Bankruptcy rate growing in BC
From an Article in the Vancouver Sun:
VANCOUVER - Dropping real-estate values are sending more British Columbians into financial crisis and causing a spike in personal bankruptcies, according to professional debt counsellors.
Federal Industry Ministry data show that B.C. consumer bankruptcy filings for August were up more than 10 per cent over the same period last year.
August also saw a 16.3-per-cent increase in proposal filings, an alternative to bankruptcy.
And that was an improvement over July, when B.C. consumer bankruptcy filings were up 14 per cent over the same period last year and proposal filings were up 20 per cent.
“It’s a big jump,” said B.C. Association of Insolvency and Restructuring Professionals director Lana Gilbertson. “We don’t know if it will continue upwards, but during the recessions of 1981 and 1990-91 there were rapid increases in insolvency rates.
“Our professional community is seeing more and more individuals who can’t sell their property for what they thought it was worth and who can’t refinance or borrow more money against their property. They’re stuck,” she said.
For several years, Canadians have suffered from high levels of household debt, low rates of personal savings and feelings of stress about their finances, said Gilbertson.
“But a strong real estate market in B.C. kept many afloat as homeowners were able to use a growing equity in their property to offset their consumer debt,” she said.
Funny how the answer to consumer debt was house debt, even after we saw how well that worked out in the US. Meanwhile at least one economist is saying get ready for deflation:
Japan was mired in a nearly decade-long bout of deflation, which is defined as a sustained fall in asset prices. Economic theory indicates the solution to falling demand for prices is stimulus - either from the central bank, or by the fiscal authority to increase demand and borrow at interest rates that are below those available to private entities.
Rosenberg was one of the few economists on Wall Street who rang alarm bells about the housing bubble, and warned that the fallout from the bust on credit markets and the underlying economy would be huge. He now forecasts the worst consumer-led U. S. recession since the 1970s.
Other economists have also warned of a deflationary-like scenario, not just in North America but also Britain.
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October 27th, 2008 at 10:22 am
If it’s only now ramping up in BC, it will be a LOOONG way to the bottom. Consider that in Canada, the only way out of mortgage debt is bankruptcy, whereas in the states, it usually only took a foreclosure (boo hoo, I lost the house that I had no equity in.)
Here is another prediction: Get the f*ck out of the CDN dollar. I made this prediction on the victoria house hunt blog back in June and again, more strongly to family about a month ago, but had no idea how quickly my prediction would come to fruition. It’s one thing that the currency is down due to oil prices, but once you factor in the fact that CMHC is on the hook for all of Canada’s subprime mortgages, it means a huge taxpayer funded bailout is in the cards. (Also, compare to the US where the gov’t can pick and choose which lenders / insurance co’s to bail out and which ones it should let fail.)
In summary, my prediction: Canada will be printing a sh*tload of money to bail out CMHC, and that ain’t going to be good for the CDN dollar long term, although it may rally back against the USD, which is also f*cked, short term.
October 27th, 2008 at 10:29 am
October 27th, 2008 at 10:48 am
And in to what? I’m paid in the stuff, all my savings is in it, where do you put your $$$? It looks like you agree USD is not the place, but then where?
October 27th, 2008 at 10:58 am
October 27th, 2008 at 10:48 am
Get the f*ck out of the CDN dollar.
And in to what? I’m paid in the stuff, all my savings is in it, where do you put your $$$? It looks like you agree USD is not the place, but then where?
Honestly, I don’t know. For the last year I’ve had a plan to buy yen, but never got around to setting up a forex account. I would tell everyone who would listen about the yen carry trade and how it would unwind, but never followed through myself. Walk the walk, right? Anyway, I would have made a killing this month had I followed through… but it might not be too late. The yen carry trade was/is huge, and I think long term yen could keep going up, but the huge swing just this month makes me think it should correct back somewhat (I hope.)
