The Canadian Real Estate Bubble
The Canadian Real Estate Bubble is HUGE!
"Everything an American can do, a Canadian can do crazier . . . "
Currently Canada is peaking in a real estate bubble that makes Americans look like amateurs by comparison. While the American bubble was irrational, ours is completely nuts! A full 20% of our economy is dedicated to housing, compared to 18% for the USA at the time the housing bubble burst. The affordability index for homes in Canada has never been worse throughout our entire history. Canadians pay on average 7.5 times their annual income on a mortgage, compared to 5.5 times Americans had to pay for just before their real estate collapse. Canadian interest rates on mortgages were a pathetic 0.25% no more than a few months ago. Now they're a paltry 1%. When the United States real estate bubble bursted, interest rates were anywhere from 2% to 5%. Currently tax rates in Canada for property are anemic compared to the United States. The government has recently announced a much overdue HST hike on property that will certainly put further strain on this bubble.
We have amortized mortgages issued at 0% down for 40 years, 35 years and 30 years. Jim Flaherty, Canadian Minister of Finance, has recently put stricter regulations on banking mortgages in an effort to curb the irrational housing inflation. Now mortgages can span for a maximum of no more than 30 years, but already the damage has been done. The measures that Flaherty has taken are but a small tickle for the elephant in the room. If you shop around you can still get a mortgage at 0% down. The average down payment for a Canadian first time home buyer since 2001 to today has been a paltry 5%.
Even worse, many provincial and municipal governments in Canada have introduced grant subsidies for first time home buyers in a desperate effort to get young professionals to move in. In Halifax, where I live, I received a letter offering me a $6,000 "first time home buyers" grant if I were to buy my first home within the next couple of years. I didn’t request such a grant and I never studied this government program. Regardless, I checked it out and indeed it was authentic. You can imagine my initial shock that the government deliberately sought me out just to entice me into buying a house. I take this as a sign of pure desperation. Obviously, no thorough background checks or investigations were conducted at the time they offered this grant. At the time I received this grant my income was at it's lowest for full time employment since I was 16. I don't have a college degree, and as such, my only classified professional background was a two-year stint I had as an insurance agent and insurance adjuster. They could offer me twice that amount and I would still refuse in this market at this current time. Although I'm afraid, many took the bait, further causing the Canadian real estate bubble to inflate.
The Harper government recently has introduced further inflationary measures targeting first time buyers. First time home buyers are now permitted to accrue up to $25,000 in capital gains through their RRSP's, subject to without taxation, provided all of this money is used as a down payment for your first house. Name me any country in the world where they would allow you to get up to $25,000 without being taxed? Only in Canada!
A week after my $6000 grant offering, I received a letter from my "local friendly realtor." The letter went on to explain that housing values in Halifax have increased by $5000 despite sales going down by 27% compared to last years. This "wise" realtor then used this as an example justifying how "real estate values always go up no matter what! So I should buy!" No Mr. Realtor, you're obviously too stupid to realize that by posting that statistic you inadvertently contradicted your own argument.
If you believe the housing bubble hasn't hit the Maritimes, you're sadly mistaken. I know the numbers may seem minuscule to our poor suffering friends in cities like Vancouver, Toronto and Calgary, but consider how little we earn. Trust me when I say that you won't seek sanctuary from the housing madness in the Maritimes. You're more likely to have trouble finding a stable job. You'll have to jump from accommodation to accommodation as you juggle part time jobs, seasonal jobs, and contract jobs. You'll discover that nepotism is alive and well in the Maritimes. A new guy like you coming to town doesn't stand a chance. In Halifax, the average wage is a pathetic $29,000 per year, yet the average house is $282,000. Average housing in Halifax costs 9.7 times the average wage. That puts us much higher than the still ridiculous 7.5 times across all of Canada, and almost double that of the United States during their housing crash. When the income/housing costs’ ratios were taken into consideration, only Vancouver and Victoria scored worse than Halifax. Consider also that Halifax has a seasonal labour force that's soon approaching a whooping 30%. There is no great Serengeti Plain for the antelope generation that's a victim to the Canadian real estate bubble. All we can do is wait, wait, and wait . . . And get old, old, and old . . .
Would You Like To Be A Millionaire?
The Barnaked Ladies, live in Vancouver sing:
"If I had a million dollars, if I had a million dollars! I would buy you a house . . . Oh wait a minute, ok, maybe I can buy you a closet!"
