A-chooo!
I think the world might be wising up a bit that the bursting of the US housing bubble will also be the end of their good times too...
Here's today's report from the Globe and Mail:
I don't subscribe to the theory that because of a couple of benign recent U.S. housing statistics, there's going to be the fabled "soft landing" and now is a good time to buy a house.
No, I'm in the camp that thinks we're only seeing the first leg down in what BMO Harris's chief strategist Don Coxe refers to as a Triple Waterfall Event.
The portents of that parlous occurrence are not to be found in the official stats, but rather, on the margins of the housing market.
One out of every five subprime mortgage loans made in the past two years will go into foreclosure. That would mean 1.1 million houses getting repossessed by banks, vaporizing $74.6-billion in homeowners' equity.
The banks will sell the repossessed properties as quickly as possible, driving house prices lower, triggering more foreclosures, putting more excess properties on the market, driving prices lower and, well, you get the idea -- a negative feedback loop, the mirror image of the one that built the bubble.
Now, I'm not saying this is going to happen -- only that it could, and while bubbles are lots of fun when they are inflating at exponential growth rates, let's hope we don't have to find out just how ugly this one can be when it is deflating exponentially.
January 12, 2007
The view from Canada: "U.S. housing bubble has the potential to blow up real good"
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29 comments:
"Now, I'm not saying this is going to happen -- only that it could, and while bubbles are lots of fun when they are inflating at exponential growth rates, let's hope we don't have to find out just how ugly this one can be when it is deflating exponentially."
Keith - you are not going soft are you?
That should be:
"U.S. housing bubble has the potential to blow up real good, eh"
Up here in Canada most people think that these problems are isolated to the US. They are not, we have our own bubbles to worry about and they will collapse at the same time.
Many blogs are tracking these developments.
What about Toronto? Any details on Toronto. The data is swamped by Vancouver and Calgary in those graphs. Do any blogs discuss Toronto.
Missisauga prices near Etobicoke seem excessive.
I like our Canadian neighbors but that picture is worth 1,000 words. The good news is that Canadians will now be able to start replanting there forests.
Great now instead of being lectured by socialist anti-American Democratz (Keith) we are being lectured by socialist anti-American Canajuns. Amazingly enough they sound identical.
Studio condos in Toronto go for $200K. Not as bad as San Diego or Miami, but then the weather is much worse.
The one error in the Canadian article is that the Institute for Responsible Lending's prediction is 1 in 5 will default over the life of the loans. The parade of horribles in the article intimates that the defaults will be happening in very short order.
That being said, if events occur that accelerates the inability for sub-prime debtors to fall in arrears in their payments then we could experience the cascade that creates a negative feedback loop that pulls down realty values. They are already set up for failure with toxic mortgages and overvalued homes, so a mild recession might do it, but we are in uncharted territory and need to see what the future brings.
Notice of Defaults (NODs) are the highest I've seen in 15 years in our market. Unbelievable leeway is being given to Buyer's in trouble. Normally, it's 3 months of NOD and then the hammer falls. It's not happening that way now for some reason.
The NYSE and Dow are showing a serious left shoulder and head these days too.
He is wrong ... bubbles are great fun when they blow up too ... especially if you're not in it.
Cool.
Cow_tipping.
The number of foreclosures that lenders are taking back in California has increased from an average of 32 a day in August 2006, to 300 a day in December 2006. In dollars that’s an increase from $13.3M per day to $45.9M in four months. So far, for the first week of 2007, the numbers are 161 homes and $63.8M–per day.
I hate burst your bubble, but as real estate agent on the ground real estate market is very normal , pricing is firm but negotiable. In the Phoenix real estate market home lisitngs are selling at a normal healthy pace.
Even in the california real estate prices still inching up.
"Now, I'm not saying this is going to happen ..."
Keith - you are not going soft are you?
By Crucial-taunt,
Crucial, that's not Keith's quote, it's HARRY KOZA's. Keith italicizes his opinion prior to quoting the article he's commenting on.
There's another error in the excerpt from the Globe. The author refers to a negative feedback loop when what he/she is referring to is a positive feedback loop. Granted, this loop is contributing negatively to housing prices, but any first year Biology course details the differences between negative and positive feedback loops and this is of the latter variety.
Northern Renter
"I hate burst your bubble, but as real estate agent on the ground real estate market is very normal , pricing is firm but negotiable"
huh? pricing firm but negotiable...what does that mean? probably the same as the NAR campaign that tells us it is a great time to buy or sell
My parents bought a condo in Toronto for $220K in 2001. My sister used it while going to college there. She graduated last year - finally - and they sold it in October for $370K. When taking into account the exchange rate difference - big appreciation by the Canadian $ to $US in those 5 years) the condo more than doubled in a price.