I would say the safest thing to do is get a basket of currencies, perhaps via government bonds? I will leave it up to the experts to explain, if there are any amongst us. I am not an expert yet, but I am in the process of setting up two forex accounts at the moment because I’m scared sh*tless about the ongoing crash in SEK (and likewise CDN, even though I have barely anything left over there.
(Don’t make investment decisions on my advice alone. I am not a currency expert by any means. Treat this as food for thought.)
October 27th, 2008 at 10:59 am
This will in effect give us a higher overall return on our savings to offset the low rate of return on investment.
And aren’t we waiting for deflation in the housing market? I know I am.
October 27th, 2008 at 11:01 am
Don’t worry, we don’t have subprimes in Canada, so we won’t see the same problems as in the US. This is what the experts tell me.
October 27th, 2008 at 11:15 am
http://www.reuters.com/article.....H120081027
The IMF is now bailing out Ukraine and Hungary:
http://www.bloomberg.com/apps/.....refer=home
Our economy is going to hurt for the next few years. Ultimately, that means lower demand for real estate, and many more specuvestors trying to bail out. Real estate prices in Vancouver will plunge much faster when the layoffs start rolling.
October 27th, 2008 at 11:26 am
I figure that what is happening right now used to cause deflation in previous recessions, so it should cause deflation now…
But:
1.) Most governments of the world today are hellbent against deflation.
2.) CMHC is outright a government entity. It can’t go bankrupt, really, if you think about it. Means that Canada has to fund all of its losses (idiots!)
What is going on in the currency markets is… uh… what’s the word… scary? As mish has predicted, the US dollar is strengthening against all other currencies (indicating deflation in USD). However, I just glimpsed a graph the other day of money supply in USD, and it was a nice gradual slope until a few months ago, followed by a vertical line encompassing more growth in the last month(s?) than the previous 5 years combined. Wish I could remember where that was. Anyone else see that?
My guess is that there will be a lot of volatility in currency values over the next couple years, with some countries pulling an Iceland (Russia, Hungary, Ukraine, Latvia?) while others pull a JPN, and I wouldn’t mind trying to play it with some of our future-down-payment-savings as betting on countries themselves really *IS* macroeconomics. Hence the forex trading accounts.
I *think* that the CDN is pretty much doomed to weakness, and I’m willing to speculate on it. But I won’t make any promises.
Again… Food for thought… (Not an expert)
October 27th, 2008 at 11:27 am
I think it’s mostly too late now, I may be wrong but I’d be surprised if CAD falls much more before this is over. I’d also be surprised if we don’t bounce back within a year (not to par with USD but higher than we are now).
October 27th, 2008 at 11:29 am
Taking on more debt than you can handle and assuming you will always live in a permanent boom economy leads to bankruptcies.
Shouldn’t this be obvious to anyone with a pulse?
October 27th, 2008 at 11:53 am
It’s not to say that falling prices lead to bankruptcies. It is the most immediately preceding event that precipitates the increase in bankruptcies, you could go endlessly recursive and say money is the cause of all bankruptcies, or evolution is the cause of all bankruptcies but that’s just getting silly.
October 27th, 2008 at 12:14 pm
October 27th, 2008 at 12:15 pm
Address 605-738 FARROW ST Status Active
Area Coquitlam MLS# V722977
Sub Area CQ Coquitlam West Postal Code V3J 7V4
City/Town Coquitlam Year Built 1990
Type Apartment Unit Age at List Date 18
Permitted Use Taxes $1,771 (2007)
Complex/Subdvsn VICTORIA TOWER
Price Dates Features
Current Price $279,000 Listed Jul 12/08
Original Price $320,000 Entered Jul 16/08
Sep 26/08 $294,000 Status Chgd
Jul 12/08 $320,000
Current $ Per Sqft $251.35
Days on Mrkt 107
October 27th, 2008 at 12:30 pm
Helmut: How is such a thing possible!
October 27th, 2008 at 1:06 pm
“We were having the best of times — ever. We were shopping for half-million-dollar houses, buying designer handbags and fine wristwatches and dining on $40 entrees at swank, if badly staffed, restaurants (well, some of us were, anyway).”
then suddenly it was over”
“you need the best house, the best price and the best location — and you have to undercut” and he’s trying to retrain those clients
http://www.canada.com/calgaryh.....e9f3427fe3
tsx down 717 today
October 27th, 2008 at 1:11 pm
http://research.stlouisfed.org...../mtpub.pdf
First graph on page 3.
October 27th, 2008 at 1:17 pm
October 27th, 2008 at 1:18 pm
Thanks!
That was it. And here’s the blog posting:
http://bigpicture.typepad.com/.....oneta.html
October 27th, 2008 at 1:27 pm
The cost of price stability will be future inflation.
Real interest rates are currently negative. The question now is whether consumers and corporations will take on more debt, or whether everybody hoards cash. If the later, then the Fed will start buying up assets and the government will open the spending spigots.
October 27th, 2008 at 2:04 pm
2009 and 2010 will be years to remember.
October 27th, 2008 at 2:12 pm
Are you sure? The CMHC, despite its incompetence by promoting homeownership by increasing debtloads, has significant cash reserves. Canada is not in a nationwide housing bubble to the same extent as other countries. Add to this the CMHC is able to go after other assets to recoup any losses, deadbeats aside. This is going to be devastating for marginal homeowners, not the CAD, the very homeowners CMHC was marketing towards to accept the risks of homeownership in the first place. Sick.
Don’t get me wrong: I am sure the CMHC will need some sort of government-financed backstop but I can hardly see this being devastating for the dollar. I would expect government job creation that at least has SOME productive upside would take precedence over straight handouts.
October 27th, 2008 at 2:22 pm
While some sellers get it, there are some specuvestors out there still dreaming they can get 2007 prices. To be frank, with the financial meltdown and the increasing layoffs we’ve seen the last several weeks, these specuvestors would be lucky to sell their place for 2006 prices. If these specuvestors wait a few months more, they’ll be looking at 2005 prices.
The smart specuvestors have already cut price and gotten out with few losses. The dumb specuvestors will be paying for their mistake 20 years down the road.
October 27th, 2008 at 2:23 pm
October 27th, 2008 at 2:37 pm
In other words: if you think inflation is going to be a problem in the next 2-3 years and want to maintain equity in your house, SELL YOUR HOUSE NOW!!!!
October 27th, 2008 at 2:51 pm
I also agree that Bernanke et al will try to inflate their way out of the crisis, but I’m skeptical if they can. The bottom line is that thanks to fractional reserve lending, central banks have ceded control over the money supply to private banks. Over the past decade an enormous amount of money was created as debt by entities other than the Fed or Treasury. That money was poured into real estate, the stock market, the bond market and the commodities market; all things not accurately captured by inflation calculations like CPI.
Now the bubbles are all bursting as part of the bust of the over-all credit bubble. The solution to the last couple bubbles was to loosen lending and lower interest rates, which ended up blowing another bubble. But now that the credit bubble is done that trick won’t work again. The Fed and other central banks are trying to force banks to lend and corporations to borrow even though it makes no sense for them to do so. As Mish likes to say, why would any company take on debt to expand when there is over-capacity everywhere?
The only way to prevent a crash is to prevent the bubble. They didn’t do that; they allowed huge amounts of money to be created and lent out to buy various assets, driving up prices. Now prices are dropping which is causing that money to be destroyed and there is nothing the central banks can do. They cannot create money faster than it’s being destroyed because no matter how much money they throw around they can’t force banks to lend when there are no good reasons to borrow.
Anyone looking to borrow now like GM, leveraged buy-outs or even the majority of consumer spending is a bad credit risk. Would you lend a GM employee $30,000 to buy a new truck? Would you lend GM $30 billion to keep making trucks they can’t sell? Would you lend to a hedgefund to invest in commodities futures or to a private equity company to buy some other company whose stock is plumetting? Of course not, and neither would the banks. Loose lending and bad debt is the cause of this crisis, it sure as hell isn’t the solution.
October 27th, 2008 at 3:39 pm
$26B and counting to bail out CMHC.
All that money being created out of thin air has to go somewhere. It will, albeit with a lag, show up in prices across the board.
I predict Weimer-style hyperinflation.
The quote included in the post is a good indicator of why you shouldn’t listen to economists:
“Economic theory indicates the solution to falling demand for prices is stimulus….”
Well, that may be Keynesian orthodoxy. But it’s hardly an immutable law of economics.
October 27th, 2008 at 3:58 pm
October 27th, 2008 at 2:12 pm
“Canada will be printing a sh*tload of money to bail out CMHC, and that ain’t going to be good for the CDN dollar long term”
Are you sure?
Nope. But it makes sense to me, anyway. I agree that the deflationary forces are huge right now. It’s unnatural government inflation vs. natural credit bubble deflation, at least in the US… The battle of two titans. Who will win?
October 27th, 2008 at 4:05 pm
Add to this the CMHC is able to go after other assets to recoup any losses, deadbeats aside. This is going to be devastating for marginal homeowners, not the CAD, the very homeowners CMHC was marketing towards to accept the risks of homeownership in the first place. Sick.
It is sick, but I really don’t think going after other assets to recoup losses is going to even be worth it for CMHC. All you have to do is look south of the border to see what’s going with foreclosed homes. Oh, they left a big screen TV? Anyone want it? No? *heave* to the dump you goooo!
If you haven’t seen this yet, it’ll blow your mind:
Foreclosure alley:
http://kcet.org/socal/
October 27th, 2008 at 4:06 pm
Here it is:
http://www.kcet.org/socal/2008.....alley.html
October 27th, 2008 at 4:21 pm
CMHC has an obligation to go after all assets of the debtor. They will do it.
I do not see any bailout of CMHC, i.e. a gift from the GoC. It would be politically impossible. The non-bubble parts of the country, most particularly Quebec, would not stand for it. The Harper government does not have a majority and this would be the perfect issue to bring them down. Look what Duceppe was able to run with in the last election when the Cons slighted Quebec.
If CMHC does run down its reserves, it will just have to borrow money on the market (remember it has a Crown guarantee) and jack up insurance fees to pay the money back.
In the case of a defaulted mortgage that is subject to judicial sale, how are the courts determining market value?
The courts don’t determine market value, the market does. Foreclosed houses are put on the market and sold just like any other house.
October 27th, 2008 at 5:09 pm
All that money created out of thin air went somewhere, over the past decade. Now it’s disappearing into thin air again.
October 27th, 2008 at 5:15 pm
It’s like hearing McCain say that falling prices in the US are due to ’subprime loans’ and they need to do something to stop prices from falling. ’subprime loans’ helped push prices higher than they should be, they didn’t cause prices to drop.
October 27th, 2008 at 5:16 pm
I say resource stocks in particular, because they would have likely bought into the hype about resources, the China and India story, and all that other BS around the new paradigm shift, and the insatiable demand for Canadian exports.
It’s a natural extension going from Rich Albertan’s , Asians,etal, to the endless appreciation of Real estate, and natural resources.
October 27th, 2008 at 5:51 pm
As has already been noted, a falling market price for your house in no way impacts your ability to pay for it. You can either afford the original purchase price or you can’t. That goes for investment properties too - the rent either covers the payments or it doesn’t.
People are not losing their houses due to falling market prices, but because they have gambled on the previous rise in prices.
October 27th, 2008 at 8:24 pm
October 27th, 2008 at 8:35 pm
I’ve heard the foreclosure process is a long and painful one, and there aren’t many “deals” to be had, but tax sales are a little better. Does anyone have any detailed insight into both of these processes?
