Toronto, Vancouver among 5 biggest property bubbles in the world According to the Swiss investment bank UBS – September 28, 2018,
According to 2 separate articles Hong Kong, Munich, Toronto, Vancouver, London, and Amsterdam are considered the most over-valued housing markets in the world. Chicago oddly enough is considered the most undervalued city in the world. I’ve written about the Chicago housing market before and why they don’t have a housing bubble. Yes, Chicago has a bunch of other problems, like people fleeing the city, but a housing bubble isn’t one of them, the reason for this is that the Chicago housing market was built based on residential demand whereas Toronto and Vancouver were built on investor demand. You can read these two interesting articles by clicking the link below:
I’ve often compared Toronto and Chicago to illustrate my point that the Toronto housing boom is an illusion, it’s a big disaster waiting to happen, you’ll often notice that when I write about Toronto’s housing problem that I often refer to condominiums as the main problem. The condos being built in Toronto aren’t meeting the demands of the population and that’s the reason why there’s a lack of housing in Toronto. Prior to the creation of The Crown Corporation known as the Canada Mortgage and Housing Corporation (CMHC) condos in Toronto were built based on residential demand.
Now don’t get me wrong there still are condos that are built in Toronto that are based on residential demand, but there aren’t enough of them being built and the reason they’re not being built is that most Torontonians don’t want to live in Condos. Similar to Chicago, most people want to live in Houses, their own homes, their own detached or semi-detached homes.
However, because of the CMHC, this is no longer possible and to make matters worse CMHC is competing with rental controls. Yes, in case you’re not understanding what I’m writing here, there are 2 government organizations who are regulating the Canadian housing and rental markets and private builders, developers, investors are opting for condos over rental housing. When you build a condo, the investors take on all the risk, when you build rental housing you as the builder takes on all the risk, plus you’ll be the bad guy in the event you raise rents too high.
It’s common sense and this is what’s led to the housing disaster in Toronto. The worst thing about Toronto is not the weather, the worst thing in Toronto are the number of real estate investors buying condos and renting them out, or using them as hotels. These types of condos and home buyers are more likely to default on a mortgage than a resident would. So the bigger question is what would make a real estate investor default on a loan? Interest rate hikes?
Canada is screwed if interest rates get too high
What goes up must come down and if it doesn’t expect hyperinflation. Nobody knows when the moment of truth will arise, but there are signs that the Canadian housing market is heading for a decline. Jerome Powell of the U.S Federal Reserve is hell-bent on doing his job, as trump grows the U.S economy Jerome Powell is calculating the risk, it’s important to remember that central bankers job is to mimic the free market as much as possible and only in times of economic crisis are they supposed to consider Keynesian economic practices. The Canadian dollar is still priced to the value of oil, which is why I’ve been saying for years that there was absolutely no reason to drop interest rates in Canada when they U.S drop theirs.
The Canadian economy has been consistent almost 30 years no, barely any hiccups, our economy has been as bland as foreigners perceptions of us are as people. So, often when I look at the Canadian dollar the loonie I’m baffled how much trust other countries have put into the soundness of our currency. While Stephen Harper was Prime minister if people remember the Canadian Loonie at one point reached parity with the U.S Greenback, however corporatists in Canada started voicing their concerns of how a higher loonie would hurt their profit margins, at first the Harper government did nothing, but then with elections right around the corner we in Canada began to see subtle changes in the Canadian economy, then Mark Carney was replaced by Stephen Poloz around 2013 and to be frank Polo was exactly who Stephen Harper was looking for, Poloz lowered interest rates unnecessarily citing that it was to help Alberta and stimulate the economy.
Polo was right, it did stimulate the economy, it’s important to remember that the Vancouver housing market had been booming way before the Toronto housing market starting booming, the only reason the Toronto housing market starting boom was because of the policies of Poloz. All of sudden the mood of the country changed overnight, Toronto was the place to be, interest rates in Canada were going down and duh, Toronto is Canada’s most populous city, then of course the obvious hit investors that Toronto had very similar socialist policies as does Vancouver, and to add to all the fun Airbnb was born, so now property investors could not only rent out condos they could also use them as condos.
Here we are today in Toronto a city whose population isn’t much larger than Chicago’s yet the real estate market is soaring and the assumption is it will go up until infinity, who could blame anyone investing in the Toronto real estate market for being optimistic? Well, unfortunately for Toronto and for Canada there’s a guy named Justin Trudeau running Canada, he’s a feminist, he’s a socialist and his economic IQ is the lowest in Canadian history. He’s picked a fight with the U.S president with highest economic IQ in U.S history, fortunately for Canadians, Justin Trudeau smug arrogance gives the appearance of confidence and if the stars align just right Justin Trudeau may pull off an economic win against Donald Trump.
Of course, it’s unlikely, but if Trudeau does manage to somehow win trade talks with Donald Trump and manages to win another Canadian election the economic collapse in Canada will be more obvious than ever. Canada, Justin Trudeau is running a deficit and as I pointed out interest rates might be rising, Trudeau’s Liberals also raised taxes on “the rich (people making for $300K lol)”, he increased regulations, which of course raises the cost to do business and his finance minister has been hell-bent on reversing everything Jean Chretien and Paul Martin did to open up the Canadian private sector.
The topping on the cake for Trudeau has been his Public sector job creations. Public sector employees can’t get paid without the private sector, public sector employees tend to vote for the political parties that help them to keep their jobs, public sector employees usually make more money than do private sector employees, plus public sector employees usually get more financial benefits than private sector employees.
It’s in the best interests of public sector employees to keep taxes high and to chant to other Canadians that higher taxes equal a better quality of life. Once your economy has too many public sector employees, you inevitably run into the same problems Argentina has, which is no matter what currency you create the public sector gobbles all the money up which forces the government to print money. Of course, by the time this disaster is permeated through the culture, the population will blame the politicians even those fighting for reforms as the root cause and then, of course, these problems repeat themselves over and over again into infinity until either their economy collapses or ends up in a civil war.
This stuff is common sense, however, economics is a boring subject. With that said I know Hong Kong’s housing problem stems from the government being in control of the housing market. The government of Hong Kong controls their housing market because… well the Chinese Communist party has it’s own plans for Hong Kong and let’s just say that there could be a strategic reason why Hong Kong is suppressing their housing market because as everybody knows, Hong Kong a lot of empty unused land. In regards to Toronto, the housing situation looks dire and based on what I’ve heard most people don’t understand the disaster that’s going to happen. Hopefully for Canada’s sake interest rates will stay really low forever.
Interesting times ahead.
