Canada's Housing Bubble

Apr 13, 2013  Froogle Scott & vreaa VREAA

“In that moment, the money didn’t matter. Only the condo mattered. Now, all the money I have, goes towards paying the loan. I live for the loan.”

Elize Robinson gazes around her condo with a sad smile on her face, wondering what might have been. As the sun streams in through the large skylights in the sloping roof, it is easy to see why she fell in love with the unit. But things did not work out the way she planned. She bought the condo for $380,000 in Mar 2010 with the aid of a huge bank loan. She realizes now that she made a mistake in buying at the top of the market.

“I lost my common sense in that period,” she says. “I was not thinking about the money. It was really a lot of money, I now understand, but in that moment, the money didn’t matter. Only the condo mattered.” It soon became apparent that she was going to struggle with the loan repayments. So instead of moving into her dream condo herself, she rented it out.

At the same time, Vancouver’s housing market collapsed in spectacular fashion. Prices have fallen by more than 45% in just under three years, well and truly bursting the bubble. Now Elize’s apartment is worth less than half of what she bought it for and the rent she receives does not even cover half of the loan repayments.

She blames herself, but is also angry at the banks who made credit so easily available. “They had analysts and economists in their staff. They should more carefully analyze the situation and the people to whom they are giving the loans.”

British Columbia law does not allow Elize to walk away from the loan. Now out of work and expecting her first child, she is worried about the future.

“All the money I have got goes towards paying the loan. I live for the loan,” she says. “Even the social benefits I get I have to give away to pay the loan.” Elize’s is a familiar story, echoed around the country.

Bob Dubonsky, assistant professor at the Sauder school of business, says that Vancouver’s property market was more over-inflated than those elsewhere. “The bubble was so huge. There was so much money pouring in,” he explains. “People borrowed a lot of money to buy a lot of real estate – - 2007-2010 were crazy years.”

Whether or not another boom follows this bust, one thing is for sure. Many people like Elize Robinson fear they will be living with the consequences of the “crazy years” of 2007-2010 for years to come.

—

The above anecdote from Vancouver’s future was produced by barely tweaking the article ‘Living with Latvia’s burst bubble’, by Shanaz Musafer, BBC News, 12 Apr 2010. One tweak: Latvia’s market fell 60% in 3 years, we anticipate Vancouver’s bust will initially be less severe. For those who don’t believe it will happen here, note that the first halves of such future anecdotes are already being written in Vancouver. -vreaa