One by one the housing bubbles pop: Ireland, Spain, UK, US, Canada…

Via Globe and Mail:

Now we get the real test. A potential and proverbial perfect storm for housing.

For the first time ever, Canada is facing overvaluation in its biggest markets, over-indebted consumers, a major tightening of mortgage rules and the prospect of rising rates.

This is not a drill. Homeowners might well start preparing for three things:

Tougher mortgage guidelines

Canada’s banking regulator (OSFI) is proposing that anyone who gets a mortgage at a bank or bank-funded lender prove they can afford a rate that is at least 200-basis-points higher than their actual rate.

A similar debt-ratio “stress test” is already in place for folks getting a default insured mortgage, as well as most variable-rate and short-term borrowers.

Albeit, banks do make “exceptions” to their debt-ratio limits for otherwise strong uninsured borrowers. But now, no one getting an uninsured mortgage at a bank (with a five-year term or longer) will be able to escape the stress test. Come this fall, it would apply to almost all of the 4 out of 5 mortgagors in this country who have at least 20-per-cent equity.

If OSFI’s change goes through as planned, otherwise credit-worthy borrowers would qualify for roughly 18 per cent less mortgage, other things equal. This one change would have more of an impact to mortgage shoppers than any Bank of Canada rate hike in history.

Higher rates

If you believe the Bank of Canada’s hints and bond market probabilities, there’s a real chance we’ll see higher floating rates as soon as next week’s rate meeting, or at its meeting in September. (Albeit, Thursday’s OSFI news could limit the BoC’s rate hike plans.)

As for fixed mortgage rates, they’ve already shot up on the back of a 50-basis-point surge in bond yields since June 6. RBC, Canada’s de facto leader in setting mortgage rates, hiked most of its advertised fixed rates by 20 basis points on Thursday morning. Most other lenders have done the same and it may be only the first of multiple moves.

Home prices under pressure

Near-term, many home buyers will hurry into the market before rates shoot up, the new stress test kicks in and they can’t qualify for the same size mortgage.

But later this year, Canada’s real estate market could shift decidedly to a buyer’s market – assuming these higher rates and stricter rules siphon demand as expected. We’re already seeing a selloff in the Greater Toronto Area, with average prices down 13.6 per cent in just two months. The news above may only exacerbate that selling. It’s categorically bearish for most small and mid-sized markets.

What to do

The housing market has repeatedly defied expectations despite everything the government has thrown at it. And market predictors are wrong half the time. So it’s almost foolish to call a top with confidence.

But I will say this:

Please don’t feel rushed to buy. Any short-term spurt in demand could easily fizzle as sellers start to realize what’s happening. And while we’re at it, can we shelve that overused acronym FOMO (fear of missing out)? There’s now far less risk of waiting for your dream home. In fact, you may very well find it “on sale” this fall.

Straya is different.

David Llewellyn-Smith
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Comments

  1. “Near-term, many home buyers will hurry into the market before rates shoot up, the new stress test kicks in and they can’t qualify for the same size mortgage.”

    So “people” will rush into a market in order to buy an asset that – with only a moment of rational thinking they would realise that -:
    the value of the asset is locked in to decrease immediately after they rush in to beat the deadline; &
    the % they pay on the loan for said asset will increase immediately after they rush in to beat the deadline.

    “people” are fucking stupid

    • Do not underestimate the Moron Side of the Force…… if you only knew the power of the Moron Side. Obi-Wan never told you what happened to your savings account.

    • Mining BoganMEMBER

      FOMO should be replaced with FOHTB. Fear Of Holding The Bag.

      This is Straya though so that’ll be called sexist.

      • GeordieMEMBER

        I’m sure you mean fear of being caught holding the goon bag when someone turns on the lights?

      • The Traveling Wilbur

        This. But it’s also one of the reasons Reusa’s so successful… his guests at his relations parties are the ‘no bag required’ kind.

      • I’m not speaking from a position against future growth per se, I’m just trying to clear the air WRT the well flogged dead donkey excuse that the Chinese will save us.

