Canada housing bubble thread

[GullFoss]

A thread to discuss the Canadian housing bubble (namely Toronto and Vancouver) driven by mortgage fraud, speculation and credit expansion. When will it crash?

I think we saw the first blood this week!

Home Capital Group Inc, a federally regulated trust company offering mortgage lending, has seen its shares tumble 60% today. Yesterday, the Ontario Securities Commission alleged that the company failed to properly disclose mortgage underwriting process flaws to investors. Sounds maybe like a bit of mortgage fraud.

[Fuzz]

What should be concerning is this whack-a-mole approach. Anyone with an iota of common sense should have seen that a tax in Vancouver would drive buyers to Toronto. Where do they go next? Montreal? Calgary? We need a national strategy if we are going to do this kind of mucking about.

[Regorium]

What if it's completely driven by demand?

[Slava]

Originally Posted by GullFoss

A thread to discuss the Canadian housing bubble (namely Toronto and Vancouver) driven by mortgage fraud, speculation and credit expansion. When will it crash?

I think we saw the first blood this week!

Home Capital Group Inc, a federally regulated trust company offering mortgage lending, has seen its shares tumble 60% today. Yesterday, the Ontario Securities Commission alleged that the company failed to properly disclose mortgage underwriting process flaws to investors. Sounds maybe like a bit of mortgage fraud.

That Home Capital situation is a mess, but it might not be entirely due to the housing bubble. Sounds like they were just plain not following proper procedures to provide mortgages and not requiring proper income checks and things like that. It's kind of tangential. The stock was already getting hammered, but then today they are lining up a $2bn line of credit at 10% which is obviously concerning to say the least! They had been as high as $38 this past year and are down to $7 this morning. That's grim. Some people thought they were a steal yesterday at $17...

[GullFoss]

Originally Posted by Regorium

What if it's completely driven by demand?

Demand that is driven by a "home prices always go up" mindset and funded by credit expansion and shady underwriting?

Then its a tinderbox. And even the smallest spark could set the whole apparatus on fire.

[Locke]

We're just in a little gully right now. Just a gully.

[Regorium]

Originally Posted by GullFoss

Demand that is driven by a "home prices always go up" mindset and funded by credit expansion and shady underwriting?

Then its a tinderbox. And even the smallest spark could set the whole apparatus on fire.

I'm more thinking the terrible zoning rules in downtown Vancouver, and the ridiculous demand for a single detached home in Toronto.

I mean, I totally agree that speculation and credit expansion and CMHC are part of it too. But I also think that even though it's at a high, it's not a bubble in the way that there's no value there. GTA/GVA are prime locations that are not even close to catching up with the rest of the world in terms of pricing.

[Winsor_Pilates]

Don't we already have a "bubble thread" for both Calgary and Vancouver going back 5-10 years each??

[Azure]

The big issue we can control is foreign investment. There should be a federal law passed allowing for a 25% tax rate to be applied towards foreigners coming in and buying up real estate without actually wanting to live here.

The 15% tax rate in BC seemed to slow things down, but then they just target Toronto. Seems to me that there are lax regulations in our housing markets allowing the big foreign money to come here.

[peter12]

Speculation is a big driver behind the bubble. Lots of research shows that even if demand drives prices, once it detaches significantly from a local economy, it is mainly irrational, and can actually cause the bubble to grow larger.

[squiggs96]

Originally Posted by Azure

The big issue we can control is foreign investment. There should be a federal law passed allowing for a 25% tax rate to be applied towards foreigners coming in and buying up real estate without actually wanting to live here.

The 15% tax rate in BC seemed to slow things down, but then they just target Toronto. Seems to me that there are lax regulations in our housing markets allowing the big foreign money to come here.

I'm in development in BC. Our most recent project we sold has 345 units. There are 8 foreign buyers in the entire project. We sold out months before we thought we would, because we are the only development in that area that is selling. We had project a much longer time frame to sell, and at lower prices, but with no supply anywhere near us, it sold quickly.

In my view, the single biggest reason for the increased prices in the lower mainland, is government (city) regulation of permits. Permits take an inordinate amount of time to be approved, even for single family homes. It took me 10 months to get a building permit for my house, which was built with the zoning in place, and will add a rental suite to the market. 10 months for one house! I know of a condo development that took 8 years from the time the company bought the land, until they received the permit. Add in 3 years of build time, that's 11 years in order to bring 250 homes to the market. Of course costs have gone up in those 11 years, so the price to buy those units has gone up dramatically from what was first projected.

I agreed with the foreign buyer tax, although I think it was rolled out terribly. I do not think foreign buyers are the biggest factor in driving up the cost of lower mainland realty. That falls squarely on the permit office at city hall.

[GullFoss]

Originally Posted by Winsor_Pilates

Don't we already have a "bubble thread" for both Calgary and Vancouver going back 5-10 years each??

Yes, but this time we seem to have evidence that fraud or loose underwriting standards might have been a significant contributing factor. Intra-day returns for Canadian mortgage insurers and lenders