Note: I have addressed this issue in an earlier posting as well.
Having lived through not one, but two housing crashes in the United States, I have seen a pattern in both instances, right before housing prices took a nosedive. In both cases, we saw a number of the same things happening. First, the talk. We heard a lot of happy-talk from folks right up until the foreclosures started:
1. People denying there was a bubble.2. People denying that bubbles even existed.3. People saying that "Housing will always go up in value."4. People saying that, "This time, it's different" (if they admit to past bubbles).5. People saying, "Our area is different" (again, if they even admit to bubbles existing).6. People quoting Mark Twain, who supposedly said, "Buy land - they're not making any more of it!"
7. People saying, "Well, even if we can't afford these properties, the [name of foreign country] folks have lots of money and will snap these up!"
But then again, the Chinese are shitty investors. Chinese citizens have enormous amounts of cash tied up in low-return savings accounts. Worse yet, they invest in U.S. Government bonds, which pay fractional interest rates. The Chinese either don't need the money or are severely risk-averse when it comes to investing. Which is odd, because they are the most heavily courted customers by the Casinos and cruise ships, as they will gamble like maniacs. Maybe they are not as smart as we think they are. After all, they did embrace Communism for over 50 years, right?
1. Prices rise 10-30% a year for a number of years in a row.2. The cost of owning a home is double (or more) than the cost of renting the same home.3. People are buying and flipping homes, often remodeling the same home between flips.4. Housing being torn down and bulldozed to make room for even more elaborate homes.5. Houses that are bought at high prices, but remain vacant for long periods of time as money-losing "investments".
6. People trying to outbid each other to buy houses, with houses selling for over asking price. In a traditional market, houses sell for less than asking price - after months on the market!
UPDATE: There is one other factor that is a sure sign a housing bubble is about to pop: You see more and more articles about whether in fact there is really a housing bubble. Most of these come to vague or generic conclusions, or ask the reader to decide, as no one wants to go out on a limb predicting the future. But there are signs the Canadian bubble is popping in some places, according to some sources.
And it makes sense. A slowdown in the Chinese economy plus satiated demand will mean slower sales in Vancouver. The low price of oil is causing huge layoffs in Calgary, which will drive the prices of those acres and acres of new condo developments into the ground. As a country with an economy based on the export of raw materials, Canada is very vulnerable to a downturn in the price of oil.
And some Canadians are starting to see this. This does not bode well for the new Trudeau administration. And I so liked his Dad. This could mean a multi-year recession for Canada, unless oil prices recover quickly.
“Recent momentum in prices in Toronto and Vancouver may increase the likelihood of a correction in house prices, which could affect vulnerable households,” Bank of Canada Governor Stephen Poloz said at a press conference in Ottawa on Dec. 15, 2015
"Without calling the overall national issue a bubble, it's pretty clear that it's an unsustainable underlying pattern," Mr. Greenspan told the Economic Club of New York at the Hilton New York hotel in Midtown. Mr. Greenspan emphasized that he sees no sign of a nationwide housing bubble, but he acknowledged concerns over "froth" in the market and pointed to a big increase in speculation in homes -- particularly in second homes. As a result, he said, there are "a lot of local bubbles" around the country. (NY Times, May 2005).