How might a Canadian housing correction weigh on the provinces?
APRIL 23, 2012
I've often pointed out that talk of "low Canadian federal debt levels" is quite misleading. To give credit where it's due, we did experience an austerity drive in the 90s that saw federal debt-to-GDP levels fall from high water marks that have not since been revisited, a point I illustrated in a post last year. However, Canada is unique in that the provinces are larger borrowers than the feds. When provincial debt is added to the burden, the net debt figure jumps to 70% of GDP and gross debt jumps to 110% of GDP. Certainly not Japan, but comparable to the US figures that seem to capture so much media attention.
An interesting article by Macleans recently depicted how the composition of this debt has changed over time:
Of note, loans made to crown corporations are the largest financial asset the federal government holds on its balance sheet that offset gross debt figures. These account for roughly 12% GDP. Of these loans, by far the largest has been made to CMHC under the Insured Mortgage Purchase Program, which aimed to provide liquidity in the mortgage market by buying insured mortgages off bank balance sheets when credit markets froze during the financial crisis. Without venturing into a discussion of how likely it is that CMHC would be rendered insolvent in the event of a significant and sustained housing downturn, it seems to me that these loans would likely become on-balance sheet liabilities in such an event.
Measuring the potential fallout:
Three Canadian provinces account for 75% of the total Canadian population: Ontario, Quebec, and British Columbia. With all three provinces having released their budgets recently, it’s worth taking a moment to visualize what a real estate correction would do to the estimates used in these budget projections.
I'm not going to try to precisely quantify the potential fallout of a real estate crash on the provincial tax base and balance sheet, but to again remind readers that real estate has been a massive driver of these provincial economies and labor markets, providing juicy tax benefits through higher income, sales taxes (particularly considering that home equity withdrawal is adding 8% to personal disposable income in Canada), and land transfer taxes. I have little doubt that a severe correction would implode tax revenues and force the provinces to either embrace austerity measures or face steeper borrowing costs.
1) Ontario
Canada’s largest province with nearly 40% of the total population is currently wrestling with a 2.4% deficit which it plans to eliminate by 2018 through a combination of mild austerity and economic growth. Real GDP growth estimates range from 1.7% in 2012 climbing steadily to 2.5% in 2015.
Projections are also for the unemployment rate to decline steadily from 8.7% currently to 6.7% in 2015. Full budget can be read here:
A significant correction in real estate would hit provincial revenues on at least three fronts:
1) Income taxes: Currently 21.6% of total revenues
2) Sales taxes (primarily the 13% Harmonized Sales Tax which is added to sale price of new homes): 18.6% of all revenues
3) Land transfer taxes which apply to any real estate sale: Roughly 1% of all revenues.
2) Quebec:
Quebec is the most indebted Canadian province with net provincial debt amounting to 50% of GDP, and they are squarely in the cross-hairs of major ratings agencies. After tackling a 2.5% budget deficit in 2010-2011, Quebec now faces a tame 1% budget deficit and hopes to eliminate that by 2014. Full budget can be read here:
A real estate correction would hit Quebec revenues in several ways:
1) Income and property taxes (reported together): 44% of total revenues
2) Consumption taxes: 22% of total revenues
3) BC
BC had better enjoy its AAA credit rating while it still can. BC has net provincial debt of only 16% of GDP but has an economy shockingly reliant on real estate (annual MLS resale dollar volume is equal to 20% of GDP). As one analyst friend of mine recently noted in an email, the best parallel to BC’s current predicament is Spain:
"There are parallels to BC's predicament, the best and most chilling one is that of Spain. Several years ago Spain had the following: large trade deficit, dependency on construction employment, foreign capital investment (vacation homes), and relatively benign government debt. Now Spain has: severe construction recession, ballooning government debt, high unemployment, insolvent banks. BC looks awfully similar to Spain a few years ago and my fear is that it is in danger of being hamstrung by a slowdown in construction activity due to lower dwelling formation. With household debt levels already near a point of no return, there aren't many options left to fill the void save substantial foreign investment and government spending, both of which are not guaranteed to continue ad infinitum."
