Canada’s housing market world’s most overvalued, despite cooling
Pamela Heaven | Jan 23, 2013
FotoliaAccording to the Economists’ global housing survey, Canada’s housing market is overvalued.
Canada’s housing market has been showing signs of cooling lately, but according to the Economist it is still the most overheated in the world.
Overvaluation in Canada comes in at a whopping 78%, by the Economist‘s price-to-rents ratio, the weekly newspaper said in its survey on the global housing market. At the other end of the scale is Japan with an undervaluation of 37%. The Economist writes:
”Overvaluation is especially marked in Canada, particularly with respect to rents (78%) but also in relation to income (34%). Mark Carney, the country’s central-bank governor, who is soon to jump ship to join the Bank of England, where he takes over from Sir Mervyn King in July, may have shown good market timing with his move to London as well as a deft hand in negotiating his lavish remuneration. Singapore and Hong Kong also look vulnerable to a correction, given the overvaluation on their price-to-rents ratios.”
To be fair, it was Carney’s warnings and Ottawa’s move to tighten mortgage rules this past July that has touched the brakes on the nation’s heated housing market.
Reports out Wednesday showed that home price gains in December were the lowest in three years. Meanwhile, home sales in the Greater Toronto Area have plummeted 50% from the year before.
Vancouver, however, still ranks as the second least affordable major city in the world after Hong Kong when it comes to buying a house, according to an international survey this week.
At $621,300, the median home price in the city is 9.5 times the gross annual median household income, according to the report by U.S.-based consulting firm Demographia. That’s down slightly from a median multiple of 10.6 in 2011, but still places Vancouver in the ‘severely unaffordable’ category.
Statistics: Posted by yoda — Thu Jan 24, 2013 11:13 am
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Is Canada’s Housing Bubble ‘Different’?
November 5, 2012 | Author Pater Tenebrarum
Nothing to Fear, They Say
According to this article, CIBC thinks the huge amount of household debt in Canada and the beginning cracks in the housing bubble are nothing to worry about. The main reason for this benign assessment seems to be that there have been a few other credit and real estate bubbles in the world that have grown even bigger than the US one before it burst. What a relief.
„The news out of Canada’s real estate market isn’t good, but the country will avoid a U.S.-style real estate meltdown, CIBC said Tuesday.
Economist Benjamin Tal said in a report that even recently released data about high levels of Canadian consumer debt isn’t proof that there will be a sudden, big drop in home prices.
"To be sure, house prices in Canada will probably fall in the coming year or two, but any comparison to the American market of 2006 reflects deep misunderstanding of the credit landscapes of the pre-crash environment in the U.S. and today’s Canadian market," he wrote.
Tal noted that Canada’s debt-to-income ratio has just broken the U.S. record set in 2006, but said other countries have had even higher levels without a crash.
Tal said home prices in large cities like Vancouver and Toronto are overshooting their fundamentals and will likely slip as sales fall.
"But the Canada of today is very different than a pre-recession U.S., namely as far as borrower profiles are concerned," he wrote.
"Therefore, when it comes to jitters regarding a U.S.-type meltdown here at home, the only thing we have to fear is fear itself."
To sum this up: there have been bigger bubbles, so ours can grow bigger too. Moreover, it is different this time.
It is actually fairly typical to find this type of thinking near the top of a bubble. The people living inside it cannot believe that it could possibly crash. Of course Canada’s economic situation is in many respects ‘different’ from the US economic situation, but that is the case with every slice of economic history. Not one of them can possibly be exactly the same. Nevertheless, one can come to some general conclusions about credit expansion-induced bubbles. Economic laws will be operative whether or not the precise historical circumstances are similar. When Japan reached the height of its bubble in the late 1980′s, it was also widely argued that the overvaluation of stocks and real estate was no reason to worry because Japan was allegedly ‘different’.
