Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Canadian Housing Bubble, or Vancouver Housing Bubble?

By Saj KarsanMarket OverviewFeb 19, 2012 12:58AM ET
www.investing.com/analysis/canadian-housing-bubble,-or-vancouver-housing-bubble%20-114382
Canadian Housing Bubble, or Vancouver Housing Bubble?
By Saj Karsan   |  Feb 19, 2012 12:58AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

When the US underwent its housing bubble (and subsequent burst) a few years ago, there were a few signs of trouble. New home inventories were high, as expectations were through the roof (never a good sign). Home builders traded several times their book values, suggesting extreme optimism and over-building (to capitalize on unsustainably high profit margins). Price to rent and price to income ratios skyrocketed.

Today, many are saying similar residential real estate bubbles are occurring in China, Australia and Canada to name a few. As a home owner in Canada, I'm interested in studying this phenomenon so as to ensure I don't end up on the wrong side of it, much like many of my unfortunate American brethren.

Clearly, Canadian house prices to incomes have fallen out of line with their historic norms, as have Canadian price to rent ratios.

But another thing we learnt from the US housing bust is that not all regions froth to an equal degree. Las Vegas and Phoenix, for example, saw massive declines when the bubble finally burst, while other places escaped with barely a scratch. Canada is a particularly geographically diverse (in terms of natural resource availability, types of industry etc.) nation, and so it's conceivable that the stress of any Canadian housing bust will be felt to varying degrees depending on the region.

To that end, I've compiled several years' worth of new home inventory (source: CMHC) levels for three large Canadian cities (and their surrounding suburbs), Vancouver (which is the most expensive city), Toronto (the largest city), and Calgary (which is somewhat reliant on the oil market for its level of prosperity):

Van tor CGY New Home inv
Van tor CGY New Home inv


From this chart, it hardly looks as if inventories are out of control, as they are well-within their range of the last decade. In fact, there may even appear to be a shortage of homes in Toronto.

However, switching to the condo market, one does start to see some potential over-optimism on the part of builders, resulting in very high inventories of as-yet unsold new multi-family units:
Van tor CGY New Multi inv
Van tor CGY New Multi inv

Here we see how hot Vancouver is compared to the other cities. But wait! The above chart isn't adjusted for population. Toronto's population is more than double that of Vancouver's, and yet Toronto has only half as many condos available. Adjusting the inventory chart for population makes the situation look like this:
Van Tor CGY New Multi By Population
Van Tor CGY New Multi By Population

Clearly, there are a lot of new condos in Vancouver, both on a historical standard and compared with other cities. For now, there are enough sales taking place in Vancouver such that this inventory is not staying on the market long enough to significantly pressure prices. But that can change in a hurry. A rise in interest rates or a reduction in consumer confidence or some other shock could reduce demand, and that would leave a whole lot of properties on the market. Whether this situation will also affect the detached home market is anybody's guess, but if capital becomes tight as a result of fear in a certain part of the housing sector, it may take the whole sector down with it...who knows!

Canadian Housing Bubble, or Vancouver Housing Bubble?
 

Related Articles

Canadian Housing Bubble, or Vancouver Housing Bubble?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email