04-03-2015, 11:07 AM
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#1
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Lifetime Suspension
Join Date: Sep 2005
Location: The Void between Darkness and Light
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Why Canada’s economy is headed off the cliff
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Canada is in the midst of an unprecedented housing boom that seems likely to bust. I was recently in Canada and noticed a schizophrenic oscillation between housing exuberance and oil-price despair. What did it mean for the Canadian economy’s outlook? Upon returning to the U.S., I did some research. What I found leads me to the conclusion that Canada is now among the most vulnerable large economies in the world. Here’s why.
First, household credit. The seemingly conservative Canadian population has been voraciously consuming debt at a breakneck pace. Total household debt (C$1.82 trillion) now exceeds GDP (C$1.6 trillion), approximately C$1.3 trillion of which was for residential mortgages. Further, household debt is now greater than 160 percent of disposable income – meaning it would take about 20 months for a family to pay off its debt if interest rates were 0 percent and they spent 100 percent of their disposable income to do so. Uh oh! The consumer clearly seems stretched, so much so that McKinsey recently suggested Canadian financial instability driven by a rapid consumer slowdown was not unlikely. By the way, that’s exactly what happened here in the United States when the debt music stopped and there weren’t enough consumer chairs to go around.
Second, housing prices. Home prices continue their basically uninterrupted rise that began in the mid-late 1990s. Unlike the United States real estate markets, which have corrected, Canadian prices continue to rise. Detached single-family homes in Toronto now average more than C$1 million and Vancouver is now deemed the second least affordable city in the world – thanks to Chinese buyers (who are themselves facing a slower economy). Take a look at the following chart of U.S. and Canadian housing prices in real terms since 1990.
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04-03-2015, 11:38 AM
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#2
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My face is a bum!
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No problem. Just keep lowering interest rates. All is good. LA LA LA LA
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04-03-2015, 02:14 PM
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#3
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Realtor®
Join Date: Feb 2009
Location: Calgary
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This American theory that the market has to crash to correct itself is a joke.
Why can't the market correct itself a few percent this year followed by 1% growth for the next 5 years. Why can't the market correct itself a couple percent over the next few years? Why does it have to "fall off a cliff"
Reading the comments in the article, all the American posters fail to realize the difference. Their economy didnt correct itself - a system that was flawed from the start and and needed some time to be exposed. Their economy was essentially "busted". Our government has a much more involved approach with rules/regulations. We are not 100% safe from a crash but writers like this come across as if there is 1 option and that is a complete collapse of our economy.
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04-03-2015, 03:12 PM
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#4
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Franchise Player
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I honestly don't believe we will ever see 'REAL' interest rates again.
An entire generation has lead a life of very low interest rates. While we may see a small uptake, the system would collapse on itself if interest rates went up 50% which would still be nominally low)
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04-03-2015, 03:12 PM
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#5
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Franchise Player
Join Date: Jan 2013
Location: Cape Breton Island
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Quote:
Originally Posted by Realtor 1
This American theory that the market has to crash to correct itself is a joke.
Why can't the market correct itself a few percent this year followed by 1% growth for the next 5 years. Why can't the market correct itself a couple percent over the next few years? Why does it have to "fall off a cliff"
Reading the comments in the article, all the American posters fail to realize the difference. Their economy didnt correct itself - a system that was flawed from the start and and needed some time to be exposed. Their economy was essentially "busted". Our government has a much more involved approach with rules/regulations. We are not 100% safe from a crash but writers like this come across as if there is 1 option and that is a complete collapse of our economy.
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I don't know much about the market but this sort of makes a lot of sense to me. Why is a crash called a market correction? Can't a market correction just be a much slower growth over a long period of time?
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04-03-2015, 03:28 PM
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#6
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Franchise Player
Join Date: Oct 2001
Location: Vancouver
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Quote:
Originally Posted by Realtor 1
This American theory that the market has to crash to correct itself is a joke.
