2011

And it is coming in Canuckistan also. Over 700 rigs in the Western Sedimentary Basin are NOT drilling right now. Why? Because the companies that service these rigs have priced themselves out of the market. When some service guy goes to, say, Weatherford or Precision and says, I know it only cost 150,000 to move your rig 2 months ago, but now it will cost you 300,000. Guess what? The rig companies are saying,screw you. We can outlast you and we will just keep the bare minimun going, no new exploration or expansion. 3 years IMHO, before the bottom goes pfffft.

For you Firefox users where the "click to enlarge" doesn't actually work, you can download the free extension called Image Zoom ( look it up ) and enlarge any picture to the size you want.

Looks like I should be selling my condo in the next year or two...

Sorry - that was my coding error.

Canada didn't go nuts with subprime mortgages like the States did, and Canada has a much higher immigration rate than USA, so demand for housing should continue to be high here for the foreseeable future.

Very interesting extrapolations.

This looks to be definitely over-pessimistic by using the peak of the post WWII boom for the start of the trendline. Similar cherry-picking that the AGW/IPCC crowd does.

House prices pre-1910 don't really provide useful baseline information, though behaviour patterns can be informative. Before housing construction really got industrialised, labour was a simply huge factor in construciton costs. It's a big issue now, but inconceivably huge previously (especially when you look at the labour embedded in cost of materials). There's a reason why we love old victorians: the real houses were for the rich and were built to exceptional standards, having no real connection to what we consider to be a "standard house" these days - WWII vet bungalows vs old farmhouses and victorians... no comparison.

A better choice for the trend start point would be the middle or bottom of the post WWII curve. That moves the baseline down by 5 or 10 points and makes a huge difference in the slope of the trendline. Instead of a slope of 0.1, you see a slope greater than 0.2 or 0.267 (I can't find the data and just doing a few quick visual interpolations). That gives a huge upward momentum to prices Peak to trough trendlines are EXCEPTIONALLY deceitful. Scary, but not usefully predictive.

Even his predictions aren't scaled properly - they should be more pessimistic as the last two corrections went substantially below trend but his prediction sees the trough meeting the trend or barely breaking below... not a good copy job and not what technical analysis would give you.

This is going to sound very tech bubble-ish, but there are VERY good reasons why we've seen substantial asset price increases - interest rates and inflation have moved down incredibly. We've seen years of consistent 1-2% inflation and just ended a year of Canadian rates being steady at just over 4%. People have been paying 4-6% on mortgages, vs 14-20% in the late 70s and early 80s. That makes a huge difference in carrying costs and fiscal capacity, so a fairly stable rate environment won't see that much dilution in asset values. If we suddenly go Chavista - say by electing Justin PM - then we're screwed and will soon see 20+% rates, but with stable policies we'll be fairly well insulated.

US prices are inflated and will come down - but look for 15-20% drop long term as a bottom, rather than 43.5%. The much more widespread use of no-doc, no down, neg-am liar loans in the US inflated their prices more than here.

Just a reality check, since we believe in good math and stats analysis on this site!

a few things to remember:

1. Currency devaluation has not been accounted for.

2. the scale should be logarithmic to remove the compounding impact of previous growth.

3. Real estate is regional - the phoenix market has a very different curve - almost no bust cycle - as will the AB/SK market.

4. the conventional O&G sector is winding down but with the likes os Statoil and the Abu Dhabi oil co. entering into the heavyoil/tarsands bidness AB and SK will be booming for decades to come as long as we do not get saddled with some reactionary leftist government.

Sounds like Andrew is trying to sell his house. There isn't any factor that precludes Canada from following it's economic trading neighbour to the south. Say what you want, the economies are tied pretty closely. As for Canada having a higher immigration rate, can you quote me some data? Don't forget there will be 12 million legal new residents here pretty soon and the prices will still drop.
Gee, maybe folks who work in Vavcouver, Toronto and now Calgary can actually afford to live there. Now that is a commuting environmental impact factor, eh.

