Friday Free-for-all

It’s open topic time!  Every Friday we do a round up of recent economic and housing related news stories and discuss these topics through the weekend.  Here are a few stories I’ve noticed lately to kick off the discussion:

A Canadian CMHC driven housing bubble?
Canadian Gov now the biggest subprime lender?
The growth of Canadian mortgage debt loads
BOC expresses ‘some concern’ over housing boom
Canadians would sacrifice vacations to buy home
US commercial real estate bust looming?

So what are you seeing out there?  Post your news links, thoughts and anecdotes here and have an excellent weekend!

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realpaul

#124 Anon, I caught that too, a petulant come back and a nasty slap at the homosexuals. Apparently 'lady boi' is the baddest swear word this chimp can muster, pathetic. Whats next? Grrrrrrrr I just hate realpaul, he hert mi feeeeeeeeeeeeeeeeeeeeeeelings wahhhhhhhhhhhhhhhhhhhhhhhh !!! #116 NLL, the current capital gains tax statute is somewhat nebulous. Although the intention was that residence of a specified was a must, I have heard from lawyers that this isn't the case. One lawyer insisted he had played this one out in court and was found successful in an alternative interpretation. So, what would the 'exemption' actually manifest itself as through the CRA? Case by case? I would hope that the Conservatives would overturn the capital gains exemption on all real estate holdings no matter what the situation. It would wake the population up and we'd… Read more »

pricedoutfornow

I think people have been able to hang on due to low interest rates. But you're right, lots of listings on craigslist ($10,000 to rent a townhouse during the Olympics in New West, anyone? what a steal!) possibly those who think things will turn around after the Olympics.

If I had a dime for everytime I heard the phrase "We'll sell after the Olympics" I wouldn't be spending my time on blogs, I'd be retired on a beach somewhere. ;p

observer

I have a hunch that weakness in the housing market will rear its head via the rental market (witness listings on craigslist). There is an oversupply of units but many are trying to hang on by renting out. When this fails, we may see a second wave of inventory rises, possibly as soon as the holiday break.

Drachen

The "conservatives" have been betraying their fiscal roots since before they got in office. Theoretically they are the party of fiscal responsibility, and I think everyone knows that if you're fiscally responsible you work to pay down your debts before you go on a spending spree but they were ELECTED on the promise to cut the surplus from the national budget. How crazy is that? Only short term thinkers like Dave could possibly see the benefit in that, it's a political gimmick give the people something they want now and who cares if it leaves the country worse off than they found it?

Anonymous

"Bill Frank, a Detroit realtor trying to buy a small house for a just-married friend, found himself repeatedly outbid.

"Speculators are often not good for a city and, from my experience, they are going to lose a fortune," he said. "But there are no easy answers. It's a declining city.""

RVW_0824

Check out the CMHC's website under Corporate Governance. It's scary. 90% of these people including the CEO are lacking the formal training to run or govern an organization that is moving towards being the largest bank in Canada (over even on 1/10 of its size). Give me a break….look at the bio's of some of these people. A bunch of senior management folks from real estate companies or government lackies. And look at the Minister responsible for it. Zero background to be overseeing something of the CMHC's size and importance. This might have been OK when they had under $100B of mortgages on the books but as we are now over $1 trillion…yes that $1 trillion once you add in what all of the tranches they back (included backstopped securitized, insured, etc.) – it is now 10x the size of… Read more »

domus

@patriotzed: Patriotzed, how very right you are. My exact same thought: completely wrong move on their side, and the timing was almost ironic! These guys should have to revert the error and apologize.

domus

@No Longer Looking: That's peanuts, even if true. The only way to go back to sanity is to force banks to carry GENUINE risk of lending. They must be in a position to lose money from bad loans. Otherwise the circus will go on and tax payers will foot the final (huge) bill.

Any politician brave enough to say this loud?

patriotzed

@Dave:

I agree with the tax cutting done by the Conservatives

I don't. In particular, the cut in the GST from 7% to 5%, at a time of record low savings and low unemployment, was one of the most ill-advised fiscal moves ever made by a Canadian government. It was tailor made to induce an unsustainable surge in consumer spending and increase consumer debt even more, and greatly weakened the fiscal capability of the government to deal with the current recession.

They should have INCREASED the GST, and then they would have had some room to cut it, or better to cut income taxes, NOW when we need the stimulus.

No Longer Looking

I found this rumour on Greater Fool:

http://www.greaterfool.ca/2009/10/23/dude/#commen

#104 OttawaMike on 10.24.09 at 7:48 pm

Rumour heard today from one of my R.E. broker buddies:

The feds are mulling an end to the capital gains tax exemption on profits from sale of principal residence.

She told me it may also just be a modification to the one year rule, where the owner may have to occupy a property longer in future to be tax exempt.

Could this be a way of tempering the bubble?

I think a modification is quite possible.

other ted

Drachen its interesting point that this is a mulit decade bubble. Well in terms of real estate it was not a bubble in most cities in Canada until a few years ago. But in vancouver the madness has been going on for a while. I think in Vancouver it wasn't just a real estate bubble but a decrease in the overall standard of living that took place. Fundamentals were out of whack because salaries in real terms have been decreasing for most people. Real estate just didn't go down to adjust to fundamentals as most people bought years before. Now what has been going on the last few years is a real estat bubble on top of other problems in Vancouver. So in Vancouver we have a compounded problem. Vancouver is more like California in that the problem isn't just… Read more »

!(EconomicsDegree)

@domus: Whoa 40%, is that low or high by HK standards? When someone in HK buys a house where does the money collected by the seller flow? US Treasuries? ING? They aren't "spending" the money from what I can tell, which is exactly what the government wants NOT to happen.

