Canada’s housing market is coming unstuck
I have run several stories in the past about Canada’s housing bubble because I have visited a number of Canadian cities over the past few years and all of them seemed to be building like mad. Vancouver and Toronto were the worst of the lot as far as condos go. But, as the United States housing market imploded, Canadians were deep in denial about what was to come.
That is about to change as this clip from the National Post makes clear.
Holly Wood’s first hint that something was “smelling fishy” in Vancouver’s champagne-infused construction market came several weeks ago, when she discovered that the presentation centre for the city’s most glamorous project was strangely closed.
The Ritz-Carlton hotel and condos is among the richest development to begin construction in Vancouver, a $2,500-per-square foot, 58-storey ultra-luxury tower with an eye-catching 45-degree twist designed by Arthur Erickson.
But that $500-million design is currently little more than a half-completed hole in the ground – the most glittering symbol of the troubled times that have humbled real estate development in Vancouver, a city that spent the last half-decade treating new condos like an evergreen money tree.
Credit turmoil, construction costs and the threat of a recession have left several towers stranded, unfinished and searching for either new designs or new money, while some developers are now threatening to sue buyers who are walking away from huge cash deposits, unwilling to commit to condos they pre-bought.
The problems have extended from suburbia to downtown Vancouver where Ms. Wood, an agent with Re/Max Masters Realty, had sold a unit in the Ritz-Carlton, a place where “cheap” begins in seven figures. But Holborn Group, the developer had not paid her commission. Concerned that something was terribly wrong, she did something that would have been unthinkable a year ago, in the days when real-estate was still quick money and worry-free.
She marched into the office of Holborn, sat in the board room and demanded her money.
I’m sure you are wondering whether she got her money. Well, read the rest of the article and find out. But, the real point of this story is that Canada is not immune. House prices there have risen far above the rate of inflation for a number of years. With Ontario in recession and the rest of Canada to follow and with the commodities boom in retreat, expect house price declines soon in previous hot markets in Ontario, BC and Alberta. You have been warned.
The only question is what the net effect will be on Canadian lenders. To date, they have been looking very good.