A real estate correction would hit BC in several ways:
1) Personal income taxes: 15.2% of revenues
2) Corporate taxes: 4.8% of revenues
3) Sales taxes including taxes on new dwellings: 14% of revenues
4) Property taxes: 4.6% of revenues
5) Property transfer taxes: 2.2% of revenues
In short, a potential housing correction would make current budget projections look very rosy indeed.
Cheers
Ben
Posted in:
- |
- Tagged:
- budget,
- canada,
- correction,
- housing bubble
81 Comments
One cava, er caveat, on Spain:
Spain is a parallel, but BC's situation is nowhere near as acute. I think we can agree BC need be only a distant cousin to Spain for there to be significant distress.
Good Macleans post BTW
Thanks all around, Jesse! And thanks for the ongoing and insightful commentary on BC housing:
http://housing-analysis.blogspot.ca/
Good article. What about the important provinces like Newfoundland?
Question is when the employment adjusts out of the FIRE economy in a place like Ontario, will there be anything to pick up the slack? Or will we be stuck with an extended period of even higher unemployment than we currently have in Ontario? Wouldn't be shocked to see double digit unemployment in the end when it all goes bad.
Once again, re BC debt, it is misleading to ignore the effect of the hidden P3 debt. A copy/paste of a recent comment of mine elsewhere:
When the NDP took power in 1991, the provincial debt was $20 billion. When El Gordo and the Liberals won in 2001, it was $33.8 billion. $13.8 billion of new debt during the decade of NDP governance. At a time of low resource prices, which neither the NDP nor the Liberals can control. Mismanaging tax-and-spend economy-destroying socialists, right?
In 2011, provincial debt stood at $47.3 billion, a virtually identical 13.5 billion in new debt over ten years, at a time when resource prices were high. Ahh, those fiscally responsible Liberals! But wait, ever heard of "contractual obligations"?
As of last year, BC taxpayers have had it agreed to that they will pay over $80 billion over the next 30 years or so to all those wonderful caring private companies who built and now operate stuff like highways, bridges, hospitals, IPPs (independent power projects, those run-of-river projects) and much more. Eighty BILLION dollars of monthly payments extending in some cases past that 30 years, although the bulk is in the 20-30 year range. As a taxpayer, that feels an awful lot like debt to me! But it is buried, boring, very little talked about and definitely not tax-payer supported debt as officially defined. The IPP portion of it is surprisingly large, at $45 billion!
Links: [url="http://www.llbc.leg.bc.ca/public/pubdocs/bcdocs/348389/2010_11/contractual_obligations.pdf"]Direct from the horses ass/mouth, BC government PDF.[/url]
[url="http://www.straight.com/article-376187/vancouver/gabriel-yiu-bc-liberals-contractual-obligations-hide-magnitude-provincial-debt"]One of the rare media mentions.[/url]
So how does that Fiberal fiscal responsibility feel now, hmm? Over $127 billion in debt, that's over $28,000 per man, woman and child in BC! With the Liberals responsible for $21,000 of that, the NDP $3000 and all previous government combining for the rounding error of the remainder. With that much new don't-call-it-debt surging into the province it's not hard to pretend times are good!
The Liberals "sound fiscal management" consisted of selling off public assets, taking on huge yet hidden debt, and also fostering an orgy of private debt. When new debt enters the economy it has an undeniable dramatic stimulative effect, but then it sits there as a drain on the real economy. Which in turn requires even more debt, faster and faster until we all go crashing over the cliff together, and then the bailout demands start.
Note the don't call-it-debt of circa $80 billion, contrasted to the official $47 billion figure, close to twice as much off-book as they recognize. In addition by fanning the flames of the private debt bubble here we have kept the appearance of a strong economy without the government having to rack up as much debt.