So what that's basically saying is it's an awesome time to be 28 and just into my first new home, right? Right?? Somebody please reassure me.

(eyes rolling)

". As for Canada having a higher immigration rate, can you quote me some data?"

Sure; in lieu of my data retrieval rate of $90 an hour hit Kate's papal button:

CIA 2007 World Fact Book
Field Listing - Net migration rate

United States 3.05 migrant(s)/1,000 population (2007 est.)

Canada 5.79 migrant(s)/1,000 population (2007 est.)

Canada's net migration rate is 89.83% higher than USA. Even factoring in an additional 500,000 illegals a year in the USA (making $3.50 an hour and sending it home) Canada's rate is still higher.

https://www.cia.gov/library/publications/the-world-factbook/fields/2112.html

Houses are ultimately wasting assets. Build a house today, maintain it, and 50-70 years from now, it will be a pile of crap that needs to be torn down due to the ravages of time, and technological obsolesence. So to expect 'appreciation' on them is solely a function of interest rates alone.

Now we have a number of factors. Interest rates have been the lowest in a generation, and are moving higher. Housing supply very clearly has or will soon outstrip demand, to the extent that even 18-year-olds are jumping into the housing market at the soonest possibility, under the belief that easy capital gains are to be made. And we have a lot of buyers who are paying 'brand new' price for houses that are 'well-used', unaware of all of the lifecycle costs (well too bad God didn't make everyone Engineers, lol).

The average price of houses has been rising consistently over the past 20 years, but thats because the features and sizes of new homes have steadily been rising. Who ever heard of granite countertops in a condo 25 years ago? Condos are glorified appartments for poor people. Or Ethernet network wiring. Or high efficiency furnaces, and heated floors. Or a bathroom/shower for every bedroom. Or fancy massaging bathtubs. Yet this is all standard gear in new homes, driving their price, but not true value, higher.

Anyone recall the last time the Federal government jacked prime rate? The excuse was that the economy was overheated! The reality was that the Ontario and specifically the Toronto housing market was overheated. Lots of people across Canada took a hell of a hit.

25cents to the person who can tell us what Party was running that show!

All I can say is that I'm mighty glad I bought this one when I did, and that the last of those 48 post-dated cheques was written a long time ago...

No one has really mentioned it, but there was also a decision by the CMHC to remove the requirement that you had to have a down payment to buy a house. It used to be 10% years ago, then it dropped to 5%, and now it is no longer a requirement.

I recently watched one of my friends buy a house who literally didn't have $1000 to pay the legal fees. I found this quite comical. When I bought my first house, I put down $25K in total (on a $155K house). These days most people I see buying houses can't even grasp the idea of having $25K in their bank account. They have no idea about compound interest. CHARGE IT!

I would love to see the mortgage rates go to about 8 or 9% (which would be more than double from their lows). People like my friends' mortgage payment will double (when they renew) and I think we will see a lot of people try to sell and eventually have to walk away from their homes.

Strange...I bought my first house in Calgary in 1973 for 25,500...sold ot 2 years later for 76,000.

But here in the Vancouver area...prices are going out of control...my house "assessment", which approximates the market value, rose about $150,000 from last year.

A house that I bought for about $300,000 in 1994 is, according to our local real estate people, now worth between $7-800,000.

This is NUTS..........