Why can't the market correct itself a few percent this year followed by 1% growth for the next 5 years. Why can't the market correct itself a couple percent over the next few years? Why does it have to "fall off a cliff"
Reading the comments in the article, all the American posters fail to realize the difference. Their economy didnt correct itself - a system that was flawed from the start and and needed some time to be exposed. Their economy was essentially "busted". Our government has a much more involved approach with rules/regulations. We are not 100% safe from a crash but writers like this come across as if there is 1 option and that is a complete collapse of our economy.
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Yeah, every time I read stuff like this it comes across as Americans assuming that if they couldn't manage things, then there is no way inferior Canadians can do it.
__________________
"A pessimist thinks things can't get any worse. An optimist knows they can."
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04-03-2015, 04:29 PM
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#7
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Franchise Player
Join Date: Jan 2010
Location: east van
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Real estate markets always crash eventually, it's the nature of the market, it's inhabited by the inexpert home owner that has all his/her asserts tied up in one major investment, their house.
Home owners are, by nature, overly optimistic when the markets going up and panicky as hell when it drops.
When the Vancouver markets stutters thousands of vancouverites who have counted on their homes to cover all their debt and pay for their retirement will freak out and desperatly try and sell their houses as quickly as possible. This causes the crash, it has nothing to do with underlying market conditions, or the over all economy, it's just the herd mentality when the scary tiger of destitution appears.
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04-03-2015, 05:04 PM
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#8
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First Line Centre
Join Date: Aug 2009
Location: Calgary
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Quote:
Originally Posted by Realtor 1
This American theory that the market has to crash to correct itself is a joke.
Why can't the market correct itself a few percent this year followed by 1% growth for the next 5 years. Why can't the market correct itself a couple percent over the next few years? Why does it have to "fall off a cliff"
Reading the comments in the article, all the American posters fail to realize the difference. Their economy didnt correct itself - a system that was flawed from the start and and needed some time to be exposed. Their economy was essentially "busted". Our government has a much more involved approach with rules/regulations. We are not 100% safe from a crash but writers like this come across as if there is 1 option and that is a complete collapse of our economy.
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Because if the title read "canadian economy will slowly stabilize" nobody would read the article. They need the shock value for more readers. Macleans magazine is another one that does is all the time.
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04-03-2015, 06:31 PM
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#10
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First Line Centre
Join Date: Feb 2014
Location: Uzbekistan
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If there isn't a crash, there will at least be a generation of people in big Canadian cities working into retirement age to pay off monster sized mortgages. It will be the new norm.
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04-03-2015, 06:42 PM
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#11
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Lifetime Suspension
Join Date: Nov 2014
Location: NB
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Eh, I'll just move to Thailand.
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04-03-2015, 07:46 PM
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#12
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Franchise Player
Join Date: Jan 2010
Location: Calgary
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Some people just really enjoy doomin'&gloomin'. Some form of BDSM, I suppose...
__________________
"An idea is always a generalization, and generalization is a property of thinking. To generalize means to think." Georg Hegel
“To generalize is to be an idiot.” William Blake
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04-03-2015, 08:20 PM
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#13
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#1 Goaltender
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I lean more to the European theory, a day will come when it takes a family 75-100 years to payoff a piece of property, mutli-generation homes will become normal, and people will have to put major reinvestment into their family property every 25-30 year.
Its probably going to take a big change in the way our banking system views lending.
Really it is too bad for all of us that were teenagers in '99, because not having the chance to buy property before then put us way behind where we could have been.
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04-03-2015, 11:22 PM
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#14
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Realtor®
Join Date: Feb 2009
Location: Calgary
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Quote:
Originally Posted by afc wimbledon
Real estate markets always crash eventually, it's the nature of the market, it's inhabited by the inexpert home owner that has all his/her asserts tied up in one major investment, their house.
Home owners are, by nature, overly optimistic when the markets going up and panicky as hell when it drops.
