Canada's Housing Bubble

Aug 01, 2010 Garth Turner GreaterFool.ca

If you want to bury news, just have it hit the wire on Friday of a long weekend.

That’s exactly what the Canadian Real Estate Association did two days ago – getting its message on the public record while at the same time hoping the public was preoccupied with beer and roasted weenies. And this was the news: CREA says housing sales across Canada will drop by 1.2% this year.

This may seem entirely meaningless until you remember that five weeks ago the same cabal of realtors told the country sales would rise by 5.5% in 2010. And it gets even more interesting in light of the forecast made just before that – a 13.3% surge over 2009 levels.

How could an industry group with its fingers on the pulse of the biz get it so wrong? And how could they still be so out to lunch?

• As you know, recent sales in Vancouver, Kelowna, Calgary, Edmonton and Toronto have plunged by up to 40%.

• In just days the Toronto Real Estate Board will release July numbers, which should be withering.

• As mentioned on this adulterous blog days ago, sales in parts of Vancouver have all but disappeared, just months after bidding wars had the streets littered with bodies. Prices in the west end have dropped $90,000 from the peak.

• In Edmonton the average price of a single family house is down $17,000 from last month – which looks like the biggest drop on record. Meanwhile sales are at a six-year low.

This is what the rest of 2010 holds, of course, which might be but a prelude to 2011. The economy is slowing (look at GDP numbers released on Friday – half what economists expected), interest rates keep inching higher, the new sales tax has consumers bummed out and it’s finally starting to dawn on young buyers that 5%-down real estate is more dangerous than Saturday night in Fort St John after the Pioneer Inn locks its doors. (I know.)

CREA, then, is covering its ample derriere. The release is political. It means nothing to homebuyers, and the perils of residential real estate continue to mount. After a full year of rock-bottom emergency interest rates and realtor verbosity and exaggeration, which pulled sales from the future, the market is sinking fast. Current price reductions are probably nothing compared to what will come, which means early vultures stand a good chance of ending up roadkill.

But it’s good to see that the real estate industry still has a sense of humour.

I mean, where are you going to find a funnier outfit than the BC Real Estate Association? While CREA was wolfing down crow feathers, executives in the wet province were donning their red noses, floppy shoes and orange hair and making their own forecast.

“B.C. housing markets are returning to typical post-recession demand patterns,” the association said, trying hard not to smirk. The average price of a home in Victoria will jump this year from $476,137 to $507,800 while the stage is now set “for a gradual increase in homes sales during the fall and through 2011.” And across all of BC, sales are forecast to jump 5% in 2011 because of a “balanced market.”

Of course, BC – especially Victoria, Bubble City and the Lower Mainland – are ground zero for the real estate reckoning which now appears to be right on track. This is the only area in North America where the locals have allowed house prices to swell to nine or ten times the average household income. It stands alone as the only city on the continent where, for a brief time this year, the average single family home crossed the $1 million mark. And it is unique for having a 23%  real estate advance when average salaries grew by zero. This, then, makes the soggy end of that province the debt capital of Canada.

This will not end well anywhere. It will end spectacularly in Vancouver.

Join me there. Bring protection.