Talks around Canada’s housing market have been surging – about its booming prices and about its looming risks.
The price side – directly shown by its pricing index from Statistics Canada – plotted below from Jan. 2006 – Oct. 2018.
Toronto’ prices are the most wild in among Canada’s housing markets – nearly doubled in 39 month from Jan. 2014 to Apr. 2017.
The price itself is not actually something to worry about. But as FT argued, “House prices have raced ahead of wages for years, boosted by loose lending, low interest rates and lax controls on foreign money.” Similarly on Huffpost, “Toronto’s house price index doubled between 2011 and 2017, even as household incomes grew by single percentage points.”
And let’s take a look at the housing debt level – the risky side.
Bank of Canada said the two trillion dollars of debt is around 170% of disposable income.
I double checked with OEDC data here.
Here is a historical comparison –
and housing debt versus GDP – just passed 100% for 2017 Q2.
The regulator took actions to cool down the market.
The short-sellers/investors took theirs too.
Home Capital is at the center, Canada’s largest provider of home loans to the newly arrived and self-employed.
In Jun. 2017, Warren Buffett’s investment vehicle Berkshire committed to acquire a 38.39% stake as part of a rescue package (C$2.4 billion, including C$400 million equity and C$2 billion credit line with 9% interest rate). The first tranche of equity investment acquired a 19.99% ownership.
However as the second tranche of equity investment wan’t approved, now in Dec. 2018, the updates came as Buffett would sell most of its stake and reduce ownership level to less than 10%.
Home Capital is under control and stabilized now.
A single crisis is easier to solve than a systematic problem between housing prices and local income.