October 27th, 2008 at 8:37 pm
Ok, I think I get it now, it’s explained pretty well here:
http://www.foreclosures.ca/rea.....mbia.lasso
It sounds like borrowers are given a fair amount of time (6 months) to sell the property to redeem the mortgage.
October 27th, 2008 at 8:51 pm
October 27th, 2008 at 8:51 pm
Do Canadian LENDERS accept short sales to avoid foreclosure?
October 27th, 2008 at 9:31 pm
As for tax sales, don’t hold your breath. No mortgage lender will allow a property to go to a tax sale - they will pay the taxes to preserve their lien on the property. I think those tax sales that do happen involve owners whose reasoning is impaired to such an extent that they won’t just sell the property. During the Great Depression tax sales (or forfeitures to the city) happened when property because almost worthless - this happened to Champlain Heights. But it’s not going to happen this time.
October 27th, 2008 at 10:00 pm
Vanman Mon, Oct 27, 08 at 08:08 AM
Vancouver real estate will not drop anymore, interest rates are on the free fall, the US dollar will buy more property here, the Yanks are already buying up here. Panick will get you know where.
October 27th, 2008 at 10:02 pm
October 27th, 2008 at 10:37 pm
October 27th, 2008 at 11:12 pm
http://vancouver.en.craigslist.....06101.html
October 27th, 2008 at 11:41 pm
October 28th, 2008 at 12:43 am
October 28th, 2008 at 7:30 am
Oil has got to be approaching a low, I’ve started trimming my HOD.
Anyone out there know the bond market well? Is there a way to gain off a LARGE increase in corporate bond defaults?
This is just crazy out there. The worst nightmares of the gloomiest bearblithest bull are all coming true, with no bottom in sight. What is supposed to catch this market and hold under the momentum? Not just a falling knife, but an entire falling china and knife shop, all sharp edges flashing and spinning. I’m not getting under that mess!
October 28th, 2008 at 7:43 am
Oil has got to be approaching a low, I’ve started trimming my HOD.
Anyone out there know the bond market well? Is there a way to gain off a LARGE increase in corporate bond defaults? That is the next “nobody saw this coming”
I really hate this, I’m stupidly exposed out there. I’m currently about 75% net worth in HOD , HFD and HXD! (Not the house money or hers, just mine.) Mind you, I entered these positions in August, I can miss the very bottom a bit and feel OK. For those with short memories, oil was in high 130’s, TSX over 14,000.
This is just crazy out there. The worst nightmares of the
gloomiest bearblithest bull are all coming true, with no bottom in sight. What is supposed to catch this market and hold under the momentum? Not just a falling knife, but an entire falling china and knife shop, all sharp edges flashing and spinning. I’m not getting under that mess!October 28th, 2008 at 7:46 am
October 28th, 2008 at 8:00 am
The seller should offer a bigger discount than the current average. Face reality, and minimize the loss, which is more like avoid being stubborn grabbing every penny.
This may piss off the other sellers, but it is every seller for themselves as there is no honour amongst speculators.
October 28th, 2008 at 9:34 am
October 28th, 2008 at 10:39 am
http://biz.yahoo.com/ap/081028.....tdown.html
If American consumer confidence and consumer spending remain extremely low, it will have a large impact on the Canadian economy. If the Canadian economy takes a beating, the real estate market here will just decline that much more.
October 28th, 2008 at 11:22 am
A couple of observations….first, hats off to the many Vancouver real estate bears.
Second, I’ve noticed that in recent days (either on this site or others similarly focussed), comments that indicate people are raising the prospect of a bottom approaching in the equity markets. Let me be clear, few are actually calling a bottom in the equity market, but I think it’s worth noting when people start to discuss a bottom because it may signal a turn. Also, I don’t in any way suggest I or anyone else is remotely ready call a bottom in Vancouver real estate, where the rout has just begun (even if equity markets stablize and signal a shallow or at most difficult but not calamitous recession).
