CLICK TO ENLARGE CANADIAN HOUSING PLUNGE-O-METER
*Ottawa data are Combined Residential (not SFD) and Montreal data are Median (not Average)
**The Price Support target represents prices at March 2005; the start of a 40 month period of ardent speculation in all commodities; then a full blown crash into the pit of gloom (March 2009); and then another 39 month rocket ship to the moon but then the crowd suddenly thinned out in April 2012.
**The Price Support target represents prices at March 2005; the start of a 40 month period of ardent speculation in all commodities; then a full blown crash into the pit of gloom (March 2009); and then another 39 month rocket ship to the moon but then the crowd suddenly thinned out in April 2012.
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The Canadian Real Estate Plunge-O-Meter...
...tracks the dollar and percentage losses from the peak and projects when prices might find support. See also Pacifica Partners Analysis.
Look at the price chart and see that there was a 4-6 month plateau period while buyers and sellers twitched like a herd. When the credit spreads narrowed and the yield curve began its journey towards inversion, the stampede began. |
Plunge-O-Nomics
In case you have forgotten the depth and velocity of the previous market reversal when Canadian real estate prices plunged in 2007-2008 (chart); householder equity vanished as follows:
- '07-'08 Average Vancouver SFD lost $122,900, or 15.9% in 8 months (2%/mo drop)
TODAY: Vancouver SFD down $157,900 or 14.8% in 11 months (1.4%/mo drop) - '07-'08 Average Calgary SFD lost $92,499, or 18.3% in 18 months (1%/mo drop)
NEW CHART: Dedicated Calgary Housing - '07-'08 Average Edmonton SFD lost $78,719, or 18.5% in 21 months (0.9%/mo drop)
- '07-'08 Average Toronto SFD lost $63,867, or 13% in 13 months (1%/mo drop)
NEW CHARTS: Dedicated Toronto Housing and Compare Toronto to Vancouver - '07-'08 Average Ottawa Residence lost $25,664, or 8.6% in 6 months (1.4%/mo drop)
- '07-'08 Median Montreal SFD lost $6,000, down 2.6% in 6 months (0.4%/mo drop)
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Many analysts demonstrate that...
...the technical blowout in the last great cyclical boom occurred in March of 2000 and since then we have had serial bubbles at the hand of central bank administrators... globally. Prior to that, Japan and the USSR blew out in the late 1980's and the Asian crisis in the late 1990's, all under central command. More recently Argentina defaulted in 2001-02 and now European taxpayers are on the hook for public and private mal-investment. The Dow and S&P peaked October 2007, commodities (CRB) peaked July 2008 and bond prices (U.S. T-Bond) peaked December 2008.
Real estate has boomed since the early 2000's atop a huge edifice of debt that is only being propped up by the willingness of fewer and fewer buyers who think that prices will never collapse despite history being full of examples of the opposite. Rising prices lead to over-leverage and a speculative fervor which lead to prices rising further. When prices decline, market sentiment changes and real estate becomes a slow moving asset class as debt revulsion sets in and fundamental illiquidity leads to a re-pricing of risk. At that point there is only one viable solution and that is for debt to be transformed into equity, and that occurs either by the debt being repaid, or written off. Governments (who do not issue their own non-convertible currency eg: Greece, Spain and Italy) or corporations and individuals who act by adding more debt (bailouts) are simply delaying the date of foreclosure, increasing the amount of asset destruction or lengthening the time and amount of repayment. Debt leverage only works when prices are rising. There are much better mortgage models to follow than what CMHC has cooked up with tax payer "insurance". See the Danish Mortgage Finance Model where the combined loss ratio for all Danish mortgage credit institutions (MCIs) has never exceeded 1% in any one year – a number most other countries can only dream of. A change in the taxation policy would also help. The way that government collects tax is highly inequitable. For an elegant solution see the APT (Automatic Payment Transaction) which would eliminate the tax complex. Gone would be personal, corporate, property, estate, capital gain, income, sales, excise and all manner of taxes or levies disguised as fees as well as the elimination of tax returns, deductions and special interest exemptions. Implementation of this elegant and simple idea in Canada would allow Canadians to create an original, authentic social organization that would eventually be copied by all other nations; unless of course the incumbents are afraid of change and would rather cling to their failed state agenda. Let's apply the power of the internet to get this Automated Payments Transaction Tax idea into the mainstream and into application. Canadians, write your Member of Parliament. Complex problems can be solved with simple ideas. Here's an attempt to think about some of them. Polling Data VOTE HERE
Participate by registering your opinion every month on where you think average Vancouver, Calgary and Toronto single family detached prices will be one year from now and I will chart the results against the actual prices.
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