Note also that I am not an NDP supporter, I just want a real free enterprise fiscally conservative option that still has a social conscience. Instead I have a choice between bumbling bleeding-heart lefty fools, or a socially conservative front for ruthless big business interests. So I vote green, as they are the only ones who seem to think that the state of the province 50 years from now is of any consideration whatsoever. Although that may fall prey to political expedience should they ever get a sniff of actual influence!
I honestly don't know how much the federal government and the other provinces have embraced the off-book debt of P3s and crown corporations, but here in BC it is huge. A post on that might be an idea for Ben, if interested.
HTML didn't work, sorry.
Those links again without fanciness:
http://www.llbc.leg.bc.ca/public/pubdocs/bcdocs/348389/2010_11/contractu...
http://www.straight.com/article-376187/vancouver/gabriel-yiu-bc-liberals...
If anyone is interested the following link is to a data table on the Statistics Canada web site which gives a summary of the (total) credit market debt in Canada over the last 5 years. Please note the 6th line from the bottom - Total funds raised equals total funds supplied, and the huge steady increase in this number over the last 4 years.
http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780050
What was the source of the funds that allowed the "Domestic financial institutions" to supply funds from $2,832,104M in 2007 to $3,694,775M in 2011, is Canada printing money (a form of QE) too?
There is no source of funds because it's all based on credit with minimal capital requirements. For example, for every $20,000 deposit a bank can lend $180,000; a borrower would then use $200,000 to purchase a home, of which is now considered a $200,000 asset owned by the bank. Then the bank can hypothecate that $200,000 by pledging it as collateral to borrow more bonds (with interest rate swaps), and if that's not enough, now we have re-hypothecation, where that same $200,000 that is already pledged as collateral can be used 'again' to borrow overnight loans via repo agreements. It's a ponzi scheme, but they call it factional lending.
But to answer your question, yes we also have QE.
I'm pretty sure that's not how banking works. For every $20,000 deposit they can lend $18,000.
A very weak post, you don't give any historical context and your graphs show that FIRE went from 24/30% GDP in BC over 37 years? How does that compare to the US or other housing bubbles. We went from a manufacturing country to a service, did you really expect something different?
Your sensitivity to different tax levels, how does this work exactly, if RE drops by X%? then those taxes will fall by how much, how does that sensitivity look historically?
This post has no meaning or context.
Good thoughts and questions except for your last sentence.
A rise in 6% of all the goods and services we produce as a province/country going towards real-estate related industries is very significant. It means that BC relies on housing-related employment more than ever in its history (actually 5% more than 2000). Please note: there is a 5% increase after 2000 (it is now 31%). The average from 1975 to 2000 was ~26%. Remember that 2000-2012 saw increases in household debt which brings us to >$1 Trillion outstanding - continuation is unsustainable
Interesting question about taxes
Great documentary covering banking, derivatives and mortgages. http://www.ritholtz.com/blog/2012/04/money-power-wall-street-full-episod...
This is why our banks lobbied to kill the Volcker Rule. Nobody wants the party to end, cause when the lending stops, everything stops.
Greg, these type of stories is exactly what is fueling more folks out of stocks and into housing. Meanwhile the stock market is taking off and people trapping themselves at historical high prices and debt levels and missing the boom in stocks.
The Canadian real estate market is not efficient, particularly in Toronto. Condos are selling fast at above $500/sf. The builders' profit margin is above 300%. Yet, they are only building a couple of thousands units per year. If this kind of demand and profit margin occurs in any other industries, suppliers will work overtime day and night to meet the demand, and capture the fat profits. Look at Apple and its I-Products, for example.
It's not like there is limited land. In GTA, there are vast empty lands. They may not be suitable for houses, but they are perfect for 40 -70 stories of high rise condos.
The other day I actually saw one construction with all beer belly workers! Sigh...