    • You could have said the same thing 5 years ago and missed out on tax free doubling of your money. Bubbles are easy to identify but it is hard to tell when the peak of bubble is.

      The Chinese love our property and will keep our boom going for another few years.
      “Chinese investors purchase $24B worth of Australian real estate each year” https://www.businessinsider.com.au/chinese-investors-purchase-24-billion-worth-of-australian-real-estate-each-year-2017-7

      Not buying now could be a huge mistake.

      • Leverage up mate, sky’s the limit! Come back in 2 years and let us all know how well you got on.
        Also, Chinese outflow is being strangled, so that platitude is wearing thin.

      • reusachtigeMEMBER

        ^^ LOLOLOLOL!! Dudes like Simon have been missing out with that attitude for decades now. They will continue to lose, always!

      • yeah, the Chinese that bought 3yrs ago must be stoked their investment in CNY has depreciated by 30%. Great anecdote to friends and family to invest their laundered funds here.

      • Case as point from the McGrath agent in Brisbane apartments:

        “The sudden supply has dovetailed with a clampdown on bank lending to for­eigners and investors to cool overheating down south, and the market for one-bedroom and two-bedroom units is oversupplied.”

  2. Will be interesting to see what happens in Vancouver. Luxury condos valued at $4m selling for $8m cash…

  3. boomengineeringMEMBER

    Think I might start selling popcorn and get in before the corn boom, whoops that’s me.

    • john6007MEMBER

      I was waiting till condos got to 10 mill before buying in and getting invited to Resua’s overseas relations party.

      • The Traveling Wilbur

        O.M.G. There’s another sane person on this site. *waves*

        PS as we both know that’s actually required (bar an external event) and as I believe we both think (bar an external event) it’s never gonna happen… then… the low rate debt party is going to keep rocking in Oz for years? Decades? This is the new normal thanks to deflation and sequestered productivity gains?

      • What’s interesting is that the ASX rates futures market is no longer pricing in ANY probability of a cut (i.e. 0% chance), and the market is forecasting the next move to be up.

        Egg on your face HnH?

      • Being pushed off ‘interest only’ into ‘principal and interest’ will feel a lot like a rate rise to most people.
        Much higher repayments.

  4. sydboy007MEMBER

    If the block is the strayan version of property porn, I wonder what will be the bubble bursting version???

      • sydboy007MEMBER

        I’m just waiting for the who-cudda-known articles and teary eyed people on TV asking how it all went wrong and why didn’t someone do something sooner.

      • Ah, I see. Well, things cannot be too bad while they still have tears to shed. Real horror begins when they can no longer do so due to malnutrition.

        But then again, perhaps you will not hear about those “forgotten people”.

      • On the who-cudda-knowns, this weekend had two people, who I know to be far brighter than myself, tell me that it wasn’t incompetence by the WA government that led them to their current state of stuffed-upedness. It was a case of over committing to worthwhile capital projects coupled with an unforseeable drop in commodity prices.
        Not only is the moron side of the force strong, all seem to be vulnerable to it.

      • The Traveling Wilbur

        @footy

        Well if you will hang out with 3d socially… ; )

        What’s the saying? If you lay with stupid you wake up with shares in FMG?

    • GeordieMEMBER

      TRAINSTRIKE LIVE!

      Now streaming from stations, overpasses and level crossings near you.

    • My wife watches a lot of those property shows. There was one that was still filming when the GFC came through. Think it was property brothers or something. Man, it felt good to see reality finally arrive. There was no way for them to sugar coat the loss the buyers/sellers took and I think that was the last season set in America.

  5. Tiliqua scincoides

    Australia has a much smaller population and a seeminly endless supply of foriegn capital wanting to purchase property. It is differerent here. I know for a fact that there is still plenty of hot Chinese money flowing around.

    • Tiliqua. He gets it!

      Too early to write a guy’s obituary when he is still pounding you in the head with his fists!

