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Vancouver housing in full correction mode: Implications for Canadian banks

AUGUST 03, 2012

A research note for my faithful readers.  This was first sent to clients in mid June, so some figures are slightly dated, though the numbers out of Vancouver ain't getting prettier.  It has been shortened and edited slightly, though the message remains the same.  I hope to touch on the Toronto condo market next week.

 

Vancouver crash would be major macro event with implications for Canadian banks:

As I warned clients back in October, Vancouver (and the entire province of British Columbia) would be the first major Canadian market to begin declining.  Now, amid rapidly rising inventory and dwindling sales, price declines in the city in the past few months have been significant, with the once-hot detached segment down over 12% Y/Y.  The point of this report is to once again hammer home just how ugly the fundamentals really are in this city (and subsequently how far prices could conceivably fall) and to reiterate that a crash in Vancouver house prices has the potential to be a major macro event that will impact Canadian banks.

Vancouver is the third largest Canadian metro, home to 2.3 million people or 7% of the total Canadian population.  For reference, the state of New York represents just over 6% of the US population.  The entire province of BC accounts for over 13% of the Canadian population, larger than the state of California’s contribution to US population.

As can be seen below, chartered Canadian banks have created a credit bubble in BC and now have significant exposure to a housing market on the brink:

 

The following chart shows the percentage of each loan type originated in BC:

Canadian bank aggregate balance sheets are quite exposed to a housing-induced recession, though there is a great deal of variation within individual names.  Some are much more exposed than others.

At 2 times book, Canadian banks remain the most expensive banks on the planet.  I'm quite happy to discuss why the banks' insured mortgage books are NOT as good as sovereign and why it would not be inconceivable to see them trade to book before the Street begins to question even that value.

 

2)  Fun with anecdotes:

Before diving into the data, consider this fun anecdote: There are currently over 5,000 homes in Vancouver metro area for sale for over $1 million according to MLS.ca.  In comparison, the NAR reports that in April, just over 7,000 homes sold in the entire US were sold for over $1 million.  And this despite the fact that the US population is 135X greater than the metro Vancouver market, the average personal disposable income in the US is 20% higher than the Vancouver average ($37,100 vs. $30,800) while US per capita GDP is higher than the average for all of BC.

 

3)  Overview of market fundamentals:

These charts need no commentary, though I would draw reader’s attention to the second chart in this section showing Vancouver ownership costs as a percentage of household income.  Note that this chart is courtesy of RBC and assumes a 25% down payment on a typical Vancouver property.  How exactly this is even possible is a bit of a mystery, though I offer some suggestions a little later in this report.  At the very least, it highlights how stretched the budget of the typical Vancouver household must be to maintain any standard of living.  This is at least partially reflected in the fact that BC in total has had a negative savings rate for over 10 years now.  The bottom line is that I’m confident that there are many households now reliant on home equity extraction to maintain their current lifestyle and likely to continue making timely payments on debt obligations.  I suspect that when the tide goes out, we’ll be shocked at how many Vancouver households have been swimming naked:

 

 

4)  Recent sales trends:

May sales were the lowest total for the month in the Vancouver area since 2001 and were 21.1 per cent below the 10-year May sales average of 3,617. Total inventory is at all-time highs for the month. 

As we’ve noted several times before, the last time the supply/demand imbalance was this great was during the GFC when confidence and liquidity suddenly disappeared.  This time we don’t have the luxury of a 400 basis point BoC rate cut over 15 months to stimulate demand.  And rather than the Insured Mortgage Purchase Program pumping $70B in liquidity into the Canadian banks, we are now facing broad credit tightening as CMHC tightens credit availability as it butts up against its $600B cap while OSFI leans on the big banks to tighten their lending standards.

 

5)  Supply and demand snapshot:

While Toronto garners much attention for the massive condo boom, it’s worth noting that completed but unsold condo inventory is six times higher in Vancouver once adjusted for population.  There are now 20,000 new residential dwellings under construction in Vancouver.

 It’s still commonly suggested that land constraints in Vancouver have played a major role in supporting high prices.  Setting aside the reality that if this were true, we would also expect rents to command a comparable premium, which they are not, instead I would point to the rise in residential dwellings in the city relative to population change.  This alone strongly argues against the land-constraint argument.

Since 2001, Vancouver has added 326,000 people to its population.  During the same time, it has added 163,000 new residential dwellings to its housing stock.  This ratio of one new dwelling built for every 2 people added to net population represents one of the highest construction rates of any large city in Canada over the past decade. Note from the chart above that single family housing starts are only slightly below decade averages.  This certaqinly behooves a question: If builders are constrained in their ability to bring inventory to market, why is it not showing up in the data?

As can be seen in the following charts, population growth in Vancouver is far from impressive from a historical perspective. 

 

6)  Changes to low ratio insurance availability sapping demand.

It’s been my unconfirmed suspicion for some time now that because banks could easily buy after-market portfolio insurance on low ratio loans and underwrite these loans with very little oversight from CMHC, Canadian banks have been very loose with this form of lending.  In turn, buyers who could come up with a 20% down payment to avoid CMHC fees could easily get a mortgage which pushed affordability beyond what would normally be allowed.  In fact, banks had the capacity waive income confirmation based on credit score if a borrower was putting 20% down, a practice that has come under extreme pressure from OSFI.

With affordability still off the charts in Vancouver, I’ve suspected that many new buyers have been getting into the market through gifts or loans from equity-rich parents eager to help out their children.  If a new buyer could borrow or be gifted the 20% down payment, getting financing that pushes the envelope of affordability has traditionally been relatively easy.

Now that OSFI is closely monitoring low ratio mortgage lending and CMHC rationing after-market insurance, banks are having to actually underwrite these mortgages.  As noted in a recent Globe and Mail article:

Realtors say the slowdown (in Vancouver) appears to have resulted from a combination of tighter lending practices by local banks, which now want proof of income to service large mortgages, more restrictions on how much capital can be taken out of China, and fewer immigrants.

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents.”

It’s impossible to say how prevalent this has been, but a TD survey released today does add some insight:

“42% of B.C. residents find it a real struggle or impossible to save, so to cover major purchases many rely on loans, lines of credit or credit cards”

“Just under half of British Columbians admit they would rely on a loan or line of credit to finance a deposit on their first home”

With that option now off the table, it’s no surprise that sales have withered.

 

7)  “Hot Asian Money” slowing?

One popular explanation for high house prices in Vancouver is the prevalence of foreign buyers, mostly from China.  I’ve noted previously that I don’t believe that this is the fundamental driver of the market, though abundant anecdotes suggests it does seem play a role in certain areas and certain market segments, most notably detached single family homes in Vancouver’s west side.  Interestingly, it is this market segment that is now the weakest.