Just like I said in the past, Canada needs to import American capitalism, efficient, profit hungry...
This low productivity hurts the wealth creation. Eventually it will lower the Canadian living standard.
There's over 6000 condos listed in the GTA right now (still rising) and multiple developments scheduled to be completed for the rest of this year. http://i46.tinypic.com/29ygxu9.png
New condo speculators are toast.
@ market player - the amount of jobs in construction is the same that we saw in Ft Mac with 150$ crude. If you are a crane operator, you can work 24 hours.
I am in the business, there is no 300% profit and the lands that you see empty are being sold for so expensive that developers can't make any money. The business is hyper efficient. The appreciation of real estate afterwards is secondary.
If the market is so bad, then you should be loading up on condo's and selling them into this demand?
A Real Estate Bank not unlike a Food Bank, with an inventory of sardine cans, mac boxes and other strange fare, with suspicious expiration date codes and questionable contents for your living environment.
RE:BC
1) Personal income taxes: 15.2% of revenues
2) Corporate taxes: 4.8% of revenues
3) Sales taxes including taxes on new dwellings: 14% of revenues
4) Property taxes: 4.6% of revenues
5) Property transfer taxes: 2.2% of revenues
This doesn't make much sense:
Property taxes - Mill rates are not dependent on real estate value. They set after defining what the municipalities need for their fiscal year.
Property Transfer Tax - Impact would be on lower price and volume. Volume are very low in B.C. right now - so not too much downside on the turnover. Assume price decline of 20% for argument sake. The hit is about $180 million in revenue on 100,000 transations (new and used). not much - that is assuming that there are no first-time home buyers getting full rebates.
income tax revenue - you will need a broad economic recession in the region. A housing decline will not do it.
sales taxes. HST is done next year - the tax revenue that goes to the provincial government is about 2% of purchase price for a newly built home + the 5% to the feds. There are no taxes applicable on resale transactions (except related services).
sorry the fiscal impact on the province is not how you see it.
Someone please hold up the Toronto condo market for two more years. We know there are 40000 units coming. Please do not crash until they are built.
Housing is driving most of our GDP now... interest rates are not likely to change soon.
(source: http://www2.macleans.ca/2012/05/01/how-the-housing-market-is-pumping-up-...)
Ben, thanks so much for keeping us up-to-date! The following report by the Canadian Centre for Policy Alternatives looks at the$114 billion bailout of our INSOLVENT CANADIAN BANKS ($3,400.00 for every man, woman and child). Take a look at the chart on page 6.
"Three of Canada’s banks—CIBC, BMO, and Scotiabank—were at some
point completely under water, with government support exceeding the value
of the company. In March 2009, CIBC stood out for receiving support worth
almost one and a half times the value of all outstanding shares. It would have taken less money to have simply bought all the shares in CIBC instead of providing it with support.
Over the aid period (from the fourth quarter of 2008 through the second
quarter of 2010), the Canadian banks remained profitable, reporting $27
billion in total profits between them. Only two banks saw a single quarter
with losses, CIBC and RBC. All the other banks were consistently profitable
throughout the period of government aid.
To top it off, the CEO of each of Canada’s big banks ranked among the
highest paid 100 CEOs of Canada’s public companies, and at the height of
government support between 2008 and 2009 each CEO of each bank received
raises in total compensation. For instance, Edmund Clark of TD Bank saw his
overall compensation jump from $11.1 million in 2008 to $15.2 million in 2009."
http://www.policyalternatives.ca/sites/default/files/uploads/publication...
In case the above link doesn't get you there, use this link, then press the "Download Now" button.
http://www.policyalternatives.ca/publications/reports/big-banks-big-secret
Off topic, but this panel clearly needs some fresh direction.