      • reusachtigeMEMBER

        It’s hilarious. Dudes on here keep talking like there’s some mythical crash underway yet each and every day house prices boom higher and higher. These fools on here keep making the same mistake year after year. Definition of insanity for sure. Top exhibits!

    • J BauerMEMBER

      Plus we have a govt which’ll do anything to prevent prices falling. Canada’s reversion was due largely to govt intervention.

      • Could be argued that as prices get worse, the likelihood of an interventionist government being elected approaches 1. Labor are certainly getting some positive feels from talking about scrapping/narrowing negative gearing etc

    • GeordieMEMBER

      The bubble has burst already, however, a balloon might be a better analogy. Right now we’re at the farting noise flying erratically round the ceiling bit.

      People will only believe it has burst when it’s lying limp and flaccid on the simulated synthetic hardwood floor sheeting, like one of Reusa’s burnt out love gloves.

      • The Traveling Wilbur

        That’s wrong and possibly libelous.

        Reusa doesn’t use love gloves – for similar reasons he never uses LMI either btw.

      • “The bubble has burst already”

        Are you sure? The fate of our bubble has long been sealed and the great positive feedback is accelerating, as expected. Still, it is too early to pronounce the patient dead.

    • I loathe admitting you’re right but you are.

      I’ve done some googling recently on this. I assume everyone on this website is aware of the Chinese crackdown on getting money out of the country via traditional means.
      (Approximately Nov, 2016)
      https://www.google.com.au/search?q=china+november+2016+money&rlz=1C1CHBD_en-GBAU738AU738&oq=china+november+2016+money&aqs=chrome..69i57l2j69i60j69i59l2j69i61.2880j0j7&sourceid=chrome&ie=UTF-8

      Note that after that, “shit got real” for bitcoin.
      http://www.coindesk.com/price/ (click 1Y or all)

      So, ok this could be a coincidence, fair response, I agree – seems possible but here’s more.
      https://www.google.com.au/search?q=china+crackdown+bitcoin+2017&rlz=1C1CHBD_en-GBAU738AU738&oq=china+crackdown+bitcoin+2017&aqs=chrome..69i57.8584j0j7&sourceid=chrome&ie=UTF-8
      You’ll see this was around February / January 2017, Chinese govt trying to take on Bitcoin.

      So this happens a few weeks later.
      http://www.coindesk.com/ethereum-price/
      https://www.worldcoinindex.com/coin/litecoin
      (Again, check the 1 year charts)

      If this isn’t ABSOLOUTE evidence (or damn close) that the Chinese are seriously into these products, I don’t know what to tell you.

      Don’t think for a second, I’m suggesting to invest in digital currency. I haven’t worked out how to be sure I’m at the bottom of one of these spikes, but what I can tell you, is this really really seems like ample evidence that there’s still plenty of money in China, dying to get out.

      Also just a note, if you’re not following digital currency at all, in my opinion, (especially based on the graphs and the timing of the graphs) Litecoin “had it’s run” and had tapered off into a basic side currency of little major value, somewhat realistic.
      The currency was suddenly completely (temporarily!) legitimised again, when China has decided to buy into it, in what I can only imagine is simply transferring cash from China to London, New York, Vancouver, Melbourne, Sydney, Auckland, same old same old.

      It’s not over, it’s still going on, they still want out. They want our clean air, they want our houses, they want our clean water, “free-er” governments, they want our schools, our food, our stores and our rent. (in some cases…)
      I’m kind of sick of noticing this and getting angry and it’s time to fucking sell out and join them, profit from them – it’s been going on for years and *it’s just not stopping folks* so time to get creative.

      • Great post. It’s time for capital controls and prosecuting the foreign transfer crooks

  6. My mum lives in Enmore and goes to all the auctions in her street, she said a month or two back houses were going for $2.5 mil. A house she considers one of the best in the street just went for $2.1, only two bidders. She said the fact it sold at that price shocked her even more. She has been waiting for my deadbeat 22 year old brother to leave so they can sell, now doesn’t know if she will get $2 mil plus. I don’t know how it’s not showing up in prices but in her sought after street, it has already burst

    • Yes. A lack of bidders at auctions in Sydney means expected prices have dropped back in last few weeks. Now one or two serious bidders is about it. The APRA changes have hit investors hard. Now it is the time for first home owners and upgrades to buy, obviously at different price points.

