ING CEO warns of Canadian Housing Bubble
Tony Pepe pointed out this article from the Toronto Star. The CEO of Ing Direct Canada is warning that Canadians are buying more house than they can afford and paying them off slower and slower, something that he’s seen before:
RSS 2.0 comments feed. leave a response, or trackback from your own site.Aceto’s former job at ING was chief risk officer. He spent two years in California during the height of the real estate bubble, and felt that Canadians would not be as spendthrift as their American counterparts. But when he arrived back in Canada he was surprised to see that some consumers were acting in a similar way.
“Canadians have been proud internally that we’re very different than the Americans in the way we behave in terms of our spending habits and the way we deal with credit. But over time we have become a lot closer than we think,” said Aceto.
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Edwin Says:
November 16th, 2009 at 10:23 am
That will never happen in Vancouver! The drug trade is what is keeping Vancouver’s economy afloat, and of course everybody is in the Drug Trade!
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Purp Says:
November 16th, 2009 at 10:37 am
Love the irony of a bank CEO lecturing Canadians on the amount of debt they’re taking on. Kind of like a drug dealer telling his customers to stay off the drugs.
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Supraboy Says:
November 16th, 2009 at 10:37 am
Bubble my face, they’ve been warning for years and they missed out on the run-up and want to shake people out into selling. They can wet dream about buying a place in Vancouver, it ain’t happening for him.
There’s nowhere to go but up, just look at Gold and inflation, I bet you anything housing will rise another 20% next year.
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James Says:
November 16th, 2009 at 10:44 am
In fact, Vancouver median house price will reach $10 billion soon. I just got words from my alien friends that the “Greatest Fool of the Universe Competition” is going to be held in Vancouver next year. Aliens from other planets will soon discover that Vancouver is the best place in the universe and will bring tones of diamonds and gold to buy every piece of **** in this city.
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chumpdawg Says:
November 16th, 2009 at 10:45 am
ok supraboy, you are on..time to put your money where your mouth is….what are you willing to bet?
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MrBear Says:
November 16th, 2009 at 10:46 am
@Supraboy: Yeah, the CEO of ING Direct can’t afford a house in Vancouver, so he’s trying to talk down the market. Poor guy can’t get in when all our houses are owned by Asian bank CEOs, perhaps?
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Best place on meth Says:
November 16th, 2009 at 11:11 am
Yes, the drug trade.
That really helped Miami.
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Selma Body Says:
November 16th, 2009 at 11:32 am
“…… I bet you anything housing will rise another 20% next year. ……”
Why bet, just get out there and sink every sent you have (and every future cent) into RE. You can’t loose!
Let me know how you make out.
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Selma Body Says:
November 16th, 2009 at 11:33 am
“….. Some items are 50% off, such as Sony laptop @$500 and Gateway laptops @$250….”
They used to call that, shhh, don’t say it out loud: ‘deflation’!
Nevertheless, you should buy a couple of laptops – you’ll be able to trade them for houses in Richmond soon.
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domus Says:
November 16th, 2009 at 11:47 am
Great pick for a post, Pope.
The guy (Aceto) is basically covering his rear by saying this: they all know, in the banking industry, that valuations are artificially supported by unnaturally cheap credit and insurance from the CMHC. They are not carrying much risk anyway, so for them it is a sure bet: they make money with almost no risk.
Vancouver’s RE market started its natural and overdue correction in 2007. If the market had been let free to take its course, by now we would have price drops in the range between 30 and 40%. The governemnt and central bank chose to support the market and halt its slide: of course, this turned out to re-inflate the bubble and we are back to valuations close to the top of the last bull market. Sheer affordability limits will put a ceiling on growth, so i don;t think there is much chance of much higher prices over the next 12 months.
As I said before, i expect inflation to be a major issue in the future: RE investment would be a great choice with inflation, but only for those who have some solid equity in their homes.
If you have a 35 years, 5% down mortgage, especially if you are not locked in long-term, inflation will simply mean higher interest rates for you. Your only way out will be selling.
This is where we stand at the moment. Interesting times, I am having great fun watching this big social experiment taking place…..it’s so predictable yet engaging!
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be afraid Says:
November 16th, 2009 at 12:00 pm
This could have easily be someone you know or maybe it can you next time. Stop the Madness.
http://www.vancouversun.com/RC.....story.html
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Anonymous Says:
November 16th, 2009 at 12:12 pm
Just heard that CRA refunds 5% GST to foreign buyers of new houses in Vancouver even if the GST was not included in the sale price.