The average home in Vancouver is now selling more than a million dollars. The sensationalism of the bubble is at its full swing. Complete with condescending baby boomer jerks lecturing their children that if only they didn't buy that I-Pod, learned to save money, they too could afford to buy housing like them. To such baby boomers, please, do the world a favour, and shoot yourself! There's a special place in hell for people who cannibalize their own children in this regard, that's as far as I'll go . . .
Here is a collection of wonderful picturesque million dollar mansions you can get in Vancouver. Sing along! Love shack, baby love shack! Love shack, baby love shack! :
What $500,000 Buys You In Toronto
"Everything an American can do, a Canadian can do crazier."
The quote is once again appropriate. Seems Canadians have perfected where the Mexican labour force for the McMansion industry in America left off. Our McMansions are so horribly and cheaply constructed that I would go on to say it's ingeniously planned. A Mexican labour force in the United States most likely accidentally constructed better homes. Here is a video of a typical suburban development in Toronto. The video shows a home that will go on the market for a whooping $500,000. For $500,000, you too can get a plywood custom-built house! Keep in mind, we're talking Canada here, this isn't southern California. I have my doubts how long these houses will hold up during the harsh Canadian winters . . .
Your Life's Work In Toronto! Enjoy!
Put The Blame, Where The Blame Belongs Please. . .
For the record, there isn't a shortage in housing that's causing the Canadian real estate bubble. In my neighbourhood, almost every 3rd home is for sale. There's so much abandoned both in commercial and residential property in Halifax that entire divisions are resembling ghost towns. "For sale" and "for rent" are the most populated signs you'll come across. I can't remember the last time I saw a "we're hiring" sign.
Stop being a xenophobic douche bag and blaming the immigrants who move into this country. We're roughly 2.5 people per kilometre square. We're not an overpopulated country. There's more than enough room to go around. This isn't Tokyo, Hong Kong, or New York. Immigration isn't the cause of the Canadian real estate bubble.
Stop blaming the government and zoning regulations. Sure, a lot of that stuff has further poured salt on the wounds, but it wasn't the government that was the driving force behind our housing bubble. Unlike America, we had no Fannie Mae and Freddie Mac fascist mortgage lending industries.
You want to blame our banks for the Canadian real estate bubble? I'll hand you some credit in that regard, but understand the banks are second-fiddle. Our banks are often accused of being too conservative. I've had personal experiences with my bank being so conservative till the point of frustration. An example of such frustration was being unable to take out a $5,000 loan when I had $20,000 in the bank, with no other loans on record so to speak.
So just whom is responsible for this Canadian real estate bubbles that will soon come tumbling back down to Earth? If you're 50+ years old and owning a house, I'm looking at you! Yes, that's right, Mr./Mrs. home owner, you're responsible for the Canadian housing bubble. Take a long look in the mirror and ask yourself how much was this house, adjusted for inflation, at the time you bought it? Do the math. The numbers will surprise you. Now, perhaps you'll try to defuse from taking personal responsibility. You'll blame it on your real estate agent and his calculated adjustments on land values. I must ask you, just whom is responsible for accepting these numbers as cannon? Current home owners. You see, in the name of greed, whether you were working class, lower-middle, middle, or above, you initiated in a "keeping up with the Jones" mentality with your fellow neighbours. Housing appreciation, redecoration, and property evaluation became a competition for you. The result is in the name of greed, you literally priced your kids out of house and home. You didn't gain anything. The numbers are false values. You may be discovering that buying an upgraded second home after selling your current home is unfeasible, because while your home went up 200% the past 10 years, so did the upgraded home you desired. I bet the real estate agent didn't explain that simple arithmetic to you . . . Whatever you sold, you had to buy back at the same inflated prices because you can't escape paying the bill on shelter. The only real winner in the game of the housing value appreciation was the tax man. You were hoping to sell your piece of junk for two million and retire in luxury. You wanted a free lunch. The problem is nobody can afford to buy . . .
But you still want to blame the banks, right? If that's your prerogative, go ahead, but the last time I checked, the banks do not decide the pricing. Home owners decide the pricing. In my neighbourhood, as already explained, 1/3 of the houses are for sale. Many homes have been sitting idly for years. Why? The current owners want 300K for a doghouse and refuse to adjust their expectations. Did the banks put a gun to their heads and ask them to insert these ridiculous prices? I don't think so. . The banks are only as powerful as you enable them . . .
Canadian Economic Collapse: Canadian Real Estate Bubble
-Donovan D. Westhaver
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