    • I looked through clearance results in Vic nearly every unit is passing in. Some houses are going cheaper than I expect while a few still reach silly status. It’s a 2 speed market with less and less orgasmic prices being reached.

      We’ve all thought it was bursting before but want makes me think now is a bit different is that globally all markets are cooling which leads me to believe it’s been very Chinese driven.

      If this continues into October / November I think it will well and truly fall over. My mum plans to sell in Caulfield South in October she thinks she will miss the boom. Her neighbour across the street is also preparing to sell. I think a lot are trying to sell right now.

      6 months ago I told her some Chinese dude would pay 2.3M for the house now we’re thinking only 2mil and by October maybe only 1.7M would be achievable. My mum is motivated to sell and downsize no matter what. I think even $1M is extreme for a house like our 1. She bought it in 1997 for $320k. Just to give you an idea of how silly things have become.

      I think if she misses the boom she should just rent it and hang on another 10-15 years to it. She has no debt and I am almost certain something will be done within that time frame to reinflate housing bubbles around the world.

      • kiwikarynMEMBER

        I think come spring there will be a flood of property hitting the market as FOMO starts to mean fear of missing out on selling your house at high prices instead of fear of missing out on buying and getting huge capital gains. For the record, fear of losses is a far stronger motivator than greed, as has been borne out repeatedly in the share market for the last 200 years.

      • FWIW mate the CBA property app says 1.547M for your mum’s place (was easy to find).

        For my pissy little place that we bought for just over 600 4 years ago, it used to say 1.01M, now says 792. Who knows how accurate it is, probably not very.

        God I hope it pops soon so that you poor souls can slap each other on the back, finally. Some of you have been popping in very regularly for the best part of 4 years (maybe more, I don’t know) so you deserve it for perseverance at least.

      • @Turnitup. I just double-checked and the date of purchase and amount was slightly different but close enough. You may have a slightly different address. It doesn’t matter either way. RealEstate.com.au pegs it at $1.5M or so also… Which I think is still nuts.

        House not far from my mum was asking over $2M didn’t get a bid at auction, smaller place no garage and smaller block I believe. So we shall see what happens. It’s got to crash, just a question of when!

      • Here is a few near my mum’s place.
        https://www.realestate.com.au/sold/property-house-vic-caulfield+south-123975726
        $1.8M LOL.

        and this 1 went up for sale recently at over $2M. Did NOT get 1 bid. Looks to have been pulled off the market without a sale.
        https://www.realestateview.com.au/property-360/property/3-raymond-grove-caulfield-south-vic-3162/

        My mum’s place is larger than both and nicer more modern looking inside etc.. Also had a double garage etc.. So yeah I think close to $2M a couple of months ago. Now I’m thinking 1.6-1.7M maybe?

        As a side note I’m always looking for a Warehouse conversion and I had my mum check out this place in Bentleigh which was asking 1.3M
        http://www.realestate.com.au/property-house-vic-bentleigh-125173298

        I reckon a few months ago it would have sold almost immediately as it’s quite nice and has hipster appeal but they haven’t been able to sell it. Dropped the price I think to maybe 1.2M still not sold. So I believe the top end is struggling and the bottom end will follow soon enough..

      • @Turnitup,


        This says Melbourne is up 15% and Sydney 13% over the last 12 months. So a 15%-13% drop only gives back the last 12 months?

        Just remember that the value of a house these days is mostly contingent on the strength of the belief that it will rise strongly in the near future – without that belief, it would only be worth what it was worth in the late ’90s plus CPI. If there’s a widespread drop of 15% in a twelve month period, something big will need to happen to put a floor in.