From the Globe and Mail:

[…] West-side realtor Marty Pospischil…specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.

As with any asset bubble, this one needs a story to convince otherwise sensible people to take on obscene leverage.  BoC governor Carney expanded on this very thought in a speech in Vancouver last year:

"Domestic demand factors are not the only forces at work. Some Asian wealth is being invested in selected international housing markets as those investors seek out diversification and hard assets. This has become a familiar phenomenon in this city. Partly as a consequence, the average selling price of a home in Vancouver is now nearly 11 times the average Vancouver family’s household income, a multiple similar to those seen in Hong Kong and Sydney—cities that have also become part of a more globalized real estate market. Such valuations are extreme in both Canada and globally"

[…] "Given such developments, one cannot totally discount the possibility that some pockets of the Canadian housing market are taking on characteristics of financial asset markets, where expectations can dominate underlying forces of supply and demand. The risk is that expectations become extrapolative, prompting the classic market emotions of greed and fear—greed among speculators and investors—and fear among households that getting a foot on the property ladder is a now-or-never proposition."

Last June, OSFI announced that they would begin looking into the role of foreign capital inflows on the Canadian housing market.  The next day, the Immigrant Investor Program, which allows wealthy immigrants a quicker route to citizenship if they meet certain criteria, the most significant being a net worth of at least $1.6 million and the ability to make a $800,000 'investment' in Canada (essentially an interest-free loan to the government) was capped at 700 annually. This represented an 80% reduction from the amount of high net worth individuals entering Canada through this program.  The quota was filled within the week:

The exact cause in the drop in demand is likely a combination of a number of factors, including a weakening Chinese real estate market.  The bottom line is that this has implications beyond simply a reduction in sales.  Headlines detailing falling demand from Asian investors will weigh on market psychology and the speculative mindset necessary to keep this market from imploding.

 

8)  Economic impacts of a housing bust on the province of 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 very reliant on real estate related industries.  Annual MLS resale dollar volume alone is equal to 20% of GDP.  As one analyst friend of mine recently noted, 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

Deposits at federally regulated financial institutions are insured by the Canadian Deposit Insurance corporation, a federal crown corporation. However, deposits at credit unions are guaranteed by the provinces. Credit unions in Canada are not as tightly regulated as federally regulated banks yet they are very active in the mortgage market, particularly in BC and Quebec.

Few analysts cover them extensively since they aren't publicly traded but all analysts I’ve spoken to express some concern about the fate of credit unions, particularly in BC, in the event of a sustained housing correction coupled with rising unemployment and delinquencies.  This is particularly concerning once we consider that BC guarantees $45B in insured deposits, the equivalent of 23% of GDP.

 

We once again urge clients to consider how best to position themselves to strategically position their portfolio in light of the high potential of a significant housing correction in Canada, particularly in BC.  We’re always happy to discuss potential long, short, and derivative trades with clients.

Cheers,

Ben

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Ben Rabidoux
By Ben Rabidoux

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91 Comments

  • Will said:
    • 1 year, 8 months

    Excellent article, though it fills me with dread. It looks like its going to get really ugly and lots of people getting hurt. Makes me sad but I guess this is the result of the siren song of easy money.

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  • jesse said:
    • 1 year, 8 months

    Well done, Ben. This is a solid summary of BC and Vancouver's predicament.

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  • jesse said:
    • 1 year, 8 months

    One thing on Spain, though. I don't think I meant to state that BC will be a Spain in terms of magnitude, rather there are parallels enough that it should make us worry, even if the magnitude is less.

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  • Ben Rabidoux said:
    • 1 year, 8 months

    Or as a wise commenter might say, "it ought to be enough to give us paws" ;)

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  • jesse said:
    • 1 year, 8 months

    Indeed it behooves us all to change tunes when the data change. For those who have been bearish on housing based on price-income and price-rent indicators for a few years now, I'm not seeing evidence for such a change in most of Canada.

    Though... I will say there are some specific areas of Canada that have been in correction mode for a few years now (believe it or not). For those areas, we may not be too far away from putting in a nominal bottom, and with low interest rates it might make sense to buy. I think we're at least 24 months away from that, and I doubt the "nominal bottom" will be sharp meaning there is no rush to buy in a narrow time window. As to which area of Canada I'm referring, I'll leave it as an exercise to your more-than-capable readers! ;)

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  • Kundan said:
    • 1 year, 8 months

    Pretty neat in depth analysis! would love to read you analysis on Toronto soon.

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  • Mark said:
    • 1 year, 8 months

    You claim that CMHC insured loans aren't as good as sovereign paper, and are willing to defend that view. Do you really think that the GoC/CMHC will default on their legal obligation to pay defaulted CMHC mortgages at 100 cents on the dollar? Will the rule of law in Canada be abrogated? If CMHC doesn't pay up, wouldn't you agree that it is likely that the entire Canadian economy goes into a systemic meltdown?

    After all, over 40% of the mortgages in Canada are overnight mortgages, ie: floating rate. If the banks run into any sort of liquidity crisis, the rates on those mortgages will skyrocket instantly (banks will raise the rates on those loans before they seek out equity or more preferred share issuance). The CMHC/BoC/GoC is hence caught between a rock and a hard place, and some sort of QE program probably would be necessary in Canada.

    QE probably is also necessary because a reduction in borrowing tends to strengthen the currency as happened in the USA. Can you say $1.30 USD / CAD ?

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  • Tony said:
    • 1 year, 8 months

    QE basically does nothing as can be seen today and how fruitless it will become in the future. The CMHC will be dissolved and the Canadian taxpayers will be on the hook for as much as one trillion dollars.

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  • Andrew F said:
    • 1 year, 8 months

    I don't think you can say that the current economic environment is evidence that QE doesn't work. We don't know the counterfactual--what would have happened without QE. It seems to have worked to prevent a deflationary spiral as happened in the Great Depression. I don't think it is realistic to have expected any tool to have restored growth and prosperity when so much deleveraging was needed. More debt should have been written off, in my opinion, but that was a choice policymakers made. I would have preferred to allow the banking system to melt down and flush out a lot of debt, with governments only guaranteeing deposits.

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  • Alexcanuck said:
    • 1 year, 8 months

    I missed you, Ben! Good to see your work again.
    Re CMHC:Everyone knows that Canadians are far more responsible than Americans and would never stretch the truth on a mortgage application, and even if they tried the dedicated professional mortgage broker would catch it, shred the application and give the applicant a stern talking to, despite the loss of a commission. Even if a broker somehow slipped up the banks are scouring every application for any sign of trouble and diligently calling in independent appraisals and verifying all information anyway! Before collecting fees and passing on the risk.

    Hypothetically speaking though, if a mortgage somehow slipped through to the CMHC that wasn't entirely as clean as it professed to be, is there any sort of putback clause that allows the CMHC to deny coverage and hand the loss back to the bank? Or am I the taxpayer still bound to cover it?