Regarding borrower profiles, Mr. Tal is mistaken if he thinks that the current profiles of borrowers are actually relevant. These profiles always look good at the height of a boom. They deteriorate only after the boom ends. To wit, here is a chart of the history of US household credit scores:
Statistics: Posted by yoda — Mon Nov 05, 2012 12:38 pm
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Conrad Black: Canada’s front-row seat for the American disaster
Conrad Black | Sep 22, 2012
Either Romney lucks through, or the most self-destructively incompetent regime since James Buchanan brought on the Civil War, will return.
As many commentators have opined, Canadians should not become smug because Canada has fared relatively well in the Great Recession since 2008. Canada has been as fortunate as it has been wise, above all in having the United States, rather than more historically aggressive countries, as a neighbour; in having the British as the originating force for Canadian institutions and laws; and in being a treasure house of natural resources. It might even, someday, be seen as an advantage to have a viable French contingent of the population. It would require a preternaturally inept people to misplay this geopolitical hand.
It is notorious that most Canadians are to some degree anti-American, though most are also appreciators of America, and this makes the present election in the United States, unfathomably banal though the campaign has been so far, a matter of legitimate comfort to most Canadians. Canada has been to some degree the beneficiary of the self-imposed decline of America these past 15 years. It is a continuing struggle to persuade Canadians that they may safely liberate themselves from the impulse not to aspire to anything more ambitious in the world than to tug at the trouser-leg of the Americans. Canada entrusted its national security entirely to the United States in the 1930s, and through the end of the Cold War, and pulled its weight sometimes, and sometimes not. And the extent of its independence was mainly posturing through the United Nations in the role of peacekeeper.
Canada was for most of its history a branch-plant economy, where except for the railways and the resources companies attached to them, and the banks, steel companies, media and the main retailers, all was in the hands of foreigners, mainly Americans. George Grant and other authentic Canadian intellectual conservative nationalists, and centrists like Walter Gordon, and more strident nationalists of the left like Mel Hurtig and Bob White, railed and caviled and almost despaired, but it is clearer now than ever that Canada can quickly found and grow businesses, and much of the concern about foreign ownership was exaggerated. Some Canadian nationalists of the past, like Goldwyn Smith, became so exasperated that they thought we would be better selling the whole shooting match to the United States, so talented Canadians could aspire to great power and celebrity within what was after the U.S. Civil War one of the greatest powers in the world. Even I thought we were better off at least raising the possibility of moving closer to the Americans than diluting Confederation to tasteless constitutional gruel through endless concessions to the Quebec separatists.
With the first Gulf War and the implosion of the Soviet Union in 1990 and 1991, the United States arrived at the undisputed summit of the world, with dissident students in Prague and even Moscow uplifting themselves by reading aloud the works of Lincoln and Jefferson, and with the surge of prestige that accrued to the United States as its only remaining rival crumbled. But the United States has fumbled away its gentle overlordship of the world these last 15 years. Huge current account deficits and colossal federal budget deficits arose, and while the United Sates is generally successful in real wars, its habit of calling policy attacks on sociological problems “wars” has led to the conspicuous failures of the wars on crime, poverty and drugs.
The Canadian dollar has risen from 65¢ American to par, and Canada’s comparative standard of living has inched upwards, and its wealth is much more evenly distributed. The jagged nature of American democracy left 40 million African Americans unsegregated but still the subject of institutionalized discrimination, and 70% of people with magnificent (free) medical care and 30% with access to care but on a pretty stingy and erratic basis. American education has become very uneven, American justice has degenerated into a turkey shoot for the benefit of a prosecutorial class that terrorizes the country and has given America 10 times the average number of incarcerated people per capita of other advanced prosperous democracies. Sixty million basic manufacturing and service jobs have been out-sourced while 20 million unskilled peasants were admitted illegally to the country, and trillions of dollars of worthless real estate-backed securities inundated the world, pumped out by Wall Street and certified as investment grade, almost asphyxiating the American financial industry while trillions of dollars and thousands of American lives were squandered in the sanguinary Quixotry of nation-building in the Middle and Near East.