    • Check out Zillow.com Jacob and have a look at Enmore equivalents in the U.S.A. $2.5mil will get you an absolute palace in the Hamptons, NY or Brentwood,CA next to Lauchlan Murdock’s joint

    • Interesting and I know it’s all anecdotal. But my father in law who built and lived in his house in northern suburbs of Melbourne forever has been talking about cashing in on the current boom himself. This is a guy that has always been strongly opposed to selling his family home. Interesting times ahead…

    • While it may be true people are having trouble securing high loan around the 2.5mil mark. They have instead gone on to buy in undesirable suburbs like sunbury, craigieburn or Mooroolbark, and pushed rock bottom suburbs to new heights.

  7. A friend holds about seven condos in Sydney with an interest only loan of about $5-6 mil. He was told by StGeorge bank his interest rate will go up by 0.5% unless he converts to P&I. He chose the latter and his repayments went up by nearly 50%!
    Guess who’ll be dumping stock on the market together with thousands of others?
    Australia will again be a land of opportunities, ah?

  8. reusachtigeMEMBER

    LOLOLOLOL!!! Bring up ancient history like Ireland, Spain and the US. Those places have got some serious booms going on again. If people don’t buy there soon they’ll miss out for sure. That’s what housing does, it booms and idiots miss out!

    • Certainly parts of the US are going well now. A lot of people who were declared bankrupt during the GFC will soon be eligible for loans again so it will be interesting to see if it Fires right back up or if people remain gunshy.

    • Reusa mate – you need to be right everyday for this boom to go on.
      The biggest bubble pop in AU history( price drop between 30-60% ) – only need to be right once ….

    • Reusa I don’t know why you don’t sell up everything and then talk the market down at your relations events.
      Think of how young you would look if you bought up everything at bargain basement prices after a significant correction.

      Something to ponder?

    • BoomToBustMEMBER

      You are suffering from “Blue Sky Syndrome” ie the sky is always blue, has always been blue and nothing will ever make it cloudy and grey, soon many people will be suffering from “Grey Sky Syndrome” !!

      • “Never saw the sun, shining so bright, never saw things, going so right…grey days, all of them gone, nothing but blue skies from now on….” The song was written in 1926.

  9. Ah Neil, maybe you should read the article in the AUSTRALIAN about Brisvages. The condo punters up there are certainly gonna lose their unmentionables even without setting a foot inside its numerous gambling dens. Straya is different, buddy, we probably have more idiots per head of population than even our sister country, Canada!

  10. Toronto down -13.6% in 2 months, and down another -1.35% in the first week of July. That’s a 15% correction! See here: http://www.greaterfool.ca/2017/07/09/insights/#comments

    Auckland down -6.7% in 3 months.
    https://www.interest.co.nz/property/88635/barfoot-thompsons-median-selling-price-now-back-down-where-it-was-12-months-ago

    Sydney auctions are weak, properties in hot areas that used to have multiple bidders fighting it out are now passing in. It looks like this could be a global property correction for countries that missed the pain of the GFC and/or countries where foreign buying has been a meaningful (but not the only) factor. I expect Sydney prices to fall over the next few months, somewhere between the Auckland and Toronto falls. But Toronto and Auckland are still falling so difficult to say where or when the falls will stop.

  11. kiwikarynMEMBER

    Just wait until panic sets in – this will be when people realise that their houses are just about to be worth less than what they paid for them, and they have only a few months to get out without negative equity.

  12. Hill Billy 55

    Any feed back on the Tax Office Clearance certificate requirement on sales above $750K (previously above $2Mil). Has this affected the market in Syd/Melb over the past week?

  13. I’ve been in NY for the last few weeks (which is definitely being revisited by the inflation that the Bernank exported a few years ago) but I’ve got a ringside seat to watch the Toronto market implode, which is positively glorious. The hubris is getting flogged out of the Canadians to my delight. And it will soon be flogged out of their equally staggeringly arrogant and stupid antipodean cousins. Good times.