OMMAG couls be the liberanos?

as a real estate investor(mixed bag of apartments, student rentals and commercial), let me offer my 2 cents worth....real estate prices in the US have skyrocketed since the collapse of the NASDAQ as investors poured their money into REIT's....as well, no down-payment, interest only and unsecured mortgages played a big part in the run-up as well...as the rise in prices in Canada was nowhere near the rise in the US, the fall will not be as dramatic as well(although a correction is coming, for sure)..I just see that correction as another buying opportunity for savvy investors.....one of the key determining factors in a real estate market is the average rent....Toronto, Vancouver and Ottawa are in for some big declines...the secondary markets, not so bad

Free - Would have thought it myself but the reality is it Was Brian Mulroney .... that peak at 1987 followed by the 12% drop and flatline through 1995 was caused by the jigging of BOC rates.
Markets outside TO like Montreal and Calgary were hard hit. It also killed the construction business in many regions.
I'm a proud conservative but I place the Name Of Mulroney on the same dungheap with the likes of Chretien and Martin.

careful, andrew; the 'net migration rate' isn't the percentage of immigrants, but the difference between immigrants and emigrants. Lots of people come INTO the US, but fewer leave, while in Canada, lots may come in - but - lots leave (for the US).

Many true things have been said above and probably some true predictions have been made, however, you cannot understand the whys and wherefores of housing bubbles and interest rates until you understand what inflation is. Then you will understand why not just Mulroney, Chretien, et al. belong on the dung heap, but all prime ministers (and presidents) of the last 100 years or so.

P.S. These guys make a good case that price inflation is more like 6%. That's not using any exotic economic theory, but simply by applying the pre-Clinton era US government formula.

My guess is that the market will increase til about 2010/2011 and then fall off the cliff, so to speak.

So happy speculating for another 2 to 3 years!

Too bad, not everyone has read 'Extraordinary Popular Delusions and the Madness of Crowds'.

Check out the Calgary spike in real estate at http://www.andexcharts.com/c_ewall.htm.

In 2003 you could buy a kick-butt house for 300K. Today that 300K house is probably worth 600-800K. Today 300K might get you into a 1100 sq. ft. row house. Direct experience (once removed): purchased small house for 285K in Jan 2006. Today its valued at $440K.

Alberta is experiencing an inflation bubble. Some commercial lease rates are close to doubling when up for renewal. My commercial property lease will be going from $7 to $12/sqft in the near future. If your business is not connected to the oil & gas thats painful.

Crystal balling:
- Royalty rates are being reviewed and, coupled with Alberta government Kyoto lite and Fed. gov. fixed emmission target sabre rattling, will begin to have an impact on both conventional oil and tarsand investor confidence.
- US election cycle coming up and, depending on what happens, the strong push for secure, domestic oil supply (tarsands) may fizzle.
- I sure would not want to be a senior on fixed income with a house in any of the mid-large urban centers in this province (increasing property tax assessments). Seniors will turn out in droves for the next provincial election and put a little heat on the PC's (red torys).

First of all, you are supposed to buy a house to live in. What it is worth is what it is worth to live in as a mortgage free entity at some point.

If one if buying a home as an investment, then what it is worth at any given time and especially at sale time is paramount.

Perhaps those folks should rethink what a home actually is. It is a place to live and be part of a neighborhood and an a society along with whatever you have for a family.

We have all been brainwashed into believing that everything in life is based on it's monetary value only.

The idea of individuals buying and selling property for profit is detrimental to the security of a home in general. It also is a disincentive to care for the property as a family home should be.

It contributes to the cheapening of our way of life and puts us in the realm of the Ferengi. It makes the process of where you live, how you live and what you live in based on greed rather than a desire to live comfortably and enjoy the benefits of a home life.

If we can be more at one with the home, we will eat out less and go out less to be entertained and stop looking at home reno as a Shibe-job for resale. This means we will retain more money to support and pay off the home so we can all enjoy a lower cost of living in a better quality unit.

I have done this and I don't care how much my home is worth. I plan to die in it so the ups and downs of the housing market mean little to me.

I also enjoy better lower cost food and I don't need granite to prepare in on. I also enjoy better more economical entertainment. I mean to say, with the astonishing opportunities of computer and Internet, down-loadable movies, big screen TVs with home theater etc. Who needs to go out? When you spend more time at home you are less likely to be broken into as well.