    Yet again I feel forced to mention the effect of P3's and other off-balance sheet shenanigans of the provincial government on BC debt figures, especially since I rarely hear the slightest whisper about it. My good name has been pledged without my consent to cover my share of some $88 billion dollars in monthly payments to a variety of private interests, spread over the next 20-30 years, yet it is not counted in official debt figures! (2011 total) Almost all of it accumulated over the last 10 years, and accelerating towards the end.
    To me the taxpayer, that feels an awful lot like debt, but it isn't counted nor talked about.

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  • Mithan said:
    • 1 year, 8 months

    Are you being serious or just sarcastic?

    How "good" the mortgages are doesn't matter much. A wave of foreclosures wont crush the market, sentiment alone will crush the market. In the United States, it wasn't the economy that crushed housing, it was housing that crushed the economy as people realized how utterly rediculous the debt they had signed into really was, and started to walk away from their homes.

    In Canada, people will try and service their debt until the end, for the simple fact that mortgages are securitized and the bank can come after you for pretty much everything until Bankruptcy, except a few untouchable assets such as life insurance. This makes prices somewhat "sticky" but it also makes down turns worse as people are stuck in their situations longer and bleed more money than their American counter parts. The US can bottom out and recover faster, we can't.

    For years we have been told that "securitized mortgages make Canada a much safer housing market" and that WAS true, when people worried about the future because they had memories of prior RE busts and the Great Depression taming their impulses.

    That isn't true anymore, at all. Most people don't even know that they CAN NOT walk away from a house like they could in the United States, yet they happily signed the dotted line that gave them hundreds of thousands of dollars worth of debt.

    Anyways, going back to my original point, how good the debt is is irrelevant once people realize that they have essentialy mortgaged their life away for a home that is now dropping in value while their costs are going up.

    Lets face it, Canada is going to be hit by rising taxes soon enough and I don't say this from an anti-Harper stance, but from a common sense stance. Municipalities have been using Land Sales as a way to fund their operations and in return, we get smaller property taxe increases. Once new home sales drop with the bubble, they will need to lay off thousands of people Canada wide OR raise property taxes and other taxes as a result. That will just add to the chain of events/dominos that makes things worse.

    We also have a massive savings problem in Canada and last I checked, the stock market has tanked, people are living longer, wages are under pressure and oh ya, the biggest generation of people that ever lived is getting ready to "retire".

    The end result of all of this is that 10-12 years of monetary easing (ie- cheap AND easy loans) will result in people realizing that 40-60% of your income going into a "House" is just a dumb thing to do.

    Its complicated and many factors are involved but most people just don't "get it". Even the US housing recovery is only in some key areas and due more to investors buying up property than any revival of the middle class, but the "average" gets pushed up and people think its time to rejoice. US housing wont reach its prior peak in most areas for 15 years in all likelyhood or, following Japan's example, 20+ years and still well below its peak.

    Forget it, its done.

    When it blows up, Canada will be screwed for many years to come. Roughly 7.5% of our employed people being in construction directly, and a few % more being related directly to house building, and you begin to see that WHEN this bubble bursts, we can end up at 10-12% unemployment in a very short time.

    I just wanted to add one last thing:
    When the market collapses? Canada wont be considered "safe" anymore and those ultra low 2.99% 5 year interest rates that are mostly dependent on the bond market will be gone over night, right as tens of thousands of Canadians who bought during the boom are going into mortgage renewals in 2014, 2015 and 2016.

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  • deanincaglary said:
    • 1 year, 8 months

    yup - agree 110%

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  • Mark said:
    • 1 year, 8 months

    "Hypothetically speaking though, if a mortgage somehow slipped through to the CMHC that wasn't entirely as clean as it professed to be, is there any sort of putback clause that allows the CMHC to deny coverage and hand the loss back to the bank? Or am I the taxpayer still bound to cover it?"

    Yes, if there was fraud in the application, and the bank failed to perform due diligence, the claim can be rejected.

    The problem is, however, that the CMHC *needs* the banks to continue to function relatively normally, in order for prices to not collapse. If the CMHC starts rejecting claims by the banks frivuously (forcing the banks into the courts to enforce their insurance policies), the banks will raise the risk premia charged to the mortgage borrowers, pushing housing prices down, and actually enlarging the number of claims made against the CMHC.

    The whole model of the CMHC, of guaranteeing nominal prices, in an asset inflation, is insane, and ensures that the CMHC will destroy itself in the process, requiring a massive bailout from the Government. My view is, "yes", taxpayers will be forking over tens, if not hundreds of billions of dollars to the banks who wisely acquired insurance against the inevitability of deflation in an inflated asset class, housing.

    The only way out of this mess, IMHO, is for the BoC to print enough money that some industry rises out of the ashes and generates enough tax revenue. 75% of the worldwide gold mining industry is Canadian-controlled, so this would make an excellent candidate. Barrick the first $1T company?

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  • James said:
    • 1 year, 8 months

    I'm impressed with the quality of all the comments here especially this one. I'm Canadian, live in the UK right now. IF (and I say "if") Canada goes the same way as the rest of the world, then it sure won't be pretty - UK has printed money and devalued the currency and -- in some areas such as whisky, cars, oil and finished goods -- it's working a treat. BUT UK was so geared to consumption and FIRE industries based in London that it will take at least ten years, probably more like 20, to rebalance the economy. My query over Canada is the extent to which resource demand will see Ab, Sask and Man begin to drive the country's economy for the first time in its history -- seems to me it's a two-horse race between collapsing FIRE-led economy in BC and Ont, and the rapidly growing industries serving the world's demand for oil, potash, gold, etc in the prairies and elsewhere. In all probability, my conclusion is that you'll just see BC/Ont lose their importance to Canada relative to the three MidWest provinces and, as Ben says here, something of a depression in BC for some time.

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  • Austrianschool said:
    • 1 year, 8 months

    Great work. Please give us some info on Toronto, and Ontario as a whole. We are certainly living in interesting times.

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  • pricedoutfornow said:
    • 1 year, 8 months

    I too, have some concern about credit unions in the province of BC. I work in the financial industry and have seen some really large mortgages issued by credit unions in the past 5 years. $900k mortgage given to someone who has never earned more than $50k per year in his life? No problem! It is worriesome. I would think twice about leaving all my money with a credit union, even if it is insured by the province, the way the government is run here, do you really want to take this chance?

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  • Mark said:
    • 1 year, 8 months

    I spend a lot of time in Alberta and Saskatchewan, and in Saskatchewan, I actually walked into a credit union and saw banners, "buy a house with no money down". Never seen that in a chartered bank. If they're not able to offload the risk to the CMHC, Credit Unions that engage in such behaviour are dead meat. Especially since they don't have the large business lending base either (small business tends to be more concentrated in the business of supply to the highly leveraged folks...).