I do think there is a possibility of a very hard economic landing, but I’m not convinced we’re locked into that path yet. If the swaps market (CDS) splinters, then that is the next leg to drop and I think the economy then could be in for a very bad fall. The CDS market has taken some losses, is frozen, but relatively intact thus far (based on my conversations with participants; intact meaning it’s a cluster#@%# but it hasn’t blown everyone to bits, yet). Here’s the scenario I’d like anyone to comment on: difficult and/or shallow and/or stagnant economic growth worldwide for a period of years(developed countries suffer more than developing, but of those in the latter category it will depend on their current account deficit levels and ability to self finance growth - China will be ok, India ok). We continue like this for some years. In the meantime, oil prices begin to spike back up - i believe oil is oversold…believer in Hubbert’s Peak. I also believe it’s too late to prepare for a peak oil world, so once oil prices resume their climb, we have to go back to dealing (again) with rising transportation/trade/energy and general cost of living costs. That’s when the shit hits the fan - increasing cost of living, credit continues to contract (25 yr credit growth cycle is over, at least in the West.
Bringing it back to Vancovuer real estate - I believe the above scenario would mean we go through a period of falling prices, then at best stagnant recovery (inflation fueled, so perhaps no real returns).
Appreciate any comments from the peanut gallery
October 28th, 2008 at 11:36 am
I was involved on bidding for some residential & commercial assets last year. Here’s what I gathered to the best of my recollection:
1) Court appointed Receiver uses a Broker, who lists the property at market.
2) Broker collects all bids (if none, will keep dropping listed price, until bids come in)
3) Broker delivers all bids to court (6 weeks after 1st bid comes in)
4) Court will usually (but not always) select highest bid.
5) Winning bid must pay in full. No subject period.
If you’re the only bidder at court, you get it. I think you can submit bids right up until court time. If there’s a tie, the Judge has discretion to ask bidders to re-submit higher bids.
Hope that makes sense.
October 28th, 2008 at 11:40 am
Oil is subject to the laws of supply and demand like any other commodity. Hubbert’s peak does not impact the price of oil, supply and demand does.
We’re not making anymore land in Vancouver (peak land?) but that won’t prop up real estate prices as long as there is more supply than demand.
One other point, who do you expect to pay higher prices for oil when the there is a global recession? What are they going to use the oil for? If you haven’t already you may want to pick up an Econ 100 text and look up “supply and demand”.
October 28th, 2008 at 12:10 pm
October 28th, 2008 at 12:14 pm
October 28th, 2008 at 12:47 pm
Peter Ladner said that Vancouver may now has to dip into its contingency fund(whatever that means)to asssit the project .
The project has to complete before the Olympics. Fortress got propped up a bit, but for how long? So is Ladner implying an iceberg on the horizon? If this project starts to collapse, in an already glutted market, what next Fire Sale? or hold out?
Vancouver taxpayers will revolt if they end up being the “bank of last resort”to complete the project (ie tax increases). Fire Sale means low tide for all ships, ie set a new “below sea level” benchmark price.
Some choice. Toss a coin? Or bet they’ll Fire Sale them ! Other developers will be pissed, having to compete against a sinking Gov’t backed enterprise with politicians trying to save their own bacon.
October 28th, 2008 at 2:38 pm
Thanks for your thoughts. Let’s get you a gig on talk radio…
A couple of corrections - I’m not talkin any sort of peak land theory. I believe we’re in for a significant correction in Vancouver real estate (35%-45% is a given).
Second, Hubbert’s Peak theory is all about supply and demand. It proposes that the world is reaching the limits of its ability to continue to grow oil production, that this peak is reached at the point where we have consumed half the recoverable oil endowment, and that this peak follows oil discovery peak with a lag. The oil supply curve is inelastic in both the short and long term. Demand has to adapt - including through continuous demand destruction as supplies declines year to year.
short story - while there will be demand destruction, demand will be constantly bumping up against supply
October 28th, 2008 at 6:44 pm
Full article:
http://www.reportonbusiness.co.....iness/home