Oct
4
Jacqueline Thorpe’s interview with Robert Shiller sparked a lively reader discussion on the value of Canadian home prices. Shiller, an economist at Yale University and the namesake behind the Case/Shiller Housing Price Index, predicted both the tech and the U.S. housing bubble. He said Canada could see a similar housing bust, particularly in the Calgary and Vancouver markets.
Here’s a selection of some of those comments from readers, some slightly edited. You can find the original comments attached to the online story.
I would like to say that the first three comments below are exactly how we at The Calgary Real Estate Blog view the economy and in Alberta specifically. We will be able to weather the storms that are brewing to the south as the economy/housing is different in Canada. We have not had Sub-Prime lending and selling the mortgages out the back door to third party investors. Our government has now taken the 40 year mortgages and zero % down away, which was a good plan, but on the flip side, would have never taken us as far as our friends to the south.
Summer6727: People like Mr. Shiller are the very people that create fear with the lack of confidence. Fear drives the markets, which is, sorry to say our own doing by the way of technology, via email, TV, word of mouth. I sometimes think people like Mr. Shiller love to watch people panic and worry. To see what is unfolding in the U.S. makes others look at the current situation within and adjust.
Rockie Bear: Summer6727 is dead on. The American economic wizards frequently don’t understand their own system let alone the country next door. This type of commentary shouldn’t be published in Canadian newspapers.
jscheema: Mr. Shiller: We didn’t do any sub prime lending in Canada as was done in U.S. House prices rose steadily not doubled in just six months as in many parts of California. Canada is far better than the U.S. on employment, wages, interest rates, financial institution liquidity. Please do not cause panic and … fear mongering among Canadian people.
vancouver guy: Here in Vancouver I am witnessing people with part-time jobs and not much in terms of income put 5% down on $300,000+ properties. And sometimes the 5% down payment comes from racking up the credit cards. How is this not subprime? And it is all with 35- or 40-year mortgages. How is this sound borrowing when those 40-year mortgages come at odds with basic human life-expectancy data? “Please God, just one more bubble before I die.”
IndexTrader: I can’t understand folks who think that the housing meltdown in the U.S. will mysteriously miss Canada. These bubbles are global. Blaming Robert Shiller for the problem is like blaming the water for a sinking ship that hit a reef. Global asset bubbles have impacted nearly every major and minor economy around the world. The greater that a market appreciated, the greater the correction it will feel. Unfortunately, the fact that we don’t want the meltdown has little bearing on the outcome.
What do you think? Will the US melt down effect Canada, specifically Calgary and Vancouver? In Calgary we haven’t seen super spikes in prices over extreme short periods. If you look at a past post about the prices over the last few years, the graph there shows that since 2000 we have had steady growth with some small jumps, which will happen in a heated economy like Alberta. The GDP of Edmonton and Calgary region is one behind China. This is a strong economy.
What do you think?
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3 Responses to “Robert Shiller ‘Popping the Bubble’?”
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The Chamberlain Group
[...] Original post by The Calgary Real Estate Blog [...]
What I don’t understand is why Albertans think they are immune to a global economic downturn. European Union leaders met this week to call for a global meeting on the economic crisis. You don’t hold a global meeting on an economic crisis that only affects the U.S.
It’s odd that when it comes to globalization, all everybody ever saw was endless growth, profitability and expansion buttressed by a larger market. Nobody paused to ask what would happen in a globalized recession, because that was supposed to be impossible. Now it’s looking like a reality.
Alberta is not special. We know this in Edmonton where two bitumen upgrader projects - multibillion dollar projects - have already been cancelled. A third may suffer the same fate. The reasons include the “old” problems of increasing material costs and labour shortages, but now also include the sudden constriction of credit, which is essential to any new project. Why is credit constricted? Because of a global credit crisis.
Yes, real estate is local, but our problems today are very global. $50/barrel oil is on the immediate horizon.
I’m always astounded by Calgarians who think that house prices will not drop. They’ve been repeating the rhetoric that the real estate sector has been feeding them, and betting their financial lives on it. They seem to have forgotten the old saying “buy low, sell high”. When rents are much lower than the price of owning the house or condo, prices are clearly over inflated. Let’s say someone buys a $300,000 condo now and I wait 3 years to buy it. They are paying about $1000 per month more than me for their mortgage and taxes. Interest aside, this is $36,000 extra they are paying in the next three years compared to me. If in three years the price is down to $200,000, they’ve paid $135,000 more than me. Yes they may have paid some principle but not much in the first three years of a mortgage. I’ve saved about $125,000. How long would it take them to pay $125,000 on their principal? By waiting for the housing bubble to burst I’ve saved over a decade of paying on my mortgage. Those who think prices won’t go down, certainly don’t know the world’s historical record on housing bubbles. Wait it out!