Hey Ben et al. What should a portfolio look like now? I know this is a personal opinion query, but would love to hear some others. I am not very happy with mine which is currently:
0% real estate
25% gold
30% common equities (cdn)
44% parmesan cheese (cash, fixed etc)
1% velveteen art (dogs, bullfighters etc)
In addition to being scared witless of the markets, i distrust most advice i get, especially that of investment advisers at the bank. Advice from a multitude of anonymous, online bloggers is always trustworthy though...
There is a conspiracy here in Canada.
Why would a finance minister and a central banker want to talk down their country's beloved real estate industry?
For anyone who does not know, real estate accounts for 7% of Canada' GDP. It employs million of people. It has created unprecedented prosperity for millions of Canadians. Just look at Vancourver and Toronto, millions of families own million dollar houses. These Canadians will not rely on government support when they choose to retire now. This in turn relieves the burden of the future generations.
In a word, real estate is a great real wealth generator in Canada. It is the envy of the world. Well at least to the people in south of the border. The beauty is everyone can get into it very easily. You just go to a mortgage borker, tell him you want to buy a house, he then pre-approve certain amount of money for you. Then you go out, use the money to buy a house, lets say for $500,000. Then you move in and live there for five years. The value of your house will compond yearly at 20%. So after five years, your house will double the value, guaranteed. You then sell it, pay off the remain of your mortgage, and keep the other $500,000 for yourself.
So why anyone wants to kill such a beautiful money-making industry?
Appraiser, and landlord, do you have any answer for this question? Would really appreciate if you can help out here.
Are you serious?
Great! Lets add one or two zeros to our house's price. Then, we can claim to be rich!
Game Theory 101
Prices go up ,everyone is happy and forgets the warnings
Prices go down, your warnings audit trail can be highlighted in the press - the key is to build a nice timeline.
Can't believe what I just read...! Next time when I'm off the the grocers, I'll bring along a couple of bricks from my property and ask if they'll take such objects as payment given that the home they were taken from is worth over a million...sigh.
Yes, I am serious.
I watch CP24 Hot Property show religiously. Its a Toronto channel. Highly recommened.
Sounds like a Ponzi scheme.... how can anyone guarantee that the price of housing will continue to increase after five years?
Do you have any stats or sources to back up your claim?
Why would anyone need to sell that wonderful cash cow house if you can always take a HELOC and to use it for a down payment buy a second house then the third one etc..They all are going to grow indefinitely in their price and even if you are losing some money renting it cheaper than it covers your expenses it is OK - you are supporting a local economy after all....Right?
What you are talking about are B Lamb broker market projection marketing material. He is not the only one, plenty of fine print. The only way is to ask to sign a contract that he will buy it back from you in 5 years at double the price and post you money in a segregated account which the bank keeps on your behalf (in case he goes bust) NO way they will do that - so the next time you get that shit, reply with that.
Market Player's comments are enjoyable, for their straight faced sarcasm.
Trying to find stats for the average canadian length of homeownership.. I've heard 5-7 years but cant find concrete stats. My instinct says more than that but can anyone give me an estimate with link to source?
Houses made out of tablets by Corning Glass
www.youtube.com/watch?v=6Cf7IL_eZ38
Another day report from Larry Yatkowsky - a great Vancouver realtor:
Vancouver All Areas*
New Listings - 339
Back On Market Listings - 5
Price Changes - 172
Sold Listings - 83
Attached & Detached - Date: 2012/05/07
I have never seen it so low in sold.
Ben -- A really interesting article from today's G&M.
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/da...
I knew that there were a lot of sold yet vacant condos in Toronto, but I didn't think the number would be that high, or that the CMHC would "admit it"!
Keep in mind, IT"S OK FOR CONDO"s to be empty, that is not a sign of anything. The bank doesn't say you have to live in it, just pay the monthly bill and that's all that matter - the current debt servicing or that "monthly" is at record lows. So don't be fooled by cranes or empty condos. That is already a signed, sealed and delivered deal. Focus on jobs, weakness to pay the bills, arrears. Ben, Garth and others have been wrong for almost half a decade...they simply focus on the wrong things.