I know that doesn't even begin to match the 5% or 6% return HPers get on their CDs while renting. But you know, my parents are old, what do they know about money and investing?
I wonder if Toronto's "crash" will be as bad as New York's where pricestoday are higher than they were at this time last year.
Yes, Toronto's crash will be bad because the city's grown exponentially (population wise, now approaching ~6 million, half of Ontario's total) with no appreciable increases in the job market to keep up. Also, the number of soon-to-be-built out projects is exuberant. I've picked up entire magazines with soon-to-be-built condo projects from pages 1 to 180. Not even the Boston to DC zone has this kind of "growth" frenzy in housing.
The best Canadian city for RE is Ottawa because it's had a steady population growth (still less than 1.2 million metro) and a large fraction of the steady earners work for the govt and a handful (read: small number) of telcoms. The idea here is to avoid boom/bust scenarios like Calgary and the Alberta oil bubble. Reasonable houses and condos in Ottawa still go for under $300K loonie though the really nice ones are above that number.
umm... Toronto's unemployment level is under 7 percent, I believe.
If you account for the larger military and larger prison population in the U.S., then the unemployment rate in Canada and the U.S. is roughly on par (though U.S. is approx 25% ahead on GDP per capita)
The numbers above are off the top of my head (i.e. approximate)
"Toronto's unemployment level is under 7 percent"
Every other new entrant into Toronto's workforce works at a restaurant, bar, or taxi-ing. And since many of those workers weren't paying into the system before starting, they're not a part of the whole unemployment index.
Now granted, you can say that NYC treats its newcomers in a similiar manner, however, do realize that other than TV dramas, no one glamorizes NYC life outside of Wall Street. So what one sees in NYC is a bifuricated workforce of those in finance/media doing well and others, scrapping by. It's not a great place to live in relative to many other US cities. Likewise neither NYC nor Chicago are poising themselves to be the "new city" of the 2000s whereas Toronto is clearly taking a step towards becoming another NYC, north of the border since it's already matched Chicago in size.
NYC and Chicago are both relatively mature with people leaving and entering at replacement rates plus additional growth with respect to overall population increases nationwide. Toronto, however, is growing in a way (+25% in a decade) that's destined for implosion unless it can bring in more companies, businesses, and media outlets to become another NYC/London/Tokyo in scope.
Now I've heard it all.....Toronto is nothing but taxi drivers and restaurant workers.
Amazing, simply amazing at the lack of understanding from HP readers. I guess all those skyscrapers downtown house the restaurants and taxi repair shops huh?
:Toronto is nothing but taxi drivers and restaurant workers.
I never said nothing. I said for every other new migrant, not established persons with connections to various industries.
My company has both Toronto and Ottawa divisions and the only one inundated with experienced (from overseas companies in Asia, Mideast, and eastern Europe) recent green card applicants is the Toronto office. Some from that office have even transferred to Denver, Mass, or New Jersey for a better payscale (60% cost of living raise even w/ an H1-B) over working in Toronto. And I've heard this from other firms up in Toronto.
The problem is that Toronto is experiencing rapid population growth w/o associated equivalent jobs for this migrating population group. Realize, Canada offers green cards for individuals, with both education and relevant experience on a points basis, whereas the US only starts those people when an American company offers them a temporary job with an H1-B. After a few years, however, those people can get green cards and reside/work permanently in the USA. A lot of my European and Asian colleagues were on H1-Bs for 5-6 years before becoming permanent residents of the US. In other words, other than the Mexico border/illegal crossing issues, the US's legal work visa immigration does work in matching people with respective jobs. I don't have an anti-immigration agenda provided that its done legally via appropriate work or family visa program.
Canada, however, just wants those people w/ university diplomas but if the work isn't there, then it's not a problem for the govt if they become taxi drivers or restaurant cooks. Of course with Toronto billing itself as the new city, all the migrants choose it over the others as a place to build a life.
Toronto is a NYC/London/Tokyo just on a slightly smaller scale. Look at any company with 100+ employees and chances are they have a presence in Toronto of some kind.
I have persoanlly worked on 2 projects in the past 3 years where there was a significant Toronto component to it and I live in California.
I don't know too much about the RE specifics of the city, but to call it a backwards city of taxi drivers is ignorant of the situation there.