The world is getting richer and more crowded. Any blip in the housing market will be temporary the trend is up because the world is very different place than ever has been.

The trillions that are about to change hands and fall into the laps of the Boomer generation all but guarantees that money will be no object in home buying in the future. There will alway be a class of society that cannot or will not buy a home, but that's what apartments, trailers and big city doorways are for. That is unfortunate, but inevitable.

China and India need what Canada has and will pay for it. The USA is a resilient society and will alway bounce back as long as they are free capitalistic and democratic. That is one good reason not to vote for Hilary.

I have no doubt many people will try to time a cash-out and buy-back, but that will only make thinks crazier and cause a lot of heartache for many.

Families need homes, not a housing stock market. We would all do well to relax, keep it real and stop trying to make every part of life an economic X-Box game.

That's my two cents worth.

The housing market collapse appears pretty regional to me. I'm in Florida where speculators drove prices to unsustainable levels flipping condos. They got burned. There are a lot more "For Sale" signs but the local economy hasn't been that effected.

I read not long ago that among sub-prime borrowers 85% are paying their mortgages. Lots of American baby boomers are mortgage free. Their retirements aren't going down the drain if their house is worth less as they have 401K/retirement plans in place.

Asset classes get mispriced from time to time. The stock market has recovered from the tech bubble without as much misery as was predicted.

This is nowhere near the real estate bubble that took Japan down for a decade.

I'm confused about citing immigration numbers. What about reproduction rates of the current population. The last I checked the US was 2.1 and Canada was 1.6.

Is the US in a housing bubble? Probably. But a bubble is temporary given the US population is expected to reach 400 million in 2043. Between now and then that requires an additional 90 million housing units. I'll keep my cash flowing real estate, thank you.

Here's the article, http://www.usatoday.com/news/nation/2006-10-22-400-million-mark_x.htm

Ended run-on post too early:

Also adding to the inflationary cycle will be provincial and municipal sector worker wage demands when contracts are up for renewal (Calg transit strike tomorrow).

First watch for the reduction in help wanted ads. That will be a precursor to a less confident business investment environment. Less new jobs, less influx of population, less demand for housing.

Lot of 2nd or 3rd house ownership as rental investment as well. Not sure what investors have settled on as an optimum debt/equity ratio. Could be lot of overexposure out there and if a rental property goes empty for long enough, it will get put on the market at below market price to dump it as quickly as possible. Not too many people can carry two or three mortgages.

Alberta housing prices will flatten in the next 6 months to one year. Slowing of the economy will result in a real estate correction from 2008 to 2012.

The chart Kate has linked to shows an unprecedented housing price increase and yes there is a first time for everything. Keep in mind it also shows repeated corrections.

I think Yanni (10:52PM) has hit on a few good points regarding how people should think about real estate.

What is real estate? If an investor owns real estate for income (kingstonlad, 9:29PM), and holds it long enough to hedge against inflation, the owner would construe it as an investment, and rightly so. If Joe(B.) average wants to flip a house or 2, well, OK... but THAT'S not an investment; that's a speculation. Frankly, NOW is not the time to consider speculating in real estate.

I'm not one for investing in a house for anything other than an inflation hedge, and a place to hang my head, er..., hat at the end of a long day. But, as for investing...

Banks, insurance companies, maybe a liquor distilling company... Do your teenage sons and daughters a favour, and teach them about the power of compound interest, and boring, dull, yawners of companies to buy shares in. Real estate holds NUTHIN' on these types of companies when it comes to investing.

Example:
100 shares of Royal Bank bought the first trading day of January 1980;
100 shares of Royal Bank added each January thereafter, right up to January 2007.
I figured it out some time ago by looking at Royal's stock price history on their website...
would have sunk around $115,000 in by now, but the dividend alone would have covered the annual investment by about 1994, as I recall; the dividend today would be around $23,000 annually, and the stock would be worth about $800,000. Now, if my daughter actually listens to her old man when I try to explain it to her in a few years...