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  • Greg said:
    • 1 year, 8 months

    CUs make up 0.5% of NHA MBS securitizations, which makes them too small to care about. They're irrelevant.

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  • Mark said:
    • 1 year, 8 months

    Ummm if they're not doing NHA MBS, or CMHC insurance, and taking all of the risk onto their own balance sheets -- then they're dead meat!

    So hardly 'irrelevant'.

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  • Greg said:
    • 1 year, 8 months

    What happened Ben? Did you just notice the demand curve for bearish housing blogs shifted to the right? Good to see you back.

    test

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  • Farmer said:
    • 1 year, 8 months

    Ben??? Who is this Ben you speak of?

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  • Olga said:
    • 1 year, 8 months

    Ben, wanted to thank you again for the timely advice given trough this blog last summer. Thanks to you we did not buy the next property on the ladder (SFH) in Richmond after successfully selling out TH,exactly a year ago. It was really hard to force ourselves to go for a rent after being a happy homeowner for the last 10 years, but it works well now and I have no regrets (our former property loosing its value helps. How do I know it? read below).
    There is a funny story that is going on with our former townhouse now that is so very typical for the current RE market conditions. The Chinese couple that bought it (Richmond!) decided to sell it - did not like the stairs - and buy a condo instead. But before they did a 22 K reno on it. They paid 578 K for the TH to us and including the cost of reno it makes the overall cost 600 K, so they listed it for 599 K. The TH is on the market for about 6 months now - no offers. They are paying the mortgage on it and their new condo, the time is ticking and they are getting nervous. They have lowered the price twice and now it is listed for 568 K - they are already loosing at least 32 K plus the RE agent's commission, and it may be much more as the time goes.

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  • mfx said:
    • 1 year, 8 months

    Someone comes up with the desperation meter.... Interesting to look into the formula.
    http://vancouverpricedrop.wordpress.com

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  • Petr said:
    • 1 year, 8 months

    Nice to see ya back! Always love reading your work

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  • David said:
    • 1 year, 8 months

    RE: Austrianschool
    Great work. Please give us some info on Toronto, and Ontario as a whole. We are certainly living in interesting times
    *********************************************************************
    I agree fully with Austrianschool !!!!!!
    Thanks Ben for all your advise and info
    Keep up the GREAT work

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  • Absinthe said:
    • 1 year, 8 months

    Huh. Wondering why are CREA's *average* Vancouver house prices $200K lower than other averages out there (including the REBGV stats packages?) Curve is clearly similar, but Yattermatters been showing over a million average for detached for a while.

    I'm thinking - not just detached, or including Fraser Valley, or... ?

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  • Bill said:
    • 1 year, 8 months

    It was US banks who foreclosed on many Americans who were current on under water homeowners (Owed more than the house was worth) in a greedy last attempt to cash out, fearing the dwindling Freddy and Fanny reserves. It was not home owners walking away from their obligations that created the the final glut of foreclosures but bankers who were facing lower bonuses needing to show better cash positions who called mortgages or refused to renew terms to collect from the mortgage insurers. Many of these same hard working Americans would love to get back into the housing market but can't because of their bank caused credit history.
    Canadian banks didn't fail, have a foreclosure problem or even a profitability problem that they couldn't handle, or a problem with gainfully employed homeowners walking away or being forced from their homes when interest rates hit the low 20%s in the early 1980s and we won't have it today.
    I don't doubt that we could see a further 15 to 20% reduction in prices in response to affordability but 15 to 20% is not a crash! It may be an inconvenience to those getting ready to cash out of the market but in reality it is simply housing prices re-aligning with existing wages among the middle (buying) class that has fallen behind inflation.
    American and world banks were hurt by uncontrolled dirivative trading and lending. They in turn created much of the foreclosure problem to convert their mortgages into cash in a failed effort to cover bad gambling debts.

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  • emmi said:
    • 1 year, 8 months

    Nice article. Tiny pet-peevy comment: You title the graphs "growth in . . ." when they're not. They're just the value, plotted linearly. "Growth in" would be a percentage change graph.

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  • Art  said:
    • 1 year, 8 months

    Welcome back Ben .... this is my first post, apologies, I have learned so much things from your site.

    you may not know, I check your site every week... very disappointed there's nothing new posted, considering the big change in real estate

    Not a problem, as we all understand you just take on something new and I think everyone understand the pressure you were under with that new role... just take good care of yourself and your family.

    Sometimes you sure need a break, I mean even a break without getting paid.

    Life is good, if we can live without worrying about money, and it sure can happen if we tried real hard.

    RE here in Canada is definitely going down, esp. with RE so darn cheap in the states, hot money will go there instead of here. Many HAM come here because they love the stablitiy of Canada, esp. the medi care etc. So HAM is willing to pay a higher premium compared to the states.

    But now the premium is VERY MUCH too high, average canadian are left by themselves with no HAM holding the bag - we are done .

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  • Zerodown0 said:
    • 1 year, 8 months

    Art, Try subscribing to the email alert instead.

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  • Gender Bender said:
    • 1 year, 8 months

    Lately there was an article in the Globe And Mail about a couple who paid 90k over the asking price in Toronto after being told they were in a bidding war with some other parties.It turns out that wasn't true.When the truth came out they "only" had to pay 45k over asking! When I hear stories like that that means there really is a bell which rings when we are at the top.There are so many things wrong with that story not the least of which is that their hard working realtor earned any commission at all but he/she also got a cut on the overpayment due to negligence! It is a little off topic but where is CREA and their code of ethics thing? If those buyers can get screwed over like that and everyone just shrugs their shoulders then I guess anything goes.I'm betting the buyers are having a bad case of buyer's remorse and it will be years before they break even on that deal.It would be interesting to know their financial state.I would bet they are on the outer limits of their ability to pay even on the original asking price and with the extra overpayment I bet they are in the red zone.Hopefully the bank will turn them down on the application otherwise they are doomed to be mortgage serfs for the rest of their lives

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  • Conrad said:
    • 1 year, 8 months

    One thing to remember, in the US its very easy and socially acceptable to walk away from your house and mortgage obligations. The culture is different in Canada and its not so easy to do that here. One thing I have seen and noticed is that Canadians love their homes and will do whatever it takes to keep it, they would sell their cars, RV, cottage, take on another job, even pay higher interest costs to keep their principal residence. To me this is a huge psychological difference in our market. I never felt sorry for the American standing in front of the home he was about to lose with a brand new Escalade and Hummer sitting in his driveway.

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  • Greg said:
    • 1 year, 8 months

    You forgot stop eating, feeding their kids, and going on vacation.

    That's the most absurd comment I've head in a while. You must be a realtor.

