Canadian Real Estate, the Black Swan and the Russian Bear
While we wait for the December 2014 Canadian real estate data from the various boards, here are some year end quotes that underscore just a few of the large scale inputs that can overwhelm the so called immunity that Canadian real estate prices are said to have against any deep price correction as has happened to other over leveraged housing and other commodity and financial derivative markets since the .com blowout of March 2000.
In case you have forgotten the depth and velocity of the previous market reversal when average Canadian single family detached housing prices plunged in 2007-2008 (chart); householder equity vanished as follows:
The chronologically ordered links below go to the full articles.
TRADE WARS & SANCTIONS
ENERGY INVENTORIES SWELL
The Purpose of War
Nineteen Eighty Four
Canadian Housing in USD
The breakout in the USD and the sell off in Canadian Petro Dollars looks to be an important shift of view for Canadian housing valuations.
I have given this new chart its own page and each month I will update the CAD USD spread as represented by the valuations of average single family detached houses in the hot metro markets of Vancouver, Calgary and Toronto.
The spread is widening dramatically as it did after the July 2008 oil peak and Canadian housing denominated in CAD, especially in Vancouver, has yet to recognize that a switch has been thrown.
Do Canadians Need to Look at Their Balance Sheets Again?
Loan growth generally accompanies economic expansion. Individuals, businesses and large corporations have no problem raising capital to fund new projects or upgrade and retool when prices are rising.
The 3 panel chart to the left shows lending to the private sector since 2008. Canadian private sector borrowing is compared to that of the U.S. the U.K. and the Eurozone in each panel.
The Canadian and U.S. private sectors very quickly in 2008-09 reacted to the global credit defaults by reducing their total borrowing by +/-10% and did not change course to head back to the teller's cage until 2010 when a new wave of borrowing was sparked by fresh lows in the bank rate. The mania has lasted 5 years and private sector loans have grown by more than 40% and only recently does the chart show any signs of exhaustion... for Canadians.
The plot line for private sector borrowing began to roll over in Canada in mid 2014; the energy market took its first big hit in the fall of 2013; that was the warning; the bust has arrived.
Energy prices are plunging and Canada's biggest export sector is energy.
According to StatsCan Canada's top 5 export sectors account for +/- 68% of total exports:
Top 5 Canadian EXPORT Sectors (and % of total exports)
Notice that Canadians also import the same stuff they export:
Here is a photo of the cheapest building lot I could find on the west side of Vancouver and the lot is small at only 4026 sf. ($330/sf) Listing ID: V1096241 ~ Good luck to you sir.
History, Charts & Curated Readings
"History, real solemn history, I cannot be interested in.... I read it a little as a duty; but it tells me nothing that does not either vex or weary me. The quarrels of popes and kings, with wars and pestilences in every page; the men all so good for nothing, and hardly any women at all - it is very tiresome." Jane Austen spoken by Catherine Morland in 'Northanger Abbey'
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense