Recently I went to a PHP programming conference in Chicago, Illinois and was able to sit next to a Canadian businessman on our flight home. We discussed many things and some how we ended up on the U.S housing bubble.
“How much have homes appreciated in value where you live?” I asked.
“Well, I sold a home in early 2000 for about $180k” he started. “Now that same home, with maybe $300k worth of upgrades would go for $700k-$800k”
Uh oh, I thought strike one
I proceeded to tell him about Bend and how at our height, the median was around $400k.
“What is it now?” he asked.
“Well, I think last month the median was around $180k”
The businessman sat there, mouth agape, stunned.
“Glad that isn’t happening up north, I’d be in trouble. I think homes in Canada are going to just level off in large YoY appreciataion because they were so cheap before”
strike two I thought.
“Well why couldn’t it happen with Canada also?” I asked directly.
He looked at me, and with conviction, said “Well, Canada is different…” and proceeded to tell me how.
Strike three I thought this thing is toast
And then today I read this article from mish
…
Imagine, 68% of your disposable income being spent on housing costs with the remaining disposable income likely being spent on their favorite Top Ramen and KD dinners. This is insane as well as unsustainable. It’s funny that many Canadians seems to think that the 49th parallel has magically created immunity from a housing bust that in their minds is exclusive to the United States. I can’t tell you how many times friends and acquaintances say that Canada’s banks are sound and there was no sub-prime lending and it just can’t happen here. I’m quick to remind them that the loss of one income from a two income family will in essence convert a low credit risk to a poor credit risk akin to that of a sub-prime borrower real fast. Now, multiply this my hundreds of thousands if not millions of borrows and we too have a major problem in Canada no different from that of the US. Wishful thinking really. The proof’s in the pudding and this puddings going to bring a dose of reality to those that are living in fantasy land, way beyond their means and who apparently have missed the global financial crisis that’s been gaining traction and intensity since August 2007.
We’re not only “Hosers” in Canada but we’re royally Hosed as well!!
Robert Clegg, JD, LL.M
Ombudsman, University of Calgary
Calgary, Alberta
Now if only I could figure out how to short the housing mess that we all know is coming to Canada, I’d be insanely rich.
-peace
So Jared, not sure if you heard but the Canadian economy is one of the best in the world. Mass unemployment is not a major concern as our economy just expanded by 6.1% annualized, in Q1 2010.
For sure Vancouver continues to have an affordability problem…but that’s a localized problem. But if I had to, I’d short Vancouver and Ontario…long the prairies and maritimes.
Hey Jarrett, thanks for the comment. I appreciate the fact that the Canadian economy has been stated to grow in Q1 but I wonder how much of this “growth” is simply due to the fact that money (grown from debt instruments) is being tossed around.
A housing market just can’t grow like that, in the States we now know this from experience. The businessman that I spoke with even lives in an outlier area. So I have a hard time truly believing it is a localized event in Canada.
Please note, I haven’t looked at any hard data, so for the record this is all anecdotal observations. But I suspect that given access to a large Canadian data-set, I could extrapolate a pretty solid conclusion. And as always, I could be wrong. Though I don’t think so.
Canada is in a major RE bubble right now, don’t let anyone tell you otherwise.
Here’s the most complete analysis of the bubble I read in months : http://www.zerohedge.com/article/guest-post-elusive-canadian-housing-bubble
The question is, how do you profit from it? If anyone has ideas, I’d be interested in hearing them.
I’m thinking about shorting some RE ETF (Canadian REIT — (REF.un) ; Riocan REIT — (REI.un), but it’s an indirect short and we are not exactly in John Paulson territory here.
Any thoughts would be appreciated.
Hi Nick,
I personally do not plan on shorting any REITs directly. I just don’t have the wallet to cover the shorts should they get called (and they will be be called).
I am looking at industries that are heavily tied to REITs yet don’t have the insane volatility. Have you thought about this approach? If so, can you expand on it?
Shorting REITs is also expensive since you have to pay the dividend.