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  • Conrad said:
    • 1 year, 8 months

    @Greg, sorry not a realtor cant help you there, personally I dont care if the market crashes, those that have bought to hold or have positive cashflow dont care either. The system in the US is so corrupt on all levels, guess you didnt see that.

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  • Bruce said:
    • 1 year, 8 months

    @ Conrad, respectfully the system here is also corrupt perhaps less exposed. Further the other shoe has not dropped when our system is collapsing like the rest of the worlds economies I believe you'll see things differently.

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  • patriotz said:
    • 1 year, 8 months

    Conrad, you are making two huge factual errors.

    One, the majority of US states are recourse like Canada. That includes Florida and Nevada which were two of the biggest RE bust states. Didn't stop people from walking away, and the reason is simple - almost all people who are in distress situations with RE have no other assets for creditors to go after. It will be the same here and it is already the same here in the Okanagan.

    The other is the supposed cultural barrier against walking away in Canada. Again nonsense, in prior busts there have been legions of owners walking away. Take a look at the Toronto bust of the early 90's which was the most recent bust in a major city.

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  • Conrad said:
    • 1 year, 8 months

    Comparing the Okanagan to Greater Vancouver? Very different places and very different factors impacting RE.

    There are no jobs in the Okanagan, business cannot attract the best talent in small town BC. "Employers are now realizing that in order to attract a great workforce and maintain their edge, they need to be located where everyone wants to be. Workers today, more than ever before, want access to public transit, a great 'play' lifestyle and socialization," this according to a study by Ottawa-based Marnie Bennett of Property Shop Realty, who calls the trend "reverse migration" back to the city. There is a general boredom with the boondocks and a lack of interest in recreational property by Gen Xers and immigrants.

    Kelowna was/is totally overbuilt. Canadians are buying second homes in Las Vegas, Phoenix, South Florida, and Palm Springs. Anther factor is the Alberta black gold flowing into these communities is way off from the peak, these people are not buying the Okanagan or Shuswap like they were. I love the Okanagan, but its purely a recreational/retirement area.

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  • Art said:
    • 1 year, 8 months

    " Canadians love their homes and will do whatever it takes to keep it, they would sell their cars, RV, cottage, take on another job, even pay higher interest costs to keep their principal residence. To me this is a huge psychological difference in our market."

    Not when their houses are 200 K under water I reckon, by that time if their networth is much less than zero due to bad mortgage. They will walk away, any bankrupcy lawyer will gladly do the paper
    work for them, for much less than their obligations. From there they got a clean plate, to start all over, not a perfect start, but certainly better than in hugely in debt. A lot people will have that figured out and do it.

    I didn't see much "cultural" difference, when big financial loss is in play.

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  • Conrad said:
    • 1 year, 8 months

    @Art, there does come a point obviously where one has no other choice but to declare bankruptcy. How many people do you know that have declared bankruptcy here in Canada because they are underwater? I have been a mortgage broker for over 10 years and know only of one in my entire circle of people I know including my entire database.

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  • Greg said:
    • 1 year, 8 months

    I should have know, another broker being given obfuscated statistics by CAAMP and CBA. FYI, 80-90% of foreclosures and POS now fall under consumer proposals. These are debt restructurings that are reported as 'other debts' to the credit bureau and not counted in arrears data.

    Not to mention CMHC refusing to disclose its REO inventory or delinquencies.

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  • Greg said:
    • 1 year, 8 months

    Or how about this? Genworth now paying for distressed mortgages for free. The result.

    It's only a matter of time before Genworth's borrowing costs surge and gets locked out of private capital, just like CMHC already did.

    Keep reading those biased CAAMP publications, when in reality, mortgage firms are starting to go belly up.

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  • Conrad  said:
    • 1 year, 8 months

    @Greg, I am glad you are reading the CAAMP articles, at least someone reads them. So when is the market bottoming? I need some expert advice.

    Much thanks

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  • Art said:
    • 1 year, 8 months

    " I have been a mortgage broker for over 10 years and know only of one in my entire circle of people I know including my entire database"

    Assuming that you were telling the truth.

    Last 10 years? That's the 10 years of RE BULL market, period.
    Let's see how the next 3 years play out.

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  • Conrad said:
    • 1 year, 8 months

    @Art, were you on a deserted island in 2008 and 2009? The world was coming to an end and Vancouver realestate had a huge pull back. I remember as we were developing some land and prices were dropping like you wouldnt believe and we were just a little nervous. #shortmemory

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  • Greg said:
    • 1 year, 8 months

    @Conrad

    Do you even know why prices and the economy recovered? I bet you don't.

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  • Conrad said:
    • 1 year, 8 months

    @Greg, yup, it presented a great opportunity, with the current slowing those who seize the opportunity will also do well. Great opps in the US as well for those capitalizing on the FDIC

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  • Greg said:
    • 1 year, 8 months

    @Conrad

    Opportunities like this? http://toronto.en.craigslist.ca/tor/reo/3156935150.html

    "The Seller Bought The Unit From The Builder In 2008 And Now Asking Only $399,900 (Original Price From The Builder in 2008 + Cost) For A Quick Sale."

    There's already thousands of investors underwater.

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  • Conrad said:
    • 1 year, 8 months

    @Greg, I dont know the TO market at all and have never invested there.

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  • Timothy said:
    • 1 year, 8 months

    Conrad, because your livelihood depends on securing mortgages, how can we believe anything you say is more valid than a realtor? They've been calling a bottom to this housing market for the past five years, and every year the bottom keeps dropping.

    When a house purchased at peak value drops over 25%, you can bet the homeowner will walk; especially those that have nothing to lose.

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  • Conrad said:
    • 1 year, 8 months

    @Tim, you dont, your a big boy do your own research :) I do mine, Ben has some good points, I look at more than just numbers though. Markets are about psychology, governments and more. The new rules will take 3-6 mons to set in. I like BC long term for many reasons and am setup for the long term. Yes my livelihood is being a broker. For those who do this full time and have a relationship with their clients we see them as people not just a paycheck or a number. Many of my clients are also friends, people that I hang out with, my kids play with their kids. My interest is helping them in the process & securing the best mortgage for them. If I was only looking after myself I would be out of business, you cant be in this business that long if you are only looking out for #1 doesnt work. There are some excellent realtors and there are some bad ones, the same holds true for our industry. The writing is on the wall for many brokers as the market shifts, for us in the trenches this market has been shifting since 2008.

    Vancouver is now down 20% from the peak of May 2011, the next 6 months will be very interesting. Wish you all the best navigating the global changes.