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No Longer Looking Says:
November 16th, 2009 at 12:16 pm
Your tax dollars at work.
http://www.vancouversun.com/bu.....story.html
The average home price also reached new highs in October, climbing to $341,079, up 20.7 per cent from a year ago.
A separate measure, which limits its focus to Canada’s major markets, showed the average price rising 22.1 per cent to $373,095.
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patriotzed Says:
November 16th, 2009 at 1:27 pm
@other ted:
Because one out of 8 dwellings in the US is vacant. When you have that much excess supply, you cannot move prices even with record low interest rates. The households are simply not there to move into the dwellings. Also since the bust started earlier than in Canada more people who might buy have gotten the message that it’s a risky proposition. In other words, bubble denial in the US is pretty much dead.
Due to a generally later start to the bubble and generally tighter development controls, Canada had not gotten to such a point before the financial bust, thus lower interest rates were enough to move demand up to meet supply. But this cannot last. If prices exceed normal multiples of incomes and rents, supply will inevitably outrun demand.
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taylor192 Says:
November 16th, 2009 at 2:35 pm
@patriotized
2 words: recourse mortgages.
The US has non-recourse mortgages, so when the sky started falling many people just handed the keys back to the bank and walked away.
Canada has recourse mortgages, so when the sky started falling many people tried to sell (active listings doubled) cause they cannot give the keys back to the bank and walk away.
The silver lining of the US is you could walk away from your debt and start over.
The silver lining of Canada is many will try to keep paying their mortgage and RE prices won’t crash as hard. Yet the economy will as people have less disposable income.
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rp Says:
November 16th, 2009 at 3:40 pm
#9 @Selma Body: Not a fair comparison. The computer industry has been in a state of continuous rapid deflation for over 30 years. Performance doubles every 18 months, or equivalently, the price of processing capacity is cut in half. The price of storage is cut in half every two years, bandwidth every five years, etc. Deflation isn’t bad when it’s caused by innovation, and the entire industry runs on continuous breakthroughs. It’s actually quite amazing, and if we could replicate the success in other industries we’d be living in a technological utopia. Of course, deflation caused by a giant economic toilet flush is something else entirely
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logic Says:
November 16th, 2009 at 3:49 pm
taylor192 Says:
November 16th, 2009 at 2:35 pm
@patriotized
2 words: recourse mortgages.
————–
Actually, this is not quite so simple. It differs on a state-by-state basis. Many US states DO have recourse mortgages on 2nd mortgages, HELOCs, refinancings, etc.
http://globaleconomicanalysis......risis.html
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logic Says:
November 16th, 2009 at 3:53 pm
Also, and OT: was sitting in the Starbucks on cnr of Denman and Davie this morning doing a bit of work and listening to a group of 4 trademen (construction) on the table behind me talking about all the layoffs in the places they work, and stating that they were beginning to get “freaked out” by the prospect of losing their jobs while trying to pay their mortgages. They were most worried about the fact that it’s not just the new hires being let go, but also people with “seniority”. Felt sorry for them, as they genuinely sounded worried, and seemed like nice enough guys.
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DaMann Says:
November 16th, 2009 at 5:37 pm
@taylor192:
Recourse or not, lose your job and are on the hook for a $500k mortgage with piss all as a downpayment, people will walk.
Same goes for someone who leveraged all with a 5% ( or zero down) downpayment on a 40 year mortgage and the place crashes in price, they will walk. Especailly all the 20 somethings who are mortgaged to the hilt. Their credit will be back in 7 years time so no big deal rightÉ
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Boombust Says:
November 16th, 2009 at 6:28 pm
I know someone who bought a house at the peak in 1981 in PRINCE GEORGE.
He and his wife realized the value of the house was plummeting only a year later, so they stopped making payments on it.
They were taken to court, and the judge ordered them to pay 15 cents on the dollar on what was owing.(they ended up paying only $1500.000) They had a bad credit rating for 7 years…and then they bought again.
Just letting you know…
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Ricardo Says:
November 16th, 2009 at 8:00 pm
@Supraboy: So are you going to take Chumpdawgs bet? What will be the wager? I’m interested to see how this turns out.
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flip_this Says:
November 16th, 2009 at 10:09 pm
@domus:
I hope your assumption that the mortgage rates will rise with the inflation will materialize. That’s how it normally works… However, given how huge, in terms of average income to price, this housing bubble really is, there is a possibility that the the government will at some point freeze the interest rates on the existing mortgages by a decree, in order to stop massive foreclosures. They are already subsidizing the mortgage payments in a very significant way, so the next logical step would be to do it more openly, accompanied by the usual propaganda: affordability, protecting the families, stimulating the economy, saving jobs etc. So, in my opinion, a lot depends on what the government will do.