::but to call it a backwards city of taxi drivers
First of all, I'm not billing the place as a backward city of cabbies. It's a major city and certainly Canada's largest so obviously, any corporation which wants to do business, north of the border, will have some sort of presence in the environs; I mean metro Toronto's practically 20% of Canada's total population.
However, on that note, I guarantee that you'll seldom find an immigrant doctor (M.D. holder) driving a cab in NYC, LA, Chicago, Houston, or Philly involuntarily. A majority of immigrant doctors in the US are either in a medical residency program or in some ancilliary health care position awaiting re-certification. Here's why... despite all the immigration bashing on this site, the legal route more or less works in the USA. I'm excluding the whole Mexican illegal crossings/amnesty powerkeg here; I'm referring to the strict legal applicants.
Toronto is the first, greater than 1.5-2 million city, north of Mexico, where there's a saturation of college educated and experienced migrants whose backgrounds are mismatched with their jobs outside of their home countries. Think about it, greater NYC (including much of L.I., southern CT, Westchester/Rockland/Puntam Co, Northern NJ, etc) is still 6-7% of the US's population,. Now, triple that percentage for Toronto and now, expect that the "new city" will produce jobs for all the automatic green card holders with college degrees and experiences. It's simply not feasible; a lot of people will be left out and unlike in the US, educated and experienced immigrants tend to do well since they were pre-hired stateside for those characteristics to begin with.
It's true that there are serious issues with Canadian immigration. They could be fixed either by emulting the U.S. H1B, or by making the skilled worker application into a two part process
1) background check, medical and 'pre-qualification'
2) apply for a job, receive an offer and then complete the process
That way nobody would enter until they had a job waiting for them.
:That way nobody would enter until they had a job waiting for them
Well, that's a bit draconian since it's possible for a new migrant to start his own business during the first few years.
I'd say, use Australia's system instead of the US's, which has a lot of exploitation especially in the whole H1-B 5-6 years holding pattern. Oz, like Cn, has a points system, however, the first work visa is provisional which lasts 4 years and then, once the person is settled, he can convert it into permanent status. What happens is that a significant number return to their home countries during the third year, if they can't go from driving a cab to running one's own business. And that's the key... entreprenuerialism as a replacement for regular corporate work is a good offset for those who want to try living in a new place. Of course, those who're fully established in the corporate environment go from provisional to permanent residency rather readily.
In conclusion, for Canada, don't buy in Vancouver, Victoria, and Calgary. Those are bubble towns.
The most platable cities for RE purchases are Ottawa, Montreal, and Halifax. Just be careful about certain downtown Montreal condos, they may be a tad overpriced but not anywhere near a Vancouver or Calgary bubble. If you can afford the carry costs, a Montreal condo is a fine investment for the long haul. It's a great city and has cultural intangibles which even the finest US cities can't compare with. Sorry to Americans of French ancestry, but N.O.'s Mardi Gras pale in comparison to Montreal's summer music festivals which BTW, are also safe relative to getting mugged a/o knifed off Bourbon St. They also beat any outdoor event in NYC, SF, or DC.
As for Toronto, I suspect that it's been oversold and has to go down but in a different dynamic than either Calgary or Vancouver.
:Well, that's a bit draconian since it's possible for a new migrant to start his own business during the first few years.
There's already a variant of this in the Canadian system, but it is targeted to well-off entrepeneurs. It requires $800K Cdn investment in the Cdn economy.
The Australian system sounds interesting, but are there criteria to deny permanent status if certain conditions aren't met by the 4th year? What happens if one is temporarily out of work at the 4 year point, but otherwise productive to society? I'd imagine that in Canada there would be an appeals process.
::There's already a variant of this in the Canadian system, but it is targeted to well-off entrepeneurs. It requires $800K Cdn investment in the Cdn economy.
This category is called a business investor as oppose to an entrepreneur for many of the former British empire founded countries including OZ, NZ, Canada, and the USA.
The difference between the others and Canada is that one's a pre-existing millionaire well before applying. I think in NZ, if you can surrender $2 million Kiwi dollars (earned legally of course), the govt holds the money for 4 years in a govt issued security (or some other Kiwi-only vehicle), and then they hand you a green card at the end of the holding period. They also say that you need some business experience, however, managing your riches counts as business experience so it's not a biggie. Life is good for the well off.
:What happens if one is temporarily out of work at the 4 year point, but otherwise productive to society?
I think that person would probably get a few pts for those 2-3 years of work within Australia and then, he'd probably need to indicate sufficient funds (or self-employment financial statement) to make it a permanent one. It's not like the H1-B system where a person has to find work within a short time frame or face deportation.
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