And now, in an astounding demonstration of national fecklessness, a failed president is running slightly ahead in the polls of a challenger who has a real CV, unlike recent presidents, but who is so politically oafish and plastic, he makes Elmer Fudd seem charismatic. The incumbent has raised the national debt by 50% on what had accumulated in the 220 years of American independence prior to four years ago — that is $17,000 for every man, woman and child in the United States, in just four years. And Mr. Obama’s tocsin is the comprehensive assertion that: “Experts agree that my plan will reduce the deficit by $4-trillion.” These magic 13 words confirm the reduction of the deficit from $1.5-trillion annually to $1.1-trillion annually in the next ten years, in a country that four years ago had a money supply of only $900-billion.
About 70% of the American deficit is “bought” directly or through the banking system by the Treasury’s 100% subsidiary, the Federal Reserve, and the minimal interest paid on it is recycled back through the Federal Reserve to the Treasury, so the cost of borrowing is zero. It is the ultimate Ponzi scheme, the fiscal nirvana of endless, mountainous debt, rendered easily bearable because it doesn’t cost anything. It is a fraud, a mirage. It all possesses the hypnotic allure of the Gotterdammerung — as the Gods ascend to a burning Valhalla. If this administration is re-elected, Canada, as it has for the entire mighty spectacle of the inexorable rise of the United States, will have the ring-side seat for a disaster. Prudent, hesitant Canada, ran 14 federal government surpluses in a row. We are the pigs in the brick house — it isn’t a heroic position, neither daring nor stylish, but Canadians are peering through the portals of their stout solid home, transfixed and astonished.
The fact that Willard M. Romney is still running almost even in the polls despite his demiurgic implausibility as a candidate, afflicted by a one-person pandemic of foot-in-mouth disease, illustrates the concern of the American voters. Either Romney lucks through and numerate sanity starts to return to American public life, or the most self-destructively incompetent regime since James Buchanan brought on the Civil War, will come back and stoke up a truly spectacular inferno that will purify America in a mighty economic Jonestown. There will be no more tugging at a trouser leg from Canada — either a comradely pat on the back, or a neighbourly blast with a fire extinguisher, but this operatic crescendo can’t continue for one more full act.
Statistics: Posted by yoda — Sat Sep 22, 2012 8:51 am
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Canada’s Consumer Debt Growth Will not End Well
08/31/2012 12:29 AM SOBER LOOK
By Walter Kurtz, Sober Look
Canada continues to face rising consumer debt levels. Since the post on Canadian housing risks (here), we’ve gotten a number of comments that Canada’s housing is not overpriced (for example if measured in terms of gold). And since there is no “subprime lending” in Canada, consumer debt is not a problem because delinquencies will stay low.
The authorities have since taken some steps to curb potential housing speculation (see discussion). But it seems that Canadian consumers have caught the US debt bug as consumer leverage becomes an increasing concern – particularly for BoC (the central bank). And it’s not just about mortgages.
The Epoch Times: – The average non-mortgage total debt of Canadian consumers rose once again last quarter, continuing the trend of the highest debt levels seen to date.
According to a report by credit analysis company TransUnion, the average consumer’s total debt (excluding mortgages) rose by $192 in the second quarter of 2012 to $26,221, a 0.74 percent increase compared to the previous quarter, and a 2.41 percent rise compared to the same quarter last year.
Auto loan debts had the highest rate of increase compared to other credit products, with a rise of 13.25 percent compared to Q2 last year, and 3.67 percent compared to Q1 this year. The average credit card borrower debt declined by 0.93 compared to the same quarter last year, but increased by 2.7 percent compared to the previous quarter this year. Lines of credit and installment loan borrower debts also increased in Q2 2012 by 0.4 percent and 0.95 percent compared to Q2 2011, and 1.13 percent and 2.37 percent compared to Q1 2012, respectively.
Canadian consumer leverage – debt as percentage of personal disposable income – has now far outpaced that in the US, as Americans continue the deleveraging trend
At the same time Canadian banks, who pride themselves for being quite resilient in the face of the financial crisis in 2008, are really enjoying this demand for consumer lending products. Canadian banks’ profits are soaring and they are increasing dividends.
