Housing Bubble Update: Is it progressing?

Last Summer we wrote a post pondering if the housing bubble was finally beginning to unwind and indicators were pointing towards it, but we had this to say:  no one knows for sure.  Anyone who claims to know is probably either a fool or trying to sell you something (a guy named Garth, perhaps?).  This post is a follow up update to that original post.

The basic takeaway: we still don’t know.  Prices have been adjusting downwards in multiple markets, but things are still very overpriced.  So our advice is to be very very cautious.

As a recent post over at Better Dwelling has noted: Canadian prices are down significantly in Toronto since April 2017 (and Canada-wide since Toronto is such a large economic force), but up in some much smaller markets.  The number of sales are also down significantly.  These are market conditions that COULD be pointing to the end, but a reversal is, as always, still quite possible.

If you’re a buyer looking to buy the dip, we would strongly caution against it as it’s a situation where you are trying to “catch a falling knife”.  Our recommendation would be to buy a house (when you need one) once the market has deeply corrected and once exuberance has been firmly replaced by fear.

StorageVault Canada Inc: An interesting way to play the Coming Housing Downturn

StorageVault Canada Inc  is the only publicly traded company in Canada that manages public self storage facilities.  They have been aggressively expanding in a growing market and we believe they are positioned uniquely to take advantage of the coming Canadian housing market crash.

Continue reading “StorageVault Canada Inc: An interesting way to play the Coming Housing Downturn”

The Hillarious Bias of Real Estate Brokers and Agents

Real Estate Agents and Brokers generally like to portray themselves as experts who are “on your side”.  While you might find the occasional agent who is working in your best interests, we believe that most agents are in it to make money and little else.  And as you will see, there is incredible bias in this department

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The Bank of Canada and the Housing Market: an Unenviable Position

The Bank of Canada is in a very difficult position because of House Prices for a number of reasons.  It is our current thesis that they are stuck between a rock and a hard place.  The rock being the need to raise interest rates to combat inflation and a sinking Canadian dollar and the hard place being the massive housing bubble and huge levels of consumer debt in Canada. Some of these difficulties are also faced by central banks around the world and some are uniquely Canadian.

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Canadian Housing Bubble: Beginning of the End?

We’ve all seen the headlines (well, those of us who follow this sort of thing), is the Canadian housing bubble beginning to unwind? Prices of detached houses are substantially off from their peak in April in the GTA as well as other previously red-hot markets in Ontario. Worse still, sales volume is also considerably down. Economists from various real estate agencies (who some might label as shills) and many others who frankly have a ton of potential bias tell us that this is either an anomaly or the beginning of a soft landing.

So, is this the beginning of the end? Continue reading “Canadian Housing Bubble: Beginning of the End?”

How to Play the Canadian Housing Bubble?

There is a large bubble in the Canadian housing market. Of this I am convinced and this article operates on that assumption, but how can you profit from it?

There have been countless articles written describing and proving this bubble’s existence. I might write a similar article eventually, but it feels like retreading. There is a bubble and it will pop eventually. Anyone who pretends to know when it will pop is a snake oil salesman (people like Garth Turner. Read the archives on his blog. He’s always pretty sure when the bubble will pop). That being said, there have been recent signs that indicate that it might happen soon. Sales are slowing and prices are declining in certain hot regions. However, other regions are seeing double digit year over year price increases, so it’s impossible to say.

But yes, there is a bubble. And when this bubble pops anyone who owns a house in Canada, but most especially in the superheated metropolitan markets, is going to lose a ton of equity (or go deep underwater). While there have been many articles written about the existence and the scope of the bubble, I can find few that offer any suggestions on how to profit from it. I have few ideas that I would like to share with you today

How to play the bubble depends largely on your situation. If you currently own a home in Canada – especially in Vancouver, the GTA, or a handful of other superheated markets – the best way to play the bubble is to sell it on the open market and rent a home. Pretty simple. You can permanently realize any gains you’ve experienced and use that money to again buy a house once the market has collapsed. Even if you own a home and you don’t currently have an equity in it, you should sell it and rent because you do not want to go underwater.

If you don’t own a home, another good bet is to invest in non-Canadian dollar denominated assets, like US stocks. If you’re concerned that the oil sector might rebound and the Canadian dollar will bounce back, be sure to invest in the US Oil sector. If the Oil market improves, these stocks will likely rise a the USD falls against the CAD, offsetting your losses.

This is a riskier one: short or buy put options against stocks that are closely related to the bubble. Two that come to mind are Genworth Financial, a mortgage company and Home Capital Group, Canada’s largest subprime lender. I would not recommend shorting Canada’s big 5 banks as they are mostly quite diversified with assets in the USA and many other income earning streams. And they have the ear of the federal government, so it’s never a good bet. However, I do believe they will lose a lot of value when the bubble pops. But I also believe the TSX as a whole will decline. For this reason, it might be a good play to buy an inverse TSX ETF like HIX. If you’re not sure which stocks to bet against, you can bet against Canadian equities as a whole.

In conclusion there are not really any slam-dunk plays to profit from the housing bubble unless you own a very overpriced home. What your goal should be is to avoid the plummet by diversifying your assets to the USA and/or elsewhere