IF the CMHC was private, who cares, the government then would need to bail out the banks, like an AIG going bust. The problem is too big to fail.
Right on the money... if you can't beat'em, might as well join'em.
Are you kidding me? Condos aren't houses. The ones sitting empty were bought as investments, but the owners can't be bothered to even try deriving an income stream -- they are in it for capital appreciation only. What do you think those owners will do when their condos stop appreciating?
As for arrears -- when they start going up, it's already too late. The US only registered a significant uptick in arrears after house prices had been dropping for a couple of years.
How would a city in central canada like Winnipeg, Manitoba be affected ?
Anything west of Bloor St in TO is out west.
And anything out west is not in Canada.
You DO know that Bloor is Canada's Equator, right? Anything West of the Equator...
Interesting comment from Marketspectator2012-05-09 12:02
"To the extent that you find this anecdotal evidence interesting..."
http://canadabubble.com/bubble-watch/2382-canada-housing-bubble-talk-dis...
NDG: (Montreal?) “When we look at the overall marketplace, there might be pockets of vulnerability but we remain quite comfortable,” said Gordon Nixon, chief executive officer of Royal Bank of Canada
this is evidence that the Royal Bank of Canada is quite comfortable. Vancouver sales are down 30% year-over-year (Garth Turner, yattermatters), prices follow. Delinquency rate in BC can double and the Royal Bank will be quite comfortable, it can probably increase by a factor of 4 before the Royal Bank feels any kind of threat.
45north
NDG Montreal, a wonderful old neighborhood yet vulnerable? I believe so.
When lower or upper duplexes (co-op or indivise) commend anywhere from 400k to 599+k in 2012 and those same duplex as a whole where selling for 240k in 2001 it is hard not to rise an eyebrow.
Typical semi detached NDG house now fetch 800k and some over 1 mil. many without parking. Impressive!
We are now building condos everywhere we can, tearing down businesses, gas stations, converting apartment building to condo. What ever we can flip.
Gordon can sleep well at night for now, while I observe this irrational exuberance. I too sleep well at night watching the game unfold.
Condo developers, House builders, investors, flipper, end users, all man up!!!
Not much time left before crash. So please
Build, build, build!
Buy, buy, buy!
The condo market is officially toast. New listings by the hundreds are flooding Craigslist, Kijiji, Red Pin and Property Guys listings.
Ben Rabidoux getting the word out on Chinese websites as well.
http://www.iask.ca/news/canada/house/2012/0506/133540.html
http://www.epochtimes.com/gb/12/4/28/n3576411.htm
Translated it... basically says run for your lives from Toronto and Vancouver... something about Toronto becoming ghost city like Ordos or Chenggong in China... something about speculators should take money to the United States where housing is discounted more than half price of Canada...
I've only spent a day studying Chinese so I'm sure my translation could be off..
The translated headline is funny.
Toronto Replica of Vancouver: Looting Detached Condo Strange Fall
http://translate.google.com/translate?sl=zh-CN&tl=en&js=n&prev=_t&hl=en&...
Seeing statistics like these always raises my concerns. Recently I have read interesting article Why Canada Shouldn't be Afraid of Subprime Crisis, in which its author argues that Canadian housing market is strong and regulated enough. But even if its author was right, these graphs would clearly show that dependence on construction and FIRE industries is really high. I think that more diversification would be desirable in this situation.
Just toured several Open Houses in Richmond Hill, Ontario.
Honestly, the feeling is the end is nigh!
Banks May Force Homeowners to Re-Qualify for Mortgages at End of Every Term
http://www.youtube.com/watch?v=V_w-BSGtCeM&feature=player_embedded
MarketPlayer and Appraiser are MIA. I am seriously missing all the stats generated by MarketPlayer, esp his Condo reports. Can someone point me sites where I can see good and honest GTA reports?