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  • Art said:
    • 1 year, 8 months

    "Art, were you on a deserted island in 2008 and 2009? The world was coming to an end and Vancouver realestate had a huge pull back"

    I know that for sure, but that's not a crush being played out, actually if the government allow it to play out, it will be a crush, the fact it's never allowed because the Canada Governemnt still have alot of ammo at that time, and apparently they believe in using them up since American down south were doing the exact same thing.

    There was an initial sell-off, with panic looming. But very soon our media is spinning pieces like "rock solid banking system" blah blah plus "conservative financial sector"

    Conrad, since you were in the financial service, do you honestly think that for average Canadian paying as much as 3 or 4 times more than our American neighbour could be considered "conservative" ?

    Yes, American are corrupt to the core, we are not, we just get more debt, while we can still swim.

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  • Conrad said:
    • 1 year, 8 months

    @Greg, your a guy in the know, which firms have gone belly up?

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  • Ray said:
    • 1 year, 8 months

    The second biggest tragedy in Canada after the implosion of the Canadian Housing Bubble is that Ben missed it in the blogosphere. I can only hope his commentary is read by his clients and that some of them act on it. Sure you're being paid for it, but like I said when you left... are you sure you want to miss this and everyone reading your prognostications during the biggest collapse, ever?

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  • Observant said:
    • 1 year, 8 months

    A gentle observation whose only objective is quality analysis, using 1, 2 and 3 standard deviation thresholds is a (sadly) common approach, however it is baseless. What evidence is there to support the contention that house prices moves would should or could fit a standard model? In this case the presumed fit to a normal distribution curve. I can think of no rationale or principle cause as to why the data would fit that particular curve. A quick check of the data suggests that it is not normally distributed (run a tail plot or check the log return of price changes). This being the case, a 3 std deviation breach is a meaningless conclusion, as the volatility in the underlying is just far higher than that of a standard deviation. It remains too high, I just do see any conclusion to be drawn by effectively saying it is 3 std deviations too high. In real life, very few prices series have price changes that fit the standard normal model expectations. I like your otherwise clear thinking and rational reasoning, and courage to stay with deductive reasoned outcome even while the market continues its madness for a short while longer. Please don't fall into sloppy thinking now that you work in the industry, its bad enough that your professional peers do not understand statistics, however I have far higher hopes for you. Apologies if this is seen as an overly harsh observation of your work, no malice is intended. Few people have the courage to think outside the box and offer themselves up for harsh criticism by going public with their inconvenient views. Best of luck in the future.

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  • Backstep said:
    • 1 year, 8 months

    Nice post! Wonder where you got your icon (banker running from a tippy pile of money). It says it all. Even the commenters here are insightful and can spell. I feel cleansed, after spending too much time at Garth's pathetic blog.

    I look forward to your Toronto condo instalment. Looking at the Vancouver sales stats, one gets the feeling that from a buyer's view things are better than they've been for years. On the other hand you can look at the Toronto sales stats (e.g. http://guava.ca/indicators.html for single family housing) and feel that things are as bad as they've ever been. The only ray of hope is that in July things got better faster than is historically the norm for this time of year. (Again, "good/bad" is from a buyer's viewpoint).

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  • leo said:
    • 1 year, 8 months

    Canada’s Housing Bubble Blow Out Amid Global Collapse.

    http://comiterepubliquecanada.ca/Canada-s-Housing-Bubble-Blow-Out

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  • Dan said:
    • 1 year, 8 months

    Add to the worries that the NDP will will next May's provincial election. They have NEVER been good for business in BC and this will be no better. Tough years ahead for economic growth in this province.

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  • doesnotmatter said:
    • 1 year, 8 months

    NDP in 1991 to 2001

    Libs in 2001 to 2011

    If you look at the numbers for each 10 year period the NDP did much better

    More jobs more economic activity. You need to deal with facts. Not what you wish were facts

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  • Mark X said:
    • 1 year, 8 months

    Meanwhile back on Earth...

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  • Editor said:
    • 1 year, 8 months

    Re: Canadians won't walk away from their houses. Is that really true? Canadians, in particular Ontarians, would walk away if the banks let them walk away.

    Americans are not as casual about their losses as some Canadians would have us believe. Greed is greed, debt is debt, loss is loss; no one seeks dislocation, especially for children - these things transcend nationality and even culture.

    As for me, a 'thank you' to Ben for posting literate, fact-based information that helped my family make the decision to sell last fall. It went easily. The state of the market now is retroactive justification, but we knew a lot of people who were eager to "wait till the spring" to time the market and they did and now are stuck.

    Renting till it no longer makes sense to rent and ownership fits our then-current objectives.

    Surprised at how many people say things like, "So you'll wait until it's a good time to get back in?" Get back in? This is not the stock market, not that trying to time that works either. This is about people's lives. Governments and bankers allowed, across "developed nations," reasonable shelter to turn into an instrument of greed. Very destructive. It will take years to clean up this mess.

    But, have to say, Ben and his essays have been thoughtful and always worth a careful read.

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  • TB said:
    • 1 year, 8 months

    Which of the big banks is most exposed to Vancouver mortgages for the purposes of going short?

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  • Greg said:
    • 1 year, 8 months

    The best way to short Canada's housing market is by housing related industries. MIC, BRK.... You just have to find them.

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  • Mark said:
    • 1 year, 8 months

    None of them. The big banks have their Vancouver mortgage paper CMHC-insured. The credit unions, and, of course, the folks that supply the RE industry, are highly vulnerable. These folks are concentrated in small, privately held firms.

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  • Joe Q. said:
    • 1 year, 8 months

    Much of the smugness directed at Americans is misplaced. There are certainly many who over-extended themselves, took on way more debt than they could ever handle, and lost their homes as a result. But there are also millions of responsible people who were basically torn up by the shrapnel of the exploding American economy -- who lost their jobs as businesses shrank or failed altogether.

    The same is or will be true in Canada. A pull-back in real-estate values (even 15-20% -- which may not be a "crash", but which would put tens of thousands of home-owners underwater) would have a massive ripple effect on our economy.

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  • withheld said:
    • 1 year, 8 months

    A point of clarification - the investor immigration program wasn't limited to 700 total approvals - it was 700 new applications to be processed so that the giant backlog of applications could be dealt with. There were 2,537 immigrant investor landings in the first quarter of 2012 with 843 to BC (a slower pace than the past, but still significant).

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  • Olga said:
    • 1 year, 8 months

    From the http://www.cic.gc.ca:
    "As of July 1, 2012, CIC has temporarily stopped accepting applications for the federal Investor program to focus on processing the applications we already have while the program is reviewed. This pause on new applications will continue until further notice."

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  • withheld said:
    • 1 year, 8 months

    Exactly. They have a huge backlog to process. They did not say they are limiting the approvals or capping the number of immigrant investors allowed in the country. They simply capped new applications because they are overwhelmed. There is nothing confusing about this.