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casanova Says:
November 16th, 2009 at 10:14 pm
Dont compare Miami to Vancouver regarding drugs trade. In the US is a highly risky business to grow marijuana in your basement wheras in Vancouver one in 4 houses approx has a grow up in their basement (15 to 20k CAD cash flow every 6 weeks) because BC has a drug friendly goverment and police. House prices will be sticky here for some time to come, maybe if California legalises the marijuana then RE here will take a hughe hit. But dont hold your breath. Lots of cash around here.
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Anonymous Says:
November 16th, 2009 at 10:15 pm
http://www.youtube.com/watch?v=dFplvCb2iJo
25 X “They were beginning to get freaked out by the prospect of losing their jobs while trying to pay their mortgages.” « Vancouver Real Estate Anecdote Archive Says:
November 16th, 2009 at 10:19 pm
[...] 16 November 2009 · Leave a Comment This from logic at vancouvercondo.info 16 Nov 2009 3:53 pm – [...]
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Anonymous Says:
November 16th, 2009 at 10:38 pm
@James. Great posts to keep her honest.
10% of 4 billion Asians make up 60% of 700 millions who want to emigrate to other countries.
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domus Says:
November 16th, 2009 at 10:52 pm
@flip_this: I understand your doubts, and I think they come from the disappointment of seeing an absurd situation persist. But the word has NOT changed, and, yes, rates will go up when inflation hits. Even the most powerful government in the world cannot contain market forces for too long. They wish they could, but they can’t…..they can only delay the unavoidable, and in the process they make the final outcome even worse.
This RE market is bound to crash and burn. At some point it will. You can make the choices you want with your money, but you have been informed.
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Supraboy Says:
November 16th, 2009 at 11:17 pm
@chumpdawg:
I’ll bet you ten cents since I’m poor like everyone else in Vancouver.
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logic Says:
November 16th, 2009 at 11:20 pm
“one in 4 houses approx has a grow up in their basement”
————————
Sorry, but I call BS on that stat. Maybe quite a few, but 1 in 4?
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rp Says:
November 17th, 2009 at 12:03 am
#24 @Anonymous: Priceless. “We’re looking for $5500 per month before we entertain you with our snobby accents.”
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Declan Says:
November 17th, 2009 at 12:21 am
“Sorry, but I call BS on that stat. Maybe quite a few, but 1 in 4? ”
Well 200,000 houses, at $150,000/year, is only $30 billion, or $7,500 for every man, woman and child in B.C.
Rough estimates suggest annual U.S. spending on Marijuana at $20 billion, with Canada around $2 billion, so if we assume that all the marijuana consumed in North America, along with a chunk of Asia and Europe is all grown in Vancouver basements, then Casanova’s figures are perfectly plausible.
Although, if that *were* true, house prices here would make more sense!
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logic Says:
November 17th, 2009 at 12:52 am
“if we assume that all the marijuana consumed in North America, along with a chunk of Asia and Europe is all grown in Vancouver basements”
===========
lol, as if. anyway, back to our regularly scheduled trolls,who i assume will be along soon after midnight when they finsh their shifts at McD’s. Supraboy?
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badnewbear Says:
November 17th, 2009 at 2:18 am
@James:
After all Vancouver is the home of the ‘ Greatest fools on earth ‘
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badnewbear Says:
November 17th, 2009 at 2:19 am
‘ Olympic ticket monopoly freezes out the fans ‘
http://seattletimes.nwsource.c.....ets15.html
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Wreckonomics Says:
November 17th, 2009 at 7:49 am
@Anonymous: Great link! You should put a little comment about what the content is when you link to youtube videos though.
Can you believe there are condos out there with $22,000 monthly carrying costs that can’t even find a tenant to rent for $6,000?!?
Does anyone seriously doubt this is a housing bubble in Vancouver?
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Boombust Says:
November 17th, 2009 at 9:13 am
“24 X Anonymous Says:
November 16th, 2009 at 10:15 pm
http://www.youtube.com/watch?v=dFplvCb2iJo”
As Lisa Taylor points out, re: the current high inventories, “It’s supply and demand” that is bringing rental prices down.
So, was it stupidity and demand that drove people to buy in the first place?
Methinks so.
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crabman Says:
November 17th, 2009 at 10:24 am
@Anonymous: I love their Harbour Green example: “This unit would cost $22k/month to own, but you can rent for the bargain price of $6k.”
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Nicole Says:
November 20th, 2009 at 2:25 pm
I have a contract on condo unit and found this great company that is fighting to get my deposit back. They are at http://www.contractrefunds.com….hope it can help doesn’t hurt to try