BILD/RealNet Sales Data http://www.bildgta.ca/media_releases_2012_detail.asp?id=880
New Toronto condos sales down 18.9% in peak season! Laaterr...
And BILD characterizes these numbers as signs of "stability"? Really?
B.C. Housing and your ties to CMHC could unhinge a broke Province.
"We now live in a world where deflation has become public enemy number one. In this current economic environment, governments seek a condition of perpetual inflation in order to maintain the illusion of prosperity in the developed world. But in reality, deflation is the free-market approach to rectify a secular period of superfluous money supply growth, debt accumulation and asset price appreciation."
"The plain truth is that the current debt levels, carried by the developed world, demand a period of massive deleveraging to occur. A healthy and cathartic period of deflation is needed; where asset prices fall, money supply shrinks and debt levels are reduced to a level that can be supported by the free market. This is the only viable answer for various nations struggling with solvency.
However, the return journey from rampant inflation and asset bubbles always carries insolvency and defaults along for the ride. Defaulting on debt is deflationary in nature and restructuring your liabilities is the only choice when you owe more money than you can pay back.
The prevalent idea among heads of state and central banks is that a country can borrow and print more money in order to eliminate the problems caused by too much debt and inflation. But more inflation can never be the cure for rising prices and piling on more debt can't solve a condition of insolvency. "
http://www.huffingtonpost.com/michael-pento/deflation-isnt-the-enemy_b_1542278.html
Hi Ben,
Not sure if you still read these comments, but if so, I'd love to get your opinion on this article:
http://www.fdic.gov/bank/analytical/fyi/2005/050205fyi.html
Especially the quote: "In over 80 percent of the metro-area price booms we examined between 1978 and 1998, the boom ended in a period of stagnation that allowed household incomes to catch up with local home prices."
Of course it was from before their crash, but even so, the common argument on the bear side is that booms/bubbles don't end in stagnation, but rather in a more or less symmetric crash. Any thoughts? I'm currently looking at the Victoria data in more detail and wondering if flat prices that we've seen mean we weren't actually in a bubble, but will just see price stagnation until incomes catch up. Thoughts?
the article seems to indicate their definition of boom to be this: "a “boom” market as one in which inflation-adjusted prices rose by at least 30 percent in a three-year period..." Depending on where you live in Canada, you've witnessed something much larger than this - a double or triple "boom" over the last 9 years - which would seem to be something quite different....
Hello fellow bears
Any ideas when we will start feelings effects of the CMHC insurance limit? How about the stricter OSFI changes?
Adam
CMHC's insurance limit is already being felt with stated-income guidelines being enforced by most major banks. OSFI's proposed rules is still up in the air.
I wouldn't be concerned about mortgage rules with current market conditions in turmoil. Credit markets can lock-up very abruptly and faster then most think.
Thanks
AK
Ben you have done a great job of being wrong in public
1) via your blog
2) on TV and the MSM
3) Twitter
4) M Hanson research
It just shows only a few actually in this world do due-diligence. I can't believe how off the mark you have been, both in your charts, numbers and forecasts. We live in a strange world
...as Vancouver withers and Toronto condos roll over. Thanks for stopping by.
Our audit trail says that you said that about Toronto and Vancouver 2 years ago. The point is that auditrail shows that if people had done the opposite of what you suggested/blogged or used any attempt at academic validation would have resulted in better results. Even if the market does go down, people would be at the same spot, assuming 2 years got wiped off in price and would have paid rent.
In your MH reports you picked stocks " low hanging fruit" - how are those working out for you?
Evidently wrong doesn't matter. We are quickly approaching 2 years since our inglorious host predicted that the real estate market would decline by 25% in Canada. I suppose as long as you never realize your prediction, the attitude must hold firm that there will be an outside chance that it will come true...eventually.
Holy Garth Turner Batman.