When the Vancouver markets stutters thousands of vancouverites who have counted on their homes to cover all their debt and pay for their retirement will freak out and desperatly try and sell their houses as quickly as possible. This causes the crash, it has nothing to do with underlying market conditions, or the over all economy, it's just the herd mentality when the scary tiger of destitution appears.
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I understand what you are saying however a "crash" in Vancouver doesnt mean the Canadian Economy falls off a cliff. A correction in oil prices which slows Alberta's economy doesnt mean the Canadian economy falls off a cliff. While some areas falter, others will see benefit.
As soon as I read " I was in Canada not long ago and noticed .... " I knew it was going to ruffle some of my feathers
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04-03-2015, 11:31 PM
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#15
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Lifetime Suspension
Join Date: Jul 2012
Location: North America
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So just out of curiosity Realtor 1 if it was glaringly obvious that things were headed down a cliff would you actually come out and say it was?
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04-03-2015, 11:37 PM
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#16
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Franchise Player
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CAD is still relatively strong too. You'd think that would be the first to go if we were following Greece off a cliff. Most mortgages are insured....really insured, not just Fannie and Freddie insured. However i do hope we haven't become a generation of sad worker bees who have no idea what to do without a job.
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04-04-2015, 01:20 AM
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#17
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Franchise Player
Join Date: Feb 2002
Location: Silicon Valley
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Yeah I think there is a little conflict of interest here, for a Realtor to say that real estate won't kill the market.
Not saying it will either, but I don't see anyone denying the stats... I don't follow Canadian RE or interest rates, but thats a lot of debt compared to the GDP, if you treat that like any other investment, you would say that entity has a lot of debt and you would be cautious.
It can crash (go off a cliff), it can stagnant and fix itself, it could keep riding the bubble.... anyone's guess. If you could predict the future, you would do very very well in your life.
It may not be RE alone, the obvious drop in oil (and commodities in general) mixed with RE could be a huge problem if GDP drops, and obviously Canada is overleveraged with commodities... there are a lot of world wide problems as well, that accumulated with any number of things builds the whole economy on a house of cards.
I personally think we are in a dot com 2.0 bubble right now (i.e. too many pie in the sky companies, with billion dollar valuations and aren't making money) that can crash the market too... I kind of wish Claeren was still around to get his take.
__________________
"With a coach and a player, sometimes there's just so much respect there that it's boils over"
-Taylor Hall
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04-04-2015, 02:42 AM
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#18
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Franchise Player
Join Date: Feb 2006
Location: Toledo OH
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Quote:
Originally Posted by Realtor 1
This American theory that the market has to crash to correct itself is a joke.
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No, not really. Give Americans credit because they have the personal experience to provide the hindsight to identify a housing bubble. Now well on the other side of their bubble bursting and not emotionally or personally connected to our housing bubble they are probably better at identifying it.
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04-04-2015, 02:47 AM
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#19
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Franchise Player
Join Date: Mar 2005
Location: Van City - Main St.
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Quote:
Originally Posted by Phanuthier
Yeah I think there is a little conflict of interest here, for a Realtor to say that real estate won't kill the market.
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Every home owner has a conflict of interest as they don't want their investments/equity to collapse.
Every non owner has a conflict of interest as they want to get into the market at the lowest price and don't care about everyone else losing everything.
Therefore everyone commenting in this thread has a conflict of interest.
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04-04-2015, 02:49 AM
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#20
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Franchise Player
Join Date: Mar 2005
Location: Van City - Main St.
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Quote:
Originally Posted by afc wimbledon
When the Vancouver markets stutters thousands of vancouverites who have counted on their homes to cover all their debt and pay for their retirement will freak out and desperatly try and sell their houses as quickly as possible. This causes the crash, it has nothing to do with underlying market conditions, or the over all economy, it's just the herd mentality when the scary tiger of destitution appears.
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When can we expect this?
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