It’s a fact. You just can’t talk about today’s real estate market without mentioning the word “bubble.” Jim Flaherty spoke about it on Friday, and now Prem Watsa, chief executive officer of Fairfax Financial Holdings Ltd., and the Canadian investor who was the first to predict the crisis in the United States, says that if we’re not careful, the same thing could happen here in Canada. What’s the biggest concern he sees? Echoing the sentiments of Jim Flaherty and Mark Carney, Watsa says he’s worried about the number of Toronto mortgages going towards condos – and the number of condos that are going up, period.
It was at Fairfax’s annual meeting that Watsa pointed to the attitudes seen in the States before their housing market collapsed, and compared it with that of Canadians today. “I just know that whenever you have a bubble,” he says “most people think it’s going to go up. The real estate housing market in the U.S. – 2003, 2004, 2005 – everybody thought it was going up.” And they may be. But the problem is for that “last buyer of a Toronto condominium” that Flaherty pointed out, who will be burned if values were to plummet.
Watsa also said that investors now see the housing market in the United States as a better investment than here in Canada, simply because it’s so unknown what’s to happen here. “When you see all these towers going up in Toronto, it feels like we’re going too far. Our approach is always to be away from where speculation takes place.”
The words were most likely being said at the same exact time Bank of Canada Governor, Mark Carney, was reiterating his concerns over Canada’s housing market, as well as the increasing household debt we’re taking on, including that of 2nd mortgages such as HELOCs and home equity loans.
Speaking to business people in Ottawa on Friday Carney said, “We’ve seen this movie. It just played in a major cinema just south of here, over and over and over again; and it would be the height of folly to repeat those mistakes.”
One of those mistakes, Carney said, would be to take the large amount of foreign capital Canada is currently receiving, and will receive for some time, and invest it into an already-overheated housing market, and not in our commercial enterprises.
“It is reasonable to expect that Canada will attract for the next decade or so sizeable foreign capital…and the question is what are we going to do with that capital. Are we going to build houses…or are we going to invest in our business and retool our competitiveness?”
