DrBehavior March 20, 20081

Get real! How long before, do you honestly believe, that the Toronto market is going to remain impervious not only to what's happening to your American neighbors to the south but also to what's happening throughout most of Europe?
Don't wait 'til the bubble bursts to stop dreaming!

PoppingBubbles May 20, 20082

Industry participants (aka The Real Estate and Indebtedness Mafia) such as the CMHC willfully ignore and downplay the fact that

a) housing affordability is at its worst level since the last housing bubble burst [RBC. Housing Affordability. Mar-2009, p.1]

b) real housing prices have increased substantially more than during the last three housing cycles (all of which ended badly) [Scotiabank. Real Estate Trends, 26-Feb-2008, p.2]

c) real housing prices in Canada have risen more from trough to peak than in the U.S., where prices and the general economy are now tanking [same source as (b)]

d) Canada's housing prices-to-rent ratio is higher than in any other OECD country save Spain and 90% higher than the long-run trend [OECD Economic Outlook No. 82, December 2007. Data table can be found in the housing price ratio tab of http://www.oecd.org/dataoecd/6/5/2483894...

e) Canada's housing prices-to-income ratio is 32% above historic trends and substantially above ratio which prevailed when the last housing boom bubble popped in the late 80’s / early 90’s [same source as (d)]

f) the unprecedented run-up in prices have been fueled by a proliferation of risky lending practices such as (i) a decrease in the required down payment from 10% to 0%, (ii) an increase in the allowed amortization from 25-years to 40-years, (iiI) the proliferation of 7% cash back mortgages and other lending gimmicks (teaser rates, step mortgages, skip a payment, builder rate buy downs, etc.), (iv) the proliferation of home equity lines of credit, and (v) lenders not being on the hook for the vast majority of risky loans they write (CMHC guarantees low-down payment and/or extended amortizations)

g) studies show typical consumers do not fully understand the implications and risk of low down payment, long amortization and gimmicky (e.g. 7% cash back) mortgages.

h) housing bubbles around the world are beginning to deflate (US, UK, Spain, Australia, New Zealand for starters)

i) housing construction is far in excess of household formation. CMHC data shows housing starts averaging 226,000 units per year from 2003 through 2007, 33% per year above the roughly 170,000 net new households formed each year [as estimated by TD Economics]. This trend is expected to continue well into the future.

j) Canadian MLS housing inventory is at record highs while at the same time the number of sales is dropping dramatically [Canadian Real Estate Association]

k) consumer indebtedness is at record highs relative to disposable income [Vanier Institute. The Current State of Canadian Family Finances. 11-Feb-2008. p.28]

l) savings rates are close to nil even though the baby boomers should be saving for retirement [same source (k). p.9]

m) inflationary pressures are building and the economy is weakening

I guess it is easier to put on our rose colour glasses, look in the rearview mirror and admire how pleasant the trip has been. Never mind the cliff dead ahead.

t475 June 8, 20083

The housing market was talked up by realtors and banks in both the USA and the UK - until acknowledging the downward trend became impossible. Canada traditionally lags these countries. London and New York have lots of new immigrants and a very strong financial sector, but it has n't protected them. As a % of average Canadian salary Toronto's not so much more affordable. The Canadian bank's insistence on a 10% deposit and no sub primes may may insulate them from negative equity issues but it won't insulate you - you'll lose that 10%, probably more. Plus the top end baby boomers are now going into care homes and sell to fund this.