a nice place, but a bit pricey.

Photo credit: Mohsen Kamalzadeh, imaginion.wordpress.com

 

The housing bubble is most pronounced in big cities like Toronto and especially Vancouver. Trophy properties are selling like hotcakes to people who evidently don’t care much about money. In fact, the frenzy proves that the demand for money has long been overwhelmed by the huge growth in its supply among the richer strata of society.

 

A friend has pointed us to a short video at CTV News about a recent high end property sale in Vancouver that is quite remarkable, to say the least.

 

A bidding frenzy breaks out over a Vancouver trophy property

 

Consider the background to this sale – within just 12 days of being listed, the house sold for almost 35% above the asking price and a full 55% above its recently assessed value. The bubble has evidently reached the sheer insanity stage.

 

“A Tudor mansion in Vancouver’s tony Shaughnessy neighbourhood has sold for millions over the asking price, fueling more fears about affordability in the city’s red hot real estate market.

The stately home at 1383 West 32nd Avenue was listed for $5.99-million on Feb. 5, and sold 12 days later for a cool $8,010,000. That’s 33 per cent more than the initial asking price. The deal was finalized two weeks ago.

According to the City of Vancouver, the property was assessed this year at $5,094,600, which means the sale was $2.9-million above the assessed value.

A March report found that the average price for a detached home in Vancouver passed the $1 million mark in both cities.

In his report, Cameron Muir, chief economist for the Greater Vancouver real estate association, says a perfect storm of rock bottom interest rates and rising consumer confidence has fueled an all-out realty frenzy.

“Many board areas are now exhibiting sellers’ market conditions with home prices advancing well above the rate of inflation,” Muir said.

 

(emphasis added)

At least the house is not a hovel – still, the last time it was renovated was in the 1970s, so presumably it is a bit of a fixer-upper anyway.

 

M1-CanadaCanada – narrow money M1 with annual growth rate – recently money supply growth has been slowing again and is already far below the 2009/2010 growth momentum peak. A sustained decline below the 5% mark may well spark bubble trouble – click to enlarge.

 

The Boom Will Never End!

Toronto has seen enormous price increases as well. What is just as astonishing as the sale described above is the widespread conviction that the bubble not only represents the “new normal”, but that it will never end. A recent Vancity Credit Union report is already predicting huge price increases out to the year 2030:

 

Another report from Vancity Credit Union predicted that the average home price in Vancouver will exceed $2.1 million by 2030.

Vancouver isn’t the only real estate market breaking records. A report from Christie’s International Real Estate just ranked Toronto the world’s “hottest” luxury market.

The report compared Toronto’s housing market to those of Dubai, Hong Kong, London, Los Angeles, Miami, New York, Paris, San Francisco and Sydney.

An “extremely low” supply of houses in Toronto pushed prices to approximately $1.2 million for “relatively average” houses, according to Christie’s.

 

(emphasis added)

Needless to say, the cities that are compared with Toronto above are basically the “real estate bubble capitals” of the world. If global money supply growth slows down or anything happens that forces central banks to entertain rate hikes, it is easily imaginable that several or maybe even all of them meet their demise at once. That would undoubteldy bring back “interesting times” for the financial system.

 

Conclusion

The fact that the bubble has continued to grow to ever more absurd heights underscores how difficult it is to forecast the timing of a boom’s demise, especially when monetary policy around the world is becoming ever looser. However, experience also tells us that when buying frenzies such as the one described above are starting to break out, it is often a sign that things are about to get dicey.

High end buyers, may even regard these purchases as legitimate inflation hedges, but they will be in for a surprise if consumer price inflation should actually revive. There is a range of CPI “price inflation” that is as a rule not friendly to overpriced assets that have benefited from very low interest rates.

 

Canada central bank rateCanada’s administered overnight interest rate. It should be no surprise that assets like real estate have experienced insane price increases. While interest rates have remained extremely low for several years now, there can be no guarantee that this will remain the case. At some point the huge flood of money the central banks have created is likely to exert effects on consumer prices. The long lag time could well mean that the effects will turn out to be unexpectedly pronounced. The game could however also end if credit expansion comes to a halt in spite of low rates – click to enlarge.

 

Charts by: St. Louis Federal Reserve Research

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

3 Responses to “High End Real Estate in Canada in Frenzied Bubble Blow-Off”

  • Kreditanstalt:

    Not everywhere in Canada, and not even merely in places with job opportunities. Trophy markets, indicating that buyers do not need to work for a living, can pay the taxes and maintenance and probably aren’t borrowing locally to pay for these purchases, either.

