Canada's Housing Bubble

Dec 07, 2010 Garth Turner GreaterFool.ca

It rippled through headlines across the country. In the CTV newsroom they just retyped the news release and attributed it to themselves. In Vancouver, of course, it led the Global television newscast. In Edmonton it heralded a real estate renaissance, as it did in Windsor and Regina.

Yes the fabricators at Re/Max struck again, issuing a 2011 forecast based on, well, nothing, and predicting still-higher housing prices. In every single city.

As outrageous as this seems, at a time when the economy is so fragile that we still have emergency interest rates, exports are plunging, unemployment is going structural and families have never owed as much, the media reaction was even more cookie-hurling. After reading 18 versions of the story in as many markets, I could not find a single one that expressed a contrarian sentiment. So Canadians were once again deprived of a balanced view of the world.

At the Re/Max Tower, in response, they’re doing the traditional frenzied Media Manipulator dance, in which their naked writhing is consummated as Michael Polzler, manly and erect in his ermine loincloth, aims his dagger at the wide-eyed goat strapped before him. It symbolizes credibility. He glints, grunts and thrusts.

Or so I heard.

The real estate market will do whatever people force it to. If they choose the Re/Max way, and buy now despite the shoals ahead, it’ll go up. And then the decline will be even more pronounced, requiring far more goats. And what might have been a Garth-forecast correction could turn into a Polzler-imbued crash.

I guess we’ll all find out.

Like Leo did. He wrote me last night.

“Just writing to Thank You for your great blog! Encourage your readers to visit Florida to see first hand what the residual fallout looks like, three years after collapse!

“I own a small business located in the glide path of the Space Shuttle in Merritt Island, Florida. We are just west of Cocoa Beach (I Dream of Jennie) on the intercoastal waterway. Back in the 60′s thousands of NASA types built canal after canal lined with small concrete block homes with docks and easy water access. Up until 2006 life was a “flipping” party! My business sold the supplies (copper, PVC, Irrigation, etc.) to transform these old somewhat rundown homes into stellar “waterfront” property.

“The exact moment the bubble burst was Nov 1, 2006 when the now stratospheric property tax levies were received. As reality set in that cash would be required to pay taxes on these inflated values , the downward spiral began and continues today. To date thousands of space center workers have been laid off and the spiral is picking up speed. The Shuttle program ends in 2011 after 19 years.

“I am now running a 7500 Sq Ft commercial supply house by myself that employed 5 full time employees in 2006. The key for your Canadian readers is how fast it can all fall apart, even in the shadow of the Kennedy Space Center. No place is immune!

“Thanks again for your insight.
Leo Burgunder (President/ Owner, PVC Supply House, Merritt Isl., FL)”

Of course, Regina, Winnipeg, Windsor, Richmond, Milton or Edmonton are not Florida, where houses are cheap, mortgage interest is deductible, loan rates last 30 years, taxes are low, the economy can only get better and it never snows.

This is going to be so interesting.