Bloomberg/BW: – Royal Bank of Canada, Toronto- Dominion Bank and Canadian Imperial Bank of Commerce raised their dividends after reporting third-quarter profits that beat analysts’ estimates on consumer lending.
Royal Bank, the country’s biggest lender, said profit for the period ended July 31 rose 73 percent to a record C$2.24 billion ($2.26 billion). Toronto-Dominion, the second-biggest bank, said net income climbed 14 percent to C$1.7 billion, or C$1.78 a share, while CIBC said profit rose 42 percent to C$841 million, or C$2 a share.
The three Toronto-based lenders join Bank of Montreal (BMO) and Bank of Nova Scotia (BNS) in raising dividends this week as gains in consumer lending and higher trading revenue helped the world’s soundest banks report earnings that topped estimates.
All this is happening at the time when the global slowdown and declining demand for resources (which is Canada’s strength) are threatening to dampen Canada’s economic growth. The combination of rising consumer leverage and easy profits in the banking system (remember the good old days in the US?) have the makings of a potentially nasty economic downturn for Canada.
Statistics: Posted by yoda — Fri Aug 31, 2012 12:18 am
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Grain prices threaten growth – except in Canada’s breadbasket
CALGARY — The Globe and Mail
Published Monday, Jul. 30 2012
Grain prices, which are hitting record highs as crop failures ripple around the globe, are likely to remain strong for at least three more years, the World Bank says, threatening to push the price of nutritious food beyond the reach of the world’s poorest citizens.
The potential for a global food shortage prompted the bank on Monday to detail emergency measures, including billions of dollars in loans and assistance, to help developing countries deal with elevated grain prices that may linger until at least 2015.
While the massive drought in the United States has garnered a lot of attention, the situation is made worse by a shortage of rain that has damaged wheat crops in Russia, Ukraine and Kazakhstan. India’s monsoon rainfall is also about 20 per cent below average, hurting crop prospects in the world’s second-most-populous country, while excessive rain is pinching farm producers in many European countries.
Consumers around the world will pay more for bread, processed foods and meat, if poor weather leads to grain shortages.
That could rattle “global growth and social stability,” the World Bank said in a statement, as the world’s poorest spend up to two-thirds of their daily income on food. On the flip side, Canadian farmers, as well as their counterparts in developing countries, stand to benefit enormously as grain supplies teeter on the verge of disaster.
“Thus far, crop projections do not indicate the potential for actual shortages in the major grains,” the World Bank said in a statement. “However, stocks are low, and the harvests will continue to be dependent upon global weather, which leaves prices more vulnerable to higher volatility.”
The World Bank’s warning focused on protecting the poor, noting that wheat prices are up over 50 per cent since mid-June, while corn is up 45 per cent since then. Soybeans have climbed 30 per cent since the beginning of June, and 60 per cent since the end of last year. Meanwhile, canola, which has emerged as Canada’s largest crop, is also trading at record highs, said Patricia Mohr, a vice-president and commodity markets specialist at Bank of Nova Scotia.
“From the perspective of Canadian farmers, it is actually a positive,” she said. “This fall, we may have a crop of oilseeds and grains which is a record in terms of revenue, provided the weather holds.”
Indeed, canola could put $10-billion in revenue in the pockets of Canadian farmers this growing season, Ms. Mohr predicts. However, canola, used in processed foods and as a cooking oil, does not affect food prices as much as corn. In the United States, corn is crucial for livestock feed, which is why red meat prices could jump. Barley, largely used to feed livestock in Canada, is rallying on corn’s shortcomings, again adding pressure to meat prices.
“We cannot allow short-term food-price spikes to have damaging long-term consequences for the world’s most poor and vulnerable,” Jim Yong Kim, the World Bank president, said in a statement. “When food prices rise sharply, families cope by pulling their kids out of school and eating cheaper, less nutritious food, which can have catastrophic life-long effects on the social, physical, and mental well being of millions of young people.”
