To bubble or not to bubble?

By , Broker of Record

 

Blog Post June 20th, 2016

 

Perhaps I’m getting lazy, but it’s a lot easier for me to make a comment on an article that’s been written. If I get a brainstorm and there is something that’s monumentally important to Niagara on the Lake and is stand alone, believe me I will comment.

 

I will mention one thing. What a great place Jackson and Triggs is to watch an outdoor concert! We were invited last Friday to see Stephen Page, ex. Of the Bare Naked Ladies. I can’t figure out how the other “Bare Naked Ladies could possibly still be touring. Stephen Page has “the voice,” that is most recognizable to me from the group. They were never my most favorite band, but it as a walk down memory lane late 80’s. 90’s university days… well until we experienced one of NOTL’s infamous power failures. Yep right in the middle of it. The group courageously tried to do it acoustically, but eventually had to call it a night.

 

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Howard Green’s article from last week’s Globe strummed a chord with me. Everyone is looking for something to be wrong with the housing market, is there?  As Mr. Green states:

“We’ve been jawboning forever about prices in Vancouver and Toronto, but only three things matter. Supply – not enough. Demand – lots. And affordability. As for the latter, with rates at rock bottom and lots of foreign buyers, the market is “affordable” for a select group, just enough to make prices crazy.”

I have the funny feeling that prices will continue to rise for some time, unless the Canadian Government does something to slow the steamroller down. I am a proponent of limiting the amount that a foreign investor can pay for a residential home, or better yet – a surtax.

It’s not Canadians that are driving things skyward, let’s face it… I feel that the foreign investment is going to be what eventually brings us to a bubble crisis. It would be healthy if appreciation ran 5-6% this could be sustainable for some time. In Niagara on the Lake, we’ve seen approximately 10% over the past couple of years. Is this sustainable?

I don’t predict any bubbles in NOTL in the foreseeable future. I think that our pricing is a little on the low side compared to other places around the Golden Horseshoe. NOTL offers a lot to those that are sick of the big city. The advent of the GO Train coming to Niagara Falls and St. Catharine’s will have some effect. We are just out of a comfortable commuting distance, keeping tabs on pricing, but when the commute becomes less arduous??

The article below sums up the debate on the housing market. – No one really knows what is going to happen. I hope our politicians are able to implement prudent policies which will keep an eye on things like they did pre – 2008.  Not knowing is dangerous, but not recognizing a potential problem and ignoring it is far worse.

 

 

 

Despite warnings and precedents, the housing market defies knowing

HOWARD GREEN

Special to The Globe and Mail

Published Monday, Jun. 13, 2016 5:00AM EDT

Last updated Monday, Jun. 13, 2016 5:00AM EDT

Howard Green is an author and broadcaster.

It’s easy to forget how long the housing boom in Vancouver and Toronto has been building. The answer is: a generation. Except for a short freeze-up after Lehman Brothers collapsed, it’s pretty much been up for 20 years. Even the brutal Toronto real estate collapse of the early 1990s has been long forgotten.

We’ve been warned about frothiness for a while now, too. Not long after the 2008 crisis, talk of a housing bubble was already becoming part of the national discussion. Every bank CEO got questions about residential real estate. Soft landing, was the stock response. So far, there’s been no landing, soft or otherwise. Don’t buy a condo to flip it, was one banker’s warning. That was half a dozen years ago.

It’s easy to forget that Mark Carney was governor of the Bank of Canada back in embryonic bubble days, flagging the issue of household debt. Curiously, while the Bank of Canada has fretted for years about debt and housing, it has needed a robust housing market. As Mr. Carney’s successor, Stephen Poloz, told me in January, 2014, Canada’s economy is a three-legged stool – resources, manufacturing and housing. At that time, all we had was housing and oil and we know what happened to oil in the summer of that year.

One top real estate executive I had coffee with this spring confessed to me that he doesn’t know how to allocate capital right now. He said he told his staff, I don’t want to hear what you think. I want to hear what you know, complaining that they’ve been telling him rates would go up for the past eight years.

Even the U.S. Federal Reserve, which finally raised its target rate in December for the first time since 2006, seems unsure what to do next after just 38,000 jobs were created in May. By the way, does anyone else remember higher rates? The economy still functioned. Unfortunately, rates are stuck in quicksand now, because that’s what people are conditioned to expect – the only policy response available in the absence of courageous fiscal measures.

A reminder that we got here because the Fed and the U.S. Securities and Exchange Commission blithely let unconscionable risks build up in the U.S. housing market and banking sector to the point where they had no clue about the fragility of the financial system. Speaking with former Fed chair Alan Greenspan in Montreal in 2012, I asked him whether, looking back, he would have done anything differently. He shook his head. Staggering. Who reflects on a global calamity that followed one’s 19-year tenure atop central banking without the humility to even consider having done something a little differently?

As for Vancouver and Toronto, maybe the market will get pricked. But the several policy interventions by Ottawa have yet to let any air out. Maybe those markets defy pricking, at least right now. Look at Manhattan’s residential market – it’s been nutty for ages, too. Yet people still buy there because they want to live in New York. Maybe Vancouver and Toronto will be the same for a very long time. People are desperate to get out of other places in the world and these are safe shores.

We’ve been jawboning forever about prices in Vancouver and Toronto, but only three things matter. Supply – not enough. Demand – lots. And affordability. As for the latter, with rates at rock bottom and lots of foreign buyers, the market is “affordable” for a select group, just enough to make prices crazy.

And the “what ifs” are endless. What if the polar ice caps melt and Manhattan finds itself underwater? People will move inland, maybe to Toronto! Maybe even Buffalo and Cleveland will have another heyday. What if that massive earthquake finally comes to the Pacific coast? Not to be flip about what could be a horrific disaster, but that would change the Vancouver market in seconds.

So while corporate leaders and well-intentioned policy makers can warn all they want, they clearly don’t know what’s going to happen any more than you or I do.

Chris Bowron of NOTL Realty

Christopher Bowron

Broker of Record

Read other posts by Chris Bowron