Drachen

@squidly77:

Wait a minute, I went through to the PDF linked at the Alberta bubble site you linked to Squidly and all the numbers for CMHC loans start in 1987.

Now I've been saying for YEARS that in my estimation 1987 is when things started to go off track and prices should fall back to around 1986 levels (adjusted) when the dust settles. Dave has been complaining that it's not possible for a bubble to last longer than mortgages (I never could figure out the logic in that myself) but maybe the precipitating factor in the current mega-bubble is the CMHC? It would totally make sense to me. Anyone else see that in the graphs? Prices here just suddenly and irrationally took off in the late '80s and haven't returned to reality since.

squidly77
ReductiMat

Is Warren Harding the dude who had the KKK ceremony in the White House?

(un)realpaul

bwahaa. It's all about yoo RP, all about you.

Ego much?

realpaul

@(un)realpaul:

#65 U, Dude/ette, are you that anal over your inability to understand whats being said? Are you soooo jealous and covetous over my ability to travel vs yours or anybody elses? Do you hate the guy with the better car, the girlfriend, who got the promotion when you're so sure it should have been you? You sound like the road rage mentality where you think that making payments you can't really afford gives you the right to be 'first in line'. Do you get mad at people because they seem smarter than you? Did you buy a pick up truck to make yourself feel bigger and hide that very small wee wee of yours? Get a life pal or do a flyer. Clown.

realpaul

Stephen harper should take another read of Marcus Aurelias and take direction from Warren Harding.

"We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity…it will be an example to stimulate thrift and economy in private life.

“Let us call…for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic.”"

http://dailyreckoning.com/macro-for-dummies/

realpaul

@domus:

#103, the major differance is that the Chinese made the money available to commercial ventures ie the factories to spur growth and get people back to work en masse. That money fed directly into profits and jobs rather than debt backed give aways as we have seen here. The factory is a growing profitable enterprise money and job spinner whereas the single family house market is a one shot debt pit and non job spinner. It would seem like the Chinese have us beat where the rubber hits the road in the smarts race.

domus

These are interesting times!

"Hong Kong real estate requires 40% down"

http://tinyurl.com/yhek9k7

Some excerpts:

Concerns about a growing bubble in Hong Kong's high-end property market pushed central bankers here to increase the required down payment on luxury homes to 40%, from the current 30%.

While property prices in much of the rest of the world (NOT IN CANADA, though!!) continue to languish, prices in traditionally volatile Hong Kong have been on a tear this year, thanks in large part to low interest rates and a wave of liquidity from mainland China, where Beijing last year unleashed a four trillion-yuan (US$585.6 billion) stimulus.

realpaul

@patriotzed:

#74 P, Nafta, OMG how could we forget to be fair to the Americans? You're right on that issue of course. I guess I was having a simplistic 'Bambis Mom grazing in the forest moment' when I was thinking about the possibility of what other programs that may have been initiated to support Canadian industry with the same ratio's of money going into pumped up popcorn shacks in the valley. Of course we all know what happened to Bambi's mom in the movie.

domus

Talking about governments, debt, future inflation and subsidization. This is what is going on in the US. of course, in Canada we are whiter than snow…we just do things without letting people know (see CMHC, all done under the radar). "Soros calls Wall St profits ‘gifts’ from state" http://tinyurl.com/yfn8k8d Some excerpts: he big profits made by some of Wall Street’s leading banks are “hidden gifts” from the state, and taxpayer resentment of such companies is “justified”, George Soros, the fund manager, said in an interview with the Financial Times. “Those earnings are not the achievement of risk-takers,” Mr Soros said. “These are gifts, hidden gifts, from the government, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.” Mr Soros joins a transatlantic chorus calling for limits on risk,… Read more »

domus

This is from the G&M: Thursday, October 22, 2009 11:38 AM Dollar over housing David Berman The Bank of Canada released its quarterly monetary policy report on Thursday morning, two days after it caused turbulence in currency markets when the bank reiterated its commitment to keeping interest rates unchanged until at least next June. The report provided some more information about that commitment, making specific references to the Canadian housing market, which has been picking up lately – to the point where some observers believe it is being fed by low rates. Here’s what Eric Lascelles, chief economics and rates strategist at TD Securities, said in a note: “A telling message that continues to be sent is that the strength of the Canadian dollar is the more important factor than housing market strength,” he said. “In fairness, the housing market… Read more »

Anonymous

One small comment: I don't care about politics much, and am not Liberal nor Conservative. To be honest I have limited trust in both parties, but that is my problem. I must admit, however, that the handling of the economic crisis by the Conservative party is absolutely horrible. – excessive lending is the cause of the problem? Let's lend some more through government-insured CMHC loans! – excessive government intervention in the economy? Let's spend some more through an economic action plan which allows people to fix their patios… (that's some productive investment, isn't it?) – fiscal conservatism and careful debt management? Let's generate a massive current account deficit and additional increase in debt which adds one third to the existing load (part of it stealth-debt, through liabilities and guarantees due to CMHC, which will be there for decades to come!).… Read more »

domus

patriotzed:

I am with flip on the inflation problem. This is not just going to be a question about Canada, but a question about the value of the C$ and trade with the US.

You are mighty optimistic about our politicians. I think it is clear by now that the US will inflate prices to some extent. Canada can play tough and get a loonie above 1.10 US$, with all its consequences. Or it can follow suite.

Following suite means also lower unemployment and pain in the short term, say next 3 years. Why wouldn't they do it? Are they so honest? Do we have check and balances that could prevent that?

If the US will do it, so will Canada.