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  • Greg said:
    • 1 year, 8 months

    @Olga

    CIC is just profiling applications and putting the low-income in the back of the line. See here.

    As long as there is a backlog of applications, they will continue to flood the country with immigrants.

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  • Greg said:
    • 1 year, 8 months

    Like I said Olga, they're going to flood the country with immigrants whether Canadians like it or not.
    Canada must attract foreign students to fuel innovation, drive economy: report

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  • Economical Disaster said:
    • 1 year, 8 months

    i just read that food will be going up 4 times next year due to the world wide drought..either pay your mortgage or eat..real estate will collapse next year. If you own a restaurant you may want to think about selling it too.

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  • PetrSyk said:
    • 1 year, 8 months

    I think you mean 4%

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  • John B. said:
    • 1 year, 8 months

    When I lived in Spain back in 2006-2007, the RE market was really crazy. Mortgages up to 30 years, money lending and construction at full speed. It was almost impossible to look out of window and evade seeing a pair of cranes.

    I have checked the last REGVB report and it seems that everything is going down. The only thing I noticed to be increasing is more single women are willing to buy. Are them the last ones who can be convinced by the banks and RE agents?

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  • Greg said:
    • 1 year, 8 months

    As expected and noted in my post above; here comes Genworth to save BC foreclosures by paying their mortgages free for a year or so. http://postimage.org/image/b2eqflp5r/

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  • Paolo Jacuzzo said:
    • 1 year, 8 months

    Hi Ben,

    This is great. The level headed transparency you offer is sorely needed in these tragic, yet comical times of looming economic nova.

    Early in your article you mention:

    "Canadian bank aggregate balance sheets are quite exposed to a housing-induced recession, though there is a great deal of variation within individual names.  Some are much more exposed than others."

    Do you have more granular data for this? I'd love to know how the banks that I deal with are exposed to property shenanigans, and more importantly (to me at least), how they compare to their peers. It would be nice to know which are safer bets before the cosmic fan is sullied.

    Thanks again for the insight provided.

    Paolo Jacuzzo

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  • DAVID said:
    • 1 year, 8 months

    What about TORONTO ?

    Thanks for all the great info

    .

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  • Appraiser said:
    • 1 year, 8 months

    Don't take it so personal "Rabid-Dog" - you still suck.

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  • Greg said:
    • 1 year, 8 months

    Anybody wondering why TREB is phasing in their HPI as a headline price? It's simple. GTA's average price has been completely distorted by pre-construction sales booked on MLS, and now, TREB realizes there's a cliff ahead in Q1 2013 that will cause GTA's average price to decline by double digits before spring season. For those who know, average prices do not reflect common sales, rather it is a better measurement of market conditions since its formula is simply total dollar volume divided by sales.

    GTA's Average Price Explained.

    Here is TREB's new data by area/district: https://docs.google.com/file/d/0ByrPFSoPLahJMlBjaVhndUcxRDg/edit?pli=1

    After reviewing the data, the first observation I had noticed was excessive price gains in particular districts. Since the new data provides average and median prices by district, one could easily pinpoint ans search for new developments in these areas of interest. So I did, and sure enough, all districts with the highest price gains had one thing in common—pre-construction.

    Districts with high q/q gains.

    Markham, district of Unionville median home prices up 51% q/q.
    Pre-Construction Area
    Mississuaga, district of Creditview median home homes price up 18% q/q.
    Pre-Construction Area
    Newmarket, district of Stonehaven median home prices up 29.8% q/q.
    Pre-Construction Area
    Richmond Hill, district of Langstaff median home prices up 44% q/q.
    Pre-Construction Area
    Brampton South median home prices up 28% q/q.
    Pre-Construction Area

    There are two ways how new home and condo developments contribute to GTA's average price i) builders marking up prices ii) pre-sales booked on MLS that are not built yet. As for the latter, I've found numerous sold listings for units with completion dates from 2013 to 2015.

    MLS Sale to be completed in 2013.
    MLS Sale to be completed in 2015.

    There's no disputing it anymore. It's happening, and there's a lot of them. This I believe is also the view of one RBC economist who stated in a recent report how Vancouver's average price is badly "overstated." I agree.

    As of recent news, new GTA sales have started to decline as reported by BILD/Realnet. This is a major problem because GTA's average price requires dollar volume on new home sales to maintain its seasonal month-over-month price range between $475,000 - $520,000. Looking ahead in Q1 2013, there is massive hurdle for GTA's average price to clear due to a few factors:

    i) Around Q4 2011 and Q1 2012, when new home sales started to slow at developer's sales offices (offline MLS sales), they began to sell new and unbuilt units on MLS; these offline sales helped boost dollar volume into GTA's average price. With recent mortgage rule changes and lending conditions starting to deteriorate, it is highly unlikely new home sales in Q1 2013 will surpass 2012.

    ii) This past January 2012, there was 2.99% mortgage wars between big bank lenders. This sparked last minute sales that also fueled dollar volume into GTA's average price. It is also unlikely low mortgage rates will be offered in 2013 due to bond yields rising again, but mainly because banks must meet new Basil III capital rule requirements, forcing them to hold more capital, in turn, lending less.

    iii) CMHC insurance ceiling and new guideline rules.

    iv) As a speculative prognostication, even if we don't know what type of weather we'll have this winter, Q1 2012 was a record breaking season that kicked-off an early buying season. Any bad weather could derail sales even further.

    Alas, the main issue at hand is that TREB's average price has been a headliner for industry professionals and the general public for decades, making it very difficult to detour everyone away from it before Q1 2013. Unfortunately for sellers, even if GTA's average price is overstated and TREB's HPI is somewhat more accurate (its really a rolling six month median price), what matters is what the mainstream media and public accept as a trusted reference price, and that is, average price.

    With the above reasons given, it is most likely that at the beginning of the new year there will be a major decline in GTA's average price, and with mainstream media headlines blasting double digit price declines, this would certainly discourage spring buyers from jumping in the market.

    Be careful Toronto. You're only 2-3 quarters behind Vancouver.

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  • Olga said:
    • 1 year, 8 months

    Greg, you know what happens when you book pre-sales on MLS that are not built yet? The current period looks better than it should but it is always backfired - the periods when they should have been booked in, the ones when they are build and entered the housing stock - they are going to be stripped off these sales and given the lower sales in the close future overall, these future sales reports are going to look especially poor - in part because they booked these sales in advance, so the fall in these indexes is going to be not gradual like it might be but the double digits. I am wondering how are they going to try to get rid of HPI when it starts to expose them as it obviously only going to work for awhile covering their tricks.

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  • Greg said:
    • 1 year, 8 months

    Forget HPI rigging, here's the latest. http://www.facebook.com/permalink.php?story_fbid=341568395908859&id=1118...