Is it just me, or does this graph also look just like Al Gore's C02 levels? :-)

the market will flucuate prices rise and fall. if we could predict the changes we would all be rich

To all the delusiona; idiots out there buying hyper inflated Calgary homes with easy to get money t 95% morgage leveraged ownership, this infamous prediction will be knowne as the "double " hockey stick chart ;-)

Keep buying ..the up market will never end...this is what was said in 1980 just before 200.000 homes were sold for a buck .

Ndrew said:"Canada didn't go nuts with subprime mortgages like the States did, and Canada has a much higher immigration rate than USA, so demand for housing should continue to be high here for the foreseeable future."

We have mortage brokers who can get you 3.4% short and private loan ins for .5%...qualifying is as slack as its ever been and more Canadains in new homes are debt leveraged to greater extent than ever before.

US immigration is 10 times what Canada's is and don't for get the 3 million illegals a year.

Since the High tech crash and the industrial slow down, real estate has been a prime ecinomic engine for the US and Canada...it is what has essentially expanded the economy. The US did the same thing to float the real estate markets as Canada did lower prime and expand the money supply.

The US is now plagued with 3 consecutive quarters of double digit mortgage defaults and hounsing resale slumps...this trend has occured in some of Canada's more volitile markets as well where prices were inflated ot morgages were increased....we are on;y in a 4 month lag behind the US in any given business cycle...we will see realestate deflate, money supply contract and interest rates drop as the housing bubble burts here.

I'm not an economist but it says in the fine print on the graph that this does not include the sales figures for new homes. I don't see how that can be a valid graph of the value of real estate given that condition.

Dare I say it? It looks like a "hockey stick" to me.

Canada has a much higher immigration rate than USA, so demand for housing should continue to be high here for the foreseeable future.

Posted by: Andrew at May 31, 2007 7:33 PM

Well who cares there are a lot of people in vancouver or toronto who would like to own a house but can't because of immigration and outside of those 2 places it's not much of a factor.

I'd take a 10% 20% loss if we stopped immigration.

If they are more likely to be on welfare the house prices might be good but the tax rates?

Would you like a drop in your house price and income/sales taxes? I think a lot of the white flight around toronto types would say yes.

we will see realestate deflate, money supply contract and interest rates drop as the housing bubble burts here.

I take posession of my new house June 6! :)

Just wait till the boomers retire and want to downsize their monster home to a condo and buy that cottage. The price of monster homes will plummet and the price of condos and cottages will skyrocket. That is, more then they already have.

I see the David Orchardists are here! "We're too focused on money"??? WTF? "Housing prices are nuts" and get off my lawn you damn kids! "Condos are just apartments for poor people" uh, it's called density and shared services... have you seen the commute times from Milton to King & Bay?? "Granite countertops don't add to the value of a house" whaaaa? "Maintain the house for 70 years and you'll need to tear it down because it will be a wreck" uh, no - if you maintain the house it will last a long, long time like the Victorians that we love in Canada.

The graph was deflated, so all you goldbugs need to learn to read. That and get your heads around fiat money and monetary velocity. Metal based currencies are just as vulnerable to devaluation but are less well equipped to deal with it - Spain post-1492 showed how a gold standard can inflate away without debasement, somethign Mises types tend to ignore. Gold is just as much a figment of our imagination as dollars, you're just too slow to grasp that fact.

Houses are the best way to grow asets overtime as they are one of the few leveraged investments people make. Your cap gain is huge when you only put 10-25% down but keep all of the equity appreciation. 4% return -> 16 to 40% return. Better to put 5 or 10% down and put the rest of your 25% into higher return assets like stock indexes. Net out much better returns over time(get a 3%+spread on the downpayment).