    Prices in small towns or even major cities outside bubble-land have not gone up at all or have risen only slightly. Many “assessed values” have declined in recent years. This is not local working class money, but it tens to drive up asking prices everywhere. The supply of listings everywhere has grown, actual sales slowed and time on the market risen dramatically.

    Like most things from art to cars to jewelry to toys, vendors and producers are chasing Big Spenders while ignoring the rest.

  • No6:

    Sydney (also mentioned on this site) is in hot pursuit. The Australian central bank has just reduced interest rates further in order to give Vancouver some real competition.

  • If memory serves me right, Canada escaped the worst of the sub-prime mortgage bubble. It seems Canada has now joined the lemming rush towards the cliff.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold Sector Update – What Stance is Appropriate?
      The Technical Picture - a Comparison of Antecedents We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of...
  • Don’t Blame Trump When the World Ends
    Alien Economics There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard. As far as we can tell, this wonderful epoch concluded in 1936. Everything since has been tortured with varying degrees of gobbledygook.   One should probably not be overly surprised that the abominable statist rag Time Magazine is fulsomely praising Keynes' nigh unreadable tome. We too suspect that this book has actually lowered the planet-wide IQ –...
  • Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections
      Looming Currency and Liquidity Problems The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into...
  • What is the Best Time to Buy Stocks?
      Chasing Entry Points Something similar to the following has probably happened to you at some point: you want to buy a stock on a certain day and in order to time your entry, you start watching how it trades. Alas, the price rises and rises, and your patience begins to wear thin. Shouldn't a correction set in soon and provide you with a more favorable buying opportunity?   Apple-Spotting – a five minute intraday chart showing the action in AAPL on February 1, 2017 - an...
  • Trump and the Draining of the Swamp
      Swamp Critters BALTIMORE – The Dow is back above the 20,000-point mark. Federal debt, as officially tallied, is up to nearly $20 trillion. The two go together, egging each other on. The Dow is up 20 times since 1980. So is the U.S. national debt. Debt feeds the stock market and the swamp. What’s not up so much is real output, as measured by GDP. It’s up only 6.4 times over the same period. Debt and asset prices have been rising three times as fast as GDP for 36 years! Best...
  • Gold and Silver Divergence – Precious Metals Supply and Demand
      Gold and Silver Divergence – Precious Metals Supply and Demand Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising. Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it...
  • When Trumponomics Meets Abenomics
      Thirty Year Retread What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today? Will they gab about what fishing holes the big belly bass are biting at? Will they share insider secrets on what watering holes are serving up the stiffest drinks? [ed. note: when we edited this article for Acting Man, the meeting was already underway]   Japan's prime minister Shinzo Abe, a dyed-in-the-wool Keynesian and militarist, meets America's...
  • The Great Wailing
      Regret and Suffering BALTIMORE – Victoribus spolia... So far, the most satisfying thing about the Trump win has been the howls and whines coming from the establishment. Each appointment – some good, some bad from our perspective – has brought forth such heavy lamentations.   Oh no! Alaric the Visigoth is here! Hide the women and children! And don't forget the vestal virgins, if you can find any...   You’d think Washington had been invaded by Goths, now...
  • Receive a One Percent Gift When Buying or Selling a Home
      How to Save Money When Buying or Make More When Selling a Home In your professional capacity and perhaps also in your private life, you may be closely involved with financial and commodity markets. Trading in stocks, bonds or futures is part of your daily routine.  Occasionally you probably have to deal with real estate as well though – if you e.g. want to purchase an apartment or a house, or if own a home you wish to sell.   The people who took this photograph probably want to...
  • Silver Futures Market Assistance – Precious Metals Supply and Demand
      Silver Is Pushed Up Again This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday.   Taking off for real or not? Photo credit: NASA   Is this the rocket ship to $50? Will Trump’s stimulus plan push up the price of silver? Or just push silver speculators to push up the price, at their own expense, again? This will again be a brief Report this week, as we are busy...
  • Unleashing Wall Street
      To Unleash or Not to Unleash, That is the Question... LOVINGSTON, VIRGINIA –  Corporate earnings have been going down for nearly three years. They are now about 10% below the level set in the late summer of 2014. Why should stocks be so expensive?   Example of something that one should better not unleash. The probability that a win-lose proposition will develop upon meeting it seems high. It wins, because it gets to eat... Image credit: Urs Hagen   Oh,...
  • Boondoggles for the Swamp Critters
      Monster or Mozart? BALTIMORE – Investors seem to be holding their breath, like a man hiding a cigarette from his wife. It’s just a feeling, and it’s not the first time we’ve had it... but it feels as though it wouldn’t take much to send them all running.   Actually, they're not going anywhere yet... but there is a lot of overconfidence by those who were very worried when prices were a lot better - click to enlarge.   Meanwhile... we’re coming to a deep...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com