Back to the news... If you are looking for MY QUEST FOR A CONDO, click here.
HOWEVER AT THE SAME TIME Canada's household debts has skyrocketed from $1.3 trillion (it was $600 billion in January 2000) to $1.61 trillion in only 3 years. So either way you look at it ($300 billion in 3 years or $1.01 trillion in 12 years) we've really been piling on the household debt in the form of mortgages, credit cards, lines of credit...
NOTE: $300 billion is enough to buy 600,000 houses for the average price of $500,000. I would hazard a guess that Canada's housing bubble is being fueled by too much credit and household debt.
Bank of Canada governor Mark Carney says he regards Canada's household debt — which currently is at a near-record 151 per cent of disposable income —as the No. 1 domestic risk to the Canadian economy. Individual household debt was $39,597 in 2009, but has risen to approx. $48,735 by April 2012.
Remember that is an average debt per household. It may not seem like a lot, but when you consider the demographics of WHO is in debt you start to realize its a lot more than $48,000.
The following is from Statistics Canada:
32% of working Canadians are not saving anything (for retirement or anything else because they have too many debts to worry about right now).
For people making less than $35,000 a year, 49% surveyed reported that their debt levels rose in the last three years. 42% for people $35,000 to $75,000 a year. 38% for people making over $75,000.
So evidently its effecting lower income people more, but when you consider middle income and upper income people are also packing on the debts (and when you consider its middle and upper income people who buy houses and condos) it becomes self-evident that if a housing market collapse happens it will be the middle class people who have a huge mortgage they cannot afford which will end up losing their shirts.
Driving the housing starts is all the pressure on condos currently happening in Toronto and Vancouver, where the condo markets are so red hot you'd have to be a complete fool to be purchasing during a bubble. (Because when the bubble pops you won't be able to refinance...)
In theory Canadian banks should be more cautious about whom they give mortgages to, but the problem is that the banks don't insure their own mortgages. The CMHC (Canada Mortgage and Housing Corporation) insures them. Its basically the equivalent of Fannie Mae and Freddie Mac in the USA.
NOTE: When the US housing market collapsed in 2007-08 it ended up costing American taxpayers $700 billion in bank bailouts and hundreds of billions of dollars more in economic stimulus from the resulting economic fallout. Due to the CMHC's policies the same thing will likely happen here in Canada between now and 2015.
I say 2015 because that is when the condo market in Toronto and Vancouver will likely implode due to the sheer number of condos currently being built which will become available by 2015, despite the fact that people aren't buying that many condos... See my older article Toronto condo market might burst for complete details.
Toronto currently has 199,000 condo units, but another 27,504 are under construction right now and will be finished by 2015. That will boost supply by roughly 14%. The problem is that there is not enough demand for people to buy 27,500 extra condos in the next years. Prices will have to take a huge hit (by maybe 10 to 12% over the short term), but over the long term it will kickstart a collapse of housing prices in Toronto.
A lot of it is fueled by overseas investors who purchase the condo using a Canadian mortgage (via a Canadian bank, insured by the CMHC) and then flipping it for a profit when the property is built. However if they start taking losses all the investors will pull out of Canada in a hurry and the prices won't just fall, they will PLUMMET.
So yeah, doom and gloom.
But there is a sunny side of this for people like me who wants to get a condo (see My Quest for a Condo). It means that when people are desperate to sell they might be willing to trade...
NOTE: Household debt is leveling off, slowing to 4% annual accumulation in 2012 from a high of 10% in 2011. Why? Many Canadians have reached their credit limits and can't get more credit. The danger however is that this means many people might cut back on spending, which will hurt consumer confidence levels, cause more companies to go bankrupt, layoffs, economic downturn... and possibly a housing market collapse ahead of schedule.
I am still betting it will happen by 2015 to coincide with the condo market overflow of supply, but if it happens sooner than I expect then I won't be complaining. It will just make it easier to buy (or trade) for a condo when the prices drop to half.
Advertising Amenities Architecture Bizarre and Interesting Real Estate Commercial Real Estate Condo Sales and Prices Construction Credit Dream Home Economics Electricity and Alternative Energy Flipping Properties Gardening Glossary Home Insurance Home Related Home Sales House Prices Housing Starts Interest Rates Landscaping Legal Issues Montreal Real Estate Mortgages Moving Notes Off Grid Homes Ontario Overseas Real Estate Parking Plumbing QUEST FOR A CONDO Real Estate Brokers Real Estate Bubbles Real Estate History Real Estate Humour Real Estate Investment Real Estate Quotes Renovations Renting Taxes The Home Office Toronto Real Estate Trends Urban Planning US Real Estate Vancouver Real Estate
Okay, maybe not worth dying for. After all if you're dead, you can't enjoy the beauty of these interesting and inspired kitchen desi...
If you've been following MY QUEST FOR A CONDO then you know I am trying to trade up and eventually get a condo in Toronto... via tradin...
The photo you are looking at above is a Google Street View photo of Antoine Berthelet Avenue in Montreal. The reason why is because th...
Did you know Toronto is one of the most expensive places to rent an apartment? In Toronto the average price of a two-bedroom apartment is $1...
CANADA - Looking to buy a cottage in Muskoka this summer? Good luck with that! (sarcasm) The cottage prices in the region are sky high (ie....
The Bank of Canada has raised interest rates again, making it more difficult for people to get a mortgage at an affordable rate. The key ove...
I was looking for something else when I found this artist's rendering of an architectural piece that looks like a King Cobra. I though...
Kyle MacDonald is a Canadian Blogger who created a website called "One Red Paperclip". What he did was barter and trade his 1 re...
Some people who are superstitious would prefer to avoid a house with a history... ie. its supposedly haunted. Wooooooooo... spooky! Others...
Whether you are building your dream home or looking to flip a house for a handsome profit, polished concrete is the way to go. I first s...