Many, many people here need a much better education in finance and economics. Growth cycles are mirrored in the housing market, with a year or two lag. Calgary prices were depressed with the crash of oil prices in late 90s. 99 had $14 oil, 2003 it had gotten up to $26-27 still below good production prices for oil sands. We now have $63 oil and saw $70 - that makes a huge difference to the Calgary economy. $10/20s was unsustainable and so is 60/70s, people should be planning for $40/50s but it is stupid and idioitic to think that energy recession house prices should see little growth during an energy boom. What kind of marxist crap did you get fed? Did no one learn or understand what supply and demand means? Can't you do a bit of thinking for yourself?

I've been trying to buy a house but can't make the numbers work, but I'm buying in cash and have no need for the space. I know all about conservatism in terms of buying a house, but hardly anyone is in my position and they are mostly making appropriate decisions in terms of prices. maybe 10-20% too high, but nothing too painful.

We're NOT going to see 8%. Just not going to happen. 6% as an absolute max, but 5% is the high end of the likely range. Currency effects are going to take out most of our inflation and act as a brake on the domestic economy - mandating rate cuts a year out and very moderate rate increases in the near term. It's really easy to do this, let's not be the crazy, ignorant rednecks that WK likes to claim.

I built a house in Calgary in 2000, 1300 sqft, total 169000. It was, in January, valued at 350000 (but sales have slowed a bit). I am not selling. Most houses around me have sold at least once, and up to three times, since 2000. People keep moving to "better" homes that cost 400000-500000, although their incomes haven't gone up an equivalent %.

And 40 year mortgages are insane.

"Just wait till the boomers retire and want to downsize their monster home to a condo and buy that cottage. The price of monster homes will plummet and the price of condos and cottages will skyrocket. That is, more then they already have"

That's why we're sitting in our Abbotsford townhouse till everything corrects.

Beautiful dream but it ain't gonna happen, certainly not here in Vancouver. The reasons (some interrelated) why not, in random order:

1. Hyperregulation of new housing development by municipalities which now charge developers for costs that used to be borne by local governments.

2. Ferocious green opposition to building on undeveloped land.

3. Ferocious socialist opposition to building on land in the agricultural reserve, whether anybody's farming it or not.

4. Ferocious NIMBY opposition to further development by homeowners who've got theirs already.

5. Ferocious red-green opposition to improving roads and bridges, making commuting from exurbs more difficult and driving up urban land prices.

6. Ferocious red-green promotion of "traffic calming" that has the same effect as in #5.

7. Wide-open immigration of people who are willing to both live in crowded rental conditions and then buy housing using the multiple incomes of an extended family. The immigration of both poor and rich contribute to this in different ways, and so-called "family reunification" drives this even harder.

8. Rising wealth levels that make multiple home ownership possible, so that people can buy a condo in downtown Vancouver just to have a place to stay when they're in town, or so that their children can use it while they attend college.

There are more, but those are the big ones. I've been living here since 1970 and prices have risen steadily with the exception of a blip around 1981-82. Any fall in prices would immediately be met by the reservoir of local residents who can't afford to get into the present market (or haven't yet been able to afford the type of housing they actually want). So, don't hold your breath waing for real estate prices to fall.

...i really don't care if my house is worth $6 million, we're happy in it, along with the great neighbours and safe.

But fyi, bought it in '98 for 167K now worth 400K. Paid it off early, monthly mortgage was $825.

I may drive older cars, ('94 Bonne) but own the roof over my head.

"Maintain the house for 70 years and you'll need to tear it down because it will be a wreck" uh, no - if you maintain the house it will last a long, long time like the Victorians that we love in Canada."

Yeah right, keep dreaming. The building materials used today are *nothing* like those used a hundred years ago in terms of long-term durability.

And if modern houses do end up lasting longer than models of the past, as you predict, that would just depress prices further, as replacement demand would be diminished (leaving that labour free to construct entirely new housing stock, not just replacing existing stock).