The World Bank’s “commitments to agriculture and related sectors” exceeded $9-billion (U.S.) in fiscal 2012, the organization said, noting this extended beyond its projected lending under its agriculture plan. This assistance from the International Bank for Reconstruction and Development and the International Development Association is the highest in 20 years, the bank said.
Record grain prices, however, bring a sliver of good news to producers in developing countries.
“Higher prices can bring desperately needed income to poor farmers, enabling them to invest, increase their production and thereby become part of the global food security solution,” the World Bank said.
Statistics: Posted by yoda — Mon Jul 30, 2012 5:44 pm
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As foreign drug companies began cutting high-paying jobs in Quebec in recent years, Sandoz International GmbH looked like it was bucking the trend.
After paying $565-million for Quebec generic drug maker Sabex Holdings in 2004, Sandoz, a division of Swiss pharma giant Novartis International AG (NVS-N56.59-0.02-0.04%), was positioned to become a leader in one of the fastest-growing areas in the global pharma business: generic injectable drugs.
It invested close to $100-million between 2007 and 2009 to build new facilities at Sandoz Canada’s base in Boucherville, Que. and made the plant, home to 800 workers, a “worldwide centre of excellence for injectable products” within Sandoz.
Today, Sandoz Canada’s reputation lies in tatters after chronic problems at its state-of-the-art plant on Montreal’s south shore caught the eye of U.S. regulators. Much of its production is halted as it tries to fix the problems, leaving pharmacists and health-care providers alarmed at what could be months of shortages of injectable medications that treat everything from nausea among cancer patients and abnormal heart rhythms to endometrioisis.
Last week, Sandoz told Canadian health-care providers it would discontinue certain products and temporarily suspend production of other injectable products on the heels of a scathing “warning letter” from the U.S. Food and Drug Administration three months ago that criticized the plant’s “ineffective quality system.”
“As we progress with our remediation activities, all production processes will be affected, significantly reducing output from our Boucherville plant and likely resulting in temporary supply disruptions,” Sandoz Canada president Michel Robidoux said in a Feb. 16 letter to pharmacists, obtained by The Globe and Mail. He didn’t specify how long the disruption would last, but that Sandoz Canada would focus on “optimizing” supplies of medically necessary drugs to the Canadian market and had halted production of ointments, ophthalmics, suppositories and all non-medically necessary drugs.
The FDA’s Nov. 18, 2011 letter to Novartis CEO Joseph Jimenez – which came a year after Sandoz began a company-wide quality improvement program – accused the Boucherville plant of sloppy, error-prone or incomplete documentation, validation and investigation practices. In three investigations during 2011, the FDA found Sandoz did not follow proper procedures “to prevent microbiological contamination of drug products purporting to be sterile,” nor had it thoroughly investigated “inconsistent and inaccurate” media fill tests, or simulated procedures drug companies carry out to ensure their normal manufacturing conditions are sound.
The FDA alleged Sandoz failed to adequately investigate after crystals appeared in some of its finished injectable liquid treatments released for distribution in the US – and that it “failed to adequately determine the cause of this crystallization problem.”
Furthermore, the company repeatedly failed to provide field alert reports that would have alerted the FDA to any contamination or related issues within the required three days. “We remind you that you are responsible for ensuring that your firm’s drug manufacturing operations comply with applicable requirements,” the FDA said, threatening to withhold approval of any new drug applications.
In a tightly-scripted statement to The Globe and Mail, Sandoz Canada said it was intensifying efforts “to ensure high quality standards” and stood behind the safety and efficacy of its products, none of which have been recalled. It said the decision to halt production was voluntary and related to efforts to restore “high quality standards in manufacturing operations” and said it had no plans to close the Boucherville plant. Sandoz didn’t respond to questions about how the problems developed or why they weren’t dealt with to the FDA’s satisfaction after they were first identified.
In total, Sandoz said it had committed a total of over $170-million (U.S.) to improve quality at the Boucherville plant as well as two other plants in Colorado and North Carolina that were also cited in the FDA letter. Sandoz said those “remediation” efforts were already under way when it received the FDA letter
Statistics: Posted by yoda — Sun Feb 19, 2012 8:27 am
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