    “Interesting news from the GMREB today – starting June 5, 2012, MLS listings in Quebec will be assigned RANDOM numbers (as opposed to the current method of them being consecutive). This means that buyers will no longer be able to “guess” how long a property has been listed simply by its MLS number. Good news for sellers!”

    If only buyers knew what was happening behind the scenes...

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  • Greg said:
    • 1 year, 8 months

    Here's G&M completely disregarding CREA's HPI and going straight for the headline that returns the most advertising clicks.

    Home sales steady in July, prices down 2%: CREA

    As I stated above:

    "what matters is what the mainstream media and public accept as a trusted reference price, and that is, average price."

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  • RE Lurker said:
    • 1 year, 8 months

    Question about Ben's suggestion that Credit Unions are risky...

    What kind of risk are we talking about? Failures?

    Are we talking about deposit risk (well, as a result of failure)? I understand that in BC Credit Unions have deposit insurance handled by CIDUC and that as of 2007 or 2008, they have been providing unlimited deposit insurance (not just 100K like at Banks).

    The question is... if I have deposits in a credit union, but not any other holdings (e.g. investment vehicles), is this a cause for concern? Will deposits be at risk if the Credit Union fails?

    What about US Dollar accounts? Or other accounts like TSFA, RRSP and so on -- assuming that they are deposits only? (I understand that if they're not deposits, they're not insured anyways...)

    (I'll be the first to admit that I don't understand much about finances, so help me out here... thanks.)

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  • deanincaglary said:
    • 1 year, 8 months

    Hi Ben - great article as usual. Great to see you back, if only in between your paying gigs!

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  • Confused in Van said:
    • 1 year, 8 months

    So, it sounds very, very scary for Vancouver property owners! And you are no doubt correct. My question - what are we supposed to do? My husband and I made some stupid choices - we are the first to admit it - but what do we do now? We own a house in Vancouver and a house in Whistler (which is rented out). We had our house in Whistler mostly paid off but then moved to Vancouver and used the equity from the Whistler house to buy in Vancouver. (It seemed like a good idea at the time!!)

    So now we have two houses that have both lost value (Whistler is down about 35% from pre-Olympic prices). Our original thought was that we just had to hang in for the long term - up to ten years. Does that sound like a reasonable thing to do? I know no one can predict the future, but I would be very interested in hearing what other people have to say.

    And yes, I know we were stupid and possibly greedy. My Scottish grandfather had always told me that you could never go wrong owning real estate and I followed that advice.

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  • Conrad said:
    • 1 year, 8 months

    @Confused in Van. Whistler is a tough one, our family had a place there too but sold in Oct 2009, timing was excellent looking back now. Go back to your original goals of why you bought in the first place. Sounds like you had a longterm one, does it cashflow? If Whistler is a burden both personally and financially then maybe consider selling. Remember all the costs you will have selling it, realty fees etc. Personally I like Vancouver long term, you have to live somewhere so either you pay your mortgage down or you pay someone elses. Again ask the questions why did you buy where you did in Vancouver? Do you like the neighborhood? Is it a longterm hold? Do you like the schools if you have kids, and is it close to amenities. I have seen more people lose money by making knee jerk reactions only to regret it later. You have already bought so there is a cost to getting out, factor in all those costs as well. I wouldnt read one article then jump off the deep end. We sold Whistler for various reasons. Personally I am not selling any of my realestate after reading this article. Some good info but you have to make a decision that makes sense for you and no one else.

    IF you are going to stay in the market then I would suggest you get your financing in line and get a 10 Year Inflation Hedge Mortgage Strategy in place. This will keep your costs locked in and help you pay down debt alot more quickly.

    All the best

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  • judy said:
    • 1 year, 7 months

    When your mortgage comes up for renewal, or,maybe you can change it right away. Get a mortgage, if possible, which has no notice, bonus or penalty for repayment. This is very important: no notice, bonus or penalty for repayment. Then get a printout of that mortgage with the amortization to maturity, with the breakdown of principal and interest shown for each payment. The bank must have this information. They need it to keep track of what you owe.
    When you make prepayments, keep to the schedule, and pay on the correct date, because if you don't they appear to generally screw around, and some of that principal seems to get lost in fees keeping track of your payments, or, they say you own more than you do.
    When you see how much money you will save by paying off principal, (they can no longer charge you interest on money you no longer owe), this will give you incentive to pay the mortgage down.
    If it doesn't give you incentive to pay it down, because it is too discouraging, or because you do not have the where with all to do this, then it might be wise to sell the property you don't need, and take the loss. If this article is correct, that is. So much confusing stuff out there. I do know that property in Port Angeles is way way cheaper than here, in B.C.

    Start attacking the mortgage on one of the properties. Once it is paid off, the rent from it can help you getting rid of the other mortgage. (Just a plan. That is what I did, when, years ago, someone gave me the printout of my mortgage to maturity, with the principal and interest breakdown.

    Another trick they do, is if your mortgage has a 5 year term, and is amortized over 35 years, when you go for renewal, and you have paid a significant amount off on the loan, and you have 30 years, to go, but you have paid down to year, eg., 18, they want to put you back to 30 years. To get around this, just say, "I want my payment to stay the same." That is if the interest rate hasn't gone up, then they have to put you on the 18 year amortization, which they don't want to do, in my opinion, because you way pay more interest when it is on the 30 year am.

    Good luck!

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  • judy said:
    • 1 year, 7 months

    Don't forget to have that No notice, bonus or penalty for prepayments, to have that written into the mortgage. Anything that has anything to do with real estate has to be in writing, to be legal, and this prevents them from changing it later.

    Try to get a long term, on this loan - as long as possible to give you breathing room. The reason to pay off one loan at a time, is so you don't spread yourself too thin.

    If you get a full print out of each loan, this will give you a better idea of which one you can pay down. or, that you can't pay it down. In any case it will give you a clearer picture of what can be done.

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  • Kenji Fuse said:
    • 1 year, 8 months

    Great news! If the banks fall, government can go back to pre-1974 borrowing practices and get credit from the Bank of Canada at no-interest, instead of getting loans from the banks at crazy-high, compounded interest.
    Burst, bubble, burst!

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  • Johny said:
    • 1 year, 7 months

    Blah...Blah..Blah...

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  • hangingon said:
    • 1 year, 6 months

    This analysis is so good, and the comments generally so intelligent, that I can for a few minutes actually forget Im stuck right in the middle of the problem you're all talking about. thanks Ben..

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  • tyleragent said:
    • 1 year, 5 months

    After all of the stories that I've heard of where people get cheated by getting a bad mortgage broker. It makes me feel bad because all of those getting cheated probably had no idea going into it. So it's kind of a wake up call for people to do research and background checks when it comes to stuff like this.

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  • Phil Thomas said:
    • 9 months

    I have my insurance from Vancouver! I know what I need.

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