One of the most egregious displays of bias was Ben's recent article in the Globe and Mail regarding affordability indexes. Not only was it a laborious repetition of a previous article...but, I digress.
After tortuously dissecting the frailities of the Bank of Canada index by picking the fly shit out of the NHPI, he completely missed, or fortuitously glossed over the section of the BoC's index regarding the use of the posted 5-year bank rate, which it blends with the variable rate to arrive at the final interest rate used in the index formula.
Who the hell pays the posted rate? Should have caught that one by now Ben. I did.
Credibility = zero. Total fail.
Quote: "The mortgage rate r is a blended rate reflecting both a 5 year fixed mortgage rate and a variable mortgage rate (proxied in this case by the prime business lending rate). Neither of these measures account for discounts on the posted rate."
http://credit.bank-banque-canada.ca/financialconditions/hai
Meanwhile, as per CMHC's latest renovation and housing report, the number of first time home buyers in 2011 declined to 35% from 43% in 2009. http://postimage.org/image/57ic2kz8j/
The great thing is Ben has left a great audit trail showing how off the mark he has been and our reports will be published soon. We were made aware via MH clients who are very unhappy, not sure the person in HR at that place did any back checking on this one.
That's cute. I look forward to reading it!
You don't need to wait, just read your own work and do the opposite. The opposite would have left families in Canada much better off.
Ahh Appraiser.. Fighting the one man fight against... what exactly?
Having fun posting Toronto sale numbers on every blog you can find? I'm surprised McLister hasn't banned you for your offtopic posts.
By the way, what do you think of all the people that warned of the housing bubble in the US from 2004 to 2006? 2 years ahead of collapse, oh how wrong those idiots were!
Apps' been isolating his argument starting from when he first said Canadian homes would never decline; then he stated Vancouver was an anomaly and doesn't count; now he's disregarding Toronto's crashing condo market: so it seems Toronto SFH is all that is left for him tout about, until it goes down like the rest.
We are quickly approaching 2 years since our inglorious host predicted that the real estate market would decline by 25% in Canada.
If this were a stock pick, I'd agree that he was wrong. Given the transaction costs typical in a real estate transaction, and the typical holding periods, I don't think being two years early is a crime. The other thing of note is that liquidity disappears even more quickly in a real estate bust than in a stock crash, and with the lack of transparent bids, waiting until the market starts to decline to get out is no fun at all.
Ralph, I think you missed the point, if you only get a decline that wipes out two year of gains, you still would have been better off owning and being flat, then have paid rent. Not only ben get it very wrong, it got wrong right before the large up kink, which means even we get back to a normal market, he would have given very bad advice using as much economic jargon and graphs that accomplished nothing.
@audit/appraiser/sams mango (don't know if landlord was you either)
If you only get a decline that wipes out two year of gains, you still would have been better off owning and being flat, then have paid rent.
I would love to see actual calculations why it's better to buy vs rent or vice versa. You might be right, (I'd say if the buyer has a big down payment) but what you said is not true until you show me the calculations.
Here is the spreadsheet that I use for my calculation: khanacademy.org/downloads/buyrent.xls
Best annual maintenance calculation cost (3236$) I've seen so far is covered here: saskatoonhousingbubble.blogspot.ca/2012/04/why-first-time-buyers-will-have-to-save.html
Looking forward to your response.
Sincerely,
Petr
"Market naysayers always get a hearing because people are scared to death about money. So one of these charlatans comes along and says, 'Oh, it's a lot worse than you think. People say, 'Oh, I'm finally hearing the real inside story. They've been the worse forecasters for thirty years." - Louis Rukeyser, CNN, November 3, 2000 - incorrectly attempting to decry the theory of a tech stock bubble collapse....
Just keep your eye on the main ingredient : Affordabilty.
Use. The. One. Best. Tool.
Not. Accurate. In. All. Cases.
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages...