Big banks urge tighter mortgage rules
Nero pointed out this article in the Globe and Mail about the Big Six Canadian banks urging the government to tighten up mortgage rules to control runaway speculation in the Canadian real estate market. Just to be clear, these are the same banks that are making pretty much risk free income from these government insured mortgages. About 40% of their loan portfolio is Canadian mortgages. As Nero says:
In what world do the banks have to tell the government to rein in lending and squeeze profits?
The article points out that the banks aren’t so much concerned about people defaulting on their mortgages (the government owns that risk), what they’re really concerned about is mass foreclosures affecting peoples ability to pay off their credit card bills and other loans, since THOSE debts are not government insured.
So these are the big banks, why don’t they just tighten up their own lending standards? Patriotz summed the issue up nicely:
The banks are essentially facing a prisoner’s dilemma problem. They know that if the bubble continues, and collapses, they all will be worse off. But there is no incentive for any individual bank to restrict lending, because its competitors would just take the business, and thus that bank would end taking the biggest hit.
Also an agreement among the banks to restrict lending, even if it could be arrived at, could be viewed legally as a conspiracy in restraint of trade.
So the banks must appeal to a higher level to restrict lending to all of them equally.
So will Flaherty listen to the banks and tighten up mortgage lending standards and if so, what form will that take? One point to remember is that this issue is about a national housing bubble, and I don’t believe there’s another major market in Canada that is as detached from local incomes as Vancouver.
update: Patriotz points out that Flaherty has made his decision, and somewhat sensibly decided to stick with the ‘warn them mildly and let them dig their own grave’ approach.
“In terms of Canada, we’ve been watching and monitoring carefully and we continue to do that. There are certain tools available to the government if we choose to use some or all of them. As you know, we did so in 2008, and we’re continuing to watch. Right now, there is no compelling evidence of a housing bubble in Canada. There are some signals in the market that are concerning,”
Mark Carney of the Bank of Canada feels the same way:
RSS 2.0 comments feed. leave a response, or trackback from your own site.The central bank has no immediate worry about a housing bubble. However, Mr. Carney reiterated that households should be cautious about taking on home loans at current rates, which will inevitably rise.
“We’ve alerted to this issue, the broader issue of household debt,” Mr. Carney said. “We want to ensure people manage their affairs recognizing that the current situation with interest rates is extraordinary and extraordinary won’t persist.”
Both Mr. Carney and Mr. Flaherty have been urging consumers to act cautiously when buying homes for several months now.
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patriotz Says:
February 8th, 2010 at 4:51 am
Note WSJ article (link provided by Domus):
http://online.wsj.com/article/.....17666.html
When the US’s leading neocon apologist and housing bubble denier (they missed the boat on the US housing bubble for years) starts talking like this, you know things are getting serious. This is the equivalent of a horse’s head in Flaherty’s bed. If he does not act quickly and decisively to cap CMHC’s obligations, the next shoe to drop with be a credit watch from the bond rating agencies, or a bond market run in anticipation of such, which would bring much higher interest rates across the board for both government and private sector debt in Canada. Which would be an unmitigated disaster, as it would hit every facet of economic activity in the country, not just the RE sector.
Sleep tight Jim.
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patriotz Says:
February 8th, 2010 at 5:21 am
Although the WSJ has at least gotten around to talking about housing bubbles, they are still getting it wrong, both with respect to the US and Canada. The bubble in the US was not created by “subprime” lending. House prices were inflated in many US markets that saw very few subprime loans. What created the bubble, like all bubbles, was that buyers were able and willing to pay too much. The exact nature of the financing is just a detail.
And the WSJ is failing to recognize the regional nature of the bubbles in Canada, which means that Canada-wide statistics are misleading. They also make the circular argument that the supposed lack of a bubble in Canada is due to “conservative” lending. If a loan is made to someone to purchase an asset at an excessive price, it is not conservative. The second circular argument is that since prices have not fallen (yet) by the amount seen in the US, there is no US-style bubble.
The article only hints at the real issue for housing bubbles – prices out of proportion to rents and incomes. No price/rent or price/income are given for any Canadian market. Nothing else needs to be said except that these metrics in many Canadian markets are comparable to those seen in the US in 2005. Compare to the landmark article in the Economist in 2005, which put these metrics front and centre.
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patriotz Says:
February 8th, 2010 at 5:53 am
Surprise, surprise, surprise!
Ottawa says housing bubble not a concern. No plan to tighten mortgage rules
Flaherty has decided to ride this bomb all the way down to ground zero. Hold on to your hats.
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Boombust Says:
February 8th, 2010 at 7:12 am
“This is the equivalent of a horse’s head in Flaherty’s bed.”
…and, spotting the Pigman!
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Boombust Says:
February 8th, 2010 at 7:15 am
“Flaherty has decided to ride this bomb all the way down to ground zero.”
Patriotz, your allusions to movies is bang on!
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ta da Says:
February 8th, 2010 at 7:50 am
Too bad the Libs don’t have the “balls” to say anything real about this
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patriotz Says:
February 8th, 2010 at 8:10 am
@ta da:
That would give the Cons an excuse to blame someone other than themselves for the bust. And the public would probably buy it.
I’m not happy about the Opposition parties keeping quiet about this, but if the public is too stupid to face the facts, they are going to have to play the best strategy they can. Which is to wait until the blood is on the streets.
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Londonernow Says:
February 8th, 2010 at 8:13 am
Off topic but I kind of like the ad by the BBC for the winter olympics.
http://www.youtube.com/watch?v=-Xwe5×77m8U
This commercial isn’t going to change the direction of the Vancouver Real Estate market though which has only one way to go sooner rather than later: that being WAY WAY down!
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ta da Says:
February 8th, 2010 at 9:15 am
Agree – just wish they would.
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patriotz Says:
February 8th, 2010 at 9:45 am
@ta da:
I think what you will see instead is that the Liberals will use their friends in the business community to attack the Cons by proxy. The same sort of thing that the banks are doing already. I wouldn’t be surprised if Paul Martin has been calling up old friends on this topic. Big business has a lot to lose from a massive US-style collapse and I think we’re just starting to hear the protests from this sector.
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Drachen Says:
February 8th, 2010 at 9:49 am
I say it doesn’t really matter if the Cons reign in mortgages or not, the only difference would be perhaps a 1 or 2 month earlier collapse. They probably know that and figure they’ll get the blame for killing the market if they act. I’m sure they’d rather just be blamed for over inflating the market rather than getting it from both sides and be blamed for over inflating the market and popping the bubble.
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realpaul Says:
February 8th, 2010 at 9:49 am
CREA insists that as long as intrest rates stay at zero housing will remain ‘affordable’. Bwahahahahahahahahaha
http://www.financialpost.com/story.html?id=2536848
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oneangryslav2 Says:
February 8th, 2010 at 10:14 am
This is insane. There is a whole boatload of crazy in this small excerpt. From the Wall Street Journal article mentioned above:
What is the opposite of supplement? I have a feeling Ms. Girard’s family will be witnessing a counter-supplementary effect to their income by this time next year.
“For years”. I’d bet that Ms. Girard has been speculating on real estate for around 5 or 6 years at most. A savvy residential property investor would probably avoid maxing out on debt service levels during a time of historically low interest rates. But I’m just a bitter renter, so what do I know.
Wow! Just, wow!
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oneangryslav2 Says:
February 8th, 2010 at 10:23 am
That WSJ article is like real estate porn for us bears. This snippet is also erection-inducing.
What a surprise that a “concierge at a clothing retailer” [Which is what, exactly? I mean, I know what a hotel concierge does, but wtf does a clothing store concierge do? If Mr. Gray was working for Wal-Mart, I assume he'd probably be called a greeter.] couldn’t come up with the extra cash. This is not to disparage Mr. Gray’s income [only his job] since for all I know he could be making more money than I, but it once again demonstrates the tenuousness of the demand side of this real estate market in Canada presently.
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realpaul Says:
February 8th, 2010 at 10:25 am
#13 OAS, I think if you looked closer at ‘Ms. Girards’ cash flow , you would find that changing the words ’supplement’ to ’subsidize’ may be more appropriate. She is ‘maxed out’ right, at 19.5%, buying houses on her visa card? What happened to ‘the banks want to lend money’? Maybe just not to her? It doesn’t make sense.
BTW regarding the governments position to ‘let it ride’. There is a built in incentive for the government to keep the train smokin’ hot. Don’t forget that this increase in RE ‘values’ has created a landslide of new taxes coming in to every level of government at a time when corporate taxes have dried up. My property tax bill will be going up 21% this year due to my new ‘assesment’.
As always, it has come down to basic greed, on behalf of the government to shore up ailing revenues. It is not about sound management at all. Just good old fashioned greed. It’s like a crime drama where the detective says ‘Follow the money’ and there it is, after all the obfuscation and bullshit, it comes back to raking in the cash for governments who are not willing to manage thier budgets accordingly.
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VRENGD Says:
February 8th, 2010 at 10:26 am
The only politically feasable approach for the Cons to take is to keep the party going and hope that the bubble collapses on the Liberal’s watch, not their’s. Any move they make to manage the bubble will cause it to collapse. A feature of bubbles is that if they don’t grow, they collapse. The Cons don’t want a collapse on their watch.
Also, the prospect of a collapse is a huge disincentive for the liberals to engineer a non-confidence vote against the Cons. If there is no collapse while the Cons are in power, it will surely come during the next government.
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buff_butler Says:
February 8th, 2010 at 10:34 am
Anyone see the movement in short term rates? They appear to be trending higher with the US halting their MBS purchases and its shifting the exchange rate.
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Drachen Says:
February 8th, 2010 at 10:35 am
@oneangryslav2:
Very high end stores have ‘greeters’ that go way above and beyond Wal-Mart Slav, they could truly be called a concierge in the same way as in a hotel, their job is to make sure every detail is perfect for the customer, make sure they have coffee, tea snacks whatever it takes to make their shopping experience worth the extra thousand dollars or so per item they’ll end up paying. Many of them earn extremely good money. I’m not saying he was one of those few who work in the truly elite stores but he might be.
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exempt Says:
February 8th, 2010 at 10:35 am
Is this a case of ‘be careful what you wish for’? The CREA’s high profile has brought into the spotlight and what has been exposed is an ugly mess of anti-competative sleaze.
http://www.globeinvestor.com/s.....3/GIStory/
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exempt Says:
February 8th, 2010 at 10:40 am
A new wave of commercial RE collapse is set to bust the banks again. Will the CMHC come to the rescue and bail out the ENTIRE RE industry?
http://www.globeinvestor.com/s.....5/GIStory/
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Bubble Lad Says:
February 8th, 2010 at 11:10 am
@realpaul:
or as they say in Quebec: if my grandma had wheels she’d be a tractor.
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$$$$ Says:
February 8th, 2010 at 11:12 am
18 Drachen
“Many of them earn extremely good money.” And what exactly is good money?
In Vancouver, you have a few of these “door opener” types in some of your higher end stores, but they don’t make good money. I know one that worked at Holt Renfrew at the closed door selling functions, and she failed to make any tips despite selling 40k worth of goods to one woman (the store had 2 million in sales that one night).
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Bubble Lad Says:
February 8th, 2010 at 11:26 am
Interesting op/ed piece on the American Deficit:
http://www.nytimes.com/2010/02.....7sun1.html
No one seems to want to admit that government borrowing will raise interest rates (at least in Canada) – when it seems like that’s a basic truth: having to offer better and better rates for people to lend you cash.
The other point they raise is that as the Feds (on both sides of the border) keep raising the return rates on their bonds, they’re now effectively competing with the private sector for loans.
I never thought about it in that way, but it makes sense.
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patriotz Says:
February 8th, 2010 at 11:36 am
@VRENGD:
The only way that’s going to happen is if Harper hands over the keys to 24 Sussex to Ignatieff. And the latter doesn’t want them at the present time, notwithstanding the Liberals inching ahead in the polls.
The Liberals are very well connected to big business and the banks and they know full well this bomb is going to blow up big time, and they don’t want to be in office when it happens.
BC is so overextended that I think just the falloff in spending after the Olympics will bring the house of cards down. Alberta is toast if oil prices don’t go back up. As for Ontario, which is what really matters, it will take just a small increase in interest rates (which as I noted above may be brought on by the bond markets regardless of what the BoC wants), or by a double dip south of the border, which is looking increasingly likely. Or just by prices rising to the point where there are no more buyers.
The obvious strategy of the Cons in the last election was to use every available means to make Canadians think the economy was in good shape and get a majority, so that the electorate would have 5 years to forget that they’d been hoodwinked. They almost pulled it off, except Harper couldn’t resist insulting Quebec. They are not going to get another opportunity at this, and the next election will be when the Opposition wants it.
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Bubble Lad Says:
February 8th, 2010 at 11:51 am
@$$$$:
Personally, I want to believe Drachen’s story – if the economy keeps going the way it is, I think “Wal-mart Greeter” is the closest thing I have to a retirement plan.
Please don’t rain on my parade!
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Bubble Lad Says:
February 8th, 2010 at 12:10 pm
@exempt:
“The real estate industry has argued that consumers need real estate agents to help them through a confusing process, and that the updated skills of agents are necessary to maintain the integrity of computerized listings.”
Wow, “real estate industry” and “integrity” in the same sentence.
Am I missing something? Doesn’t google real estate make the whole thing a moot point (or will very shortly?). Does the phrase “low hanging fruit” strike anyone else as appropriate?
http://maps.google.com/help/maps/realestate/
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Bubble Lad Says:
February 8th, 2010 at 12:12 pm
Last post, promise!
Another from the New York Times detailing one more steaming pile you have to avoid stepping in when buying a condo:
http://www.nytimes.com/2010/01/31/realestate/31cov.html?ex=1280638800&en=aa13292fc12545a5&ei=5087&WT.mc_id=RE-D-I-NYT-MOD-MOD-M135-ROS-0210-PH&WT.mc_ev=click
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Anonymous Says:
February 8th, 2010 at 12:17 pm
Hey Domus,
How is the Woodwards building panning out for you?
Is it getting better or worse?
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pricedoutfornow Says:
February 8th, 2010 at 1:01 pm
@patriotz:
Flaherty must be blind, deaf and dumb. The average house price in Vancouver is over $900k! We are not all millionaires in this city! How could it NOT be a bubble??? Meanwhile, the Americans are laughing their heads off at our stupidity.
Oh, the frustration! Oh well, the higher it goes, the more it will crash. Waiting, waiting…
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wasabe Says:
February 8th, 2010 at 1:11 pm
@ Bubble Lad
or as they say in Ireland, if my aunt had ba%%s she’d be my uncle.
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GR Says:
February 8th, 2010 at 1:30 pm
I love how everyone thinks that Flaherty cares about house prices in our backwater city, or how the Conservative’s entire election strategy is linked to housing policies. Nothing like projecting your priority as that of the national governments. Obviously, none of you have ever worked in politics or government relations because your “political analyses” are so amateurish…
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Drachen Says:
February 8th, 2010 at 1:38 pm
@GR:
Well that’s wonderful!
Thank you for such a constructive comment. We really appreciate your sarcasm coupled with complete lack of insight! I think I can speak for everyone here when I say this is the reason why we come here.
I have yet to see anyone say they think the Cons “entire election strategy” is linked to housing policies. But alternately I think you’d have to be an utter fool to ignore the biggest developing economics story in the country for many decades and shrug it off as irrelevant to the outcome of the next election.
So, are you saying they’re utter fools? If not what are you saying? Just trying to score some points for the grumpy debt slaves?
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Mr. Jones Says:
February 8th, 2010 at 1:48 pm
@Drachen “…I say it doesn’t really matter if the Cons reign in mortgages or not, the only difference would be perhaps a 1 or 2 month earlier collapse…”
Wow, what a wonderfully precise prediction! Mortgage rules are irrelevant, the collapse is a given +/- 1 month. Pray tell, which month should we expect this collapse?
You’d think after having your predictions completely wrong time after time you’d be a little more humble in your readings of the crystal ball! But of course it’s all based on sound analysis of data and reasoning, which is 100% accurate, except when something happens that your analysis didn’t expect, like a drop in interest rates. Wonder what it will be this time?
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Anonymous Says:
February 8th, 2010 at 1:58 pm
^^^^ to #31
#28
“Flaherty must be blind, deaf and dumb. The average house price in Vancouver is over $900k! We are not all millionaires in this city! ”
#10
“I think what you will see instead is that the Liberals will use their friends in the business community to attack the Cons by proxy. The same sort of thing that the banks are doing already. I wouldn’t be surprised if Paul Martin has been calling up old friends on this topic.”
#16
The only politically feasable approach for the Cons to take is to keep the party going and hope that the bubble collapses on the Liberal’s watch, not their’s. Any move they make to manage the bubble will cause it to collapse. A feature of bubbles is that if they don’t grow, they collapse. The Cons don’t want a collapse on their watch.
Also, the prospect of a collapse is a huge disincentive for the liberals to engineer a non-confidence vote against the Cons. If there is no collapse while the Cons are in power, it will surely come during the next government.”
Sounds like people think that Flaherty cares about house prices in Vancouver; that the Liberals are calling their big boys to stir the pot; that the prospect of a non-confidence vote is linked to the housing bubble…
All in all, it sounds like people think that the prospect of a housing bubble figures prominently in what the current government, the Conservative Party and the Liberal Party think and are doing…
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logic Says:
February 8th, 2010 at 2:14 pm
33,
“you people” – brave words from mr anonymous.
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Drachen Says:
February 8th, 2010 at 2:30 pm
@Mr. Jones:
Which prediction did I make that was wrong? So far I’ve been pretty accurate.
I say it will make a difference of only a month or two because that’s all the time the market has left. We are in what market watchers call a “double top” and it’s very rare that the second top exceeds the first by a significant margin.
So, I’m basing my prediction on Economics 101. Where does your information come from? Do you even have any factual basis for your beliefs? Or do you just enjoy being derisive without bringing anything useful to the table?
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Drachen Says:
February 8th, 2010 at 2:36 pm
@Anonymous:
“it sounds like people think that the prospect of a housing bubble figures prominently in what the current government, the Conservative Party and the Liberal Party think and are doing…”
That’s because the people saying those things are sane, rational people. Why wouldn’t the Cons care about what is undeniably the biggest potential economic fiasco in Canadian history unfolding right now, on their watch. It is obviously going to play a significant role in upcoming elections. But there’s a big stretch from “significant” to “entire”.
Just what are you trying to say?
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Drachen Says:
February 8th, 2010 at 2:39 pm
@Mr. Jones:
Just a follow up. Have a look at Agent Will’s stats
2010 is looking an awful lot like 2008 so far. Weekly sales numbers and listings are almost identical, total listings are actually ahead of the 2008 curve by a significant margin in spite of starting in almost the exact same place. Only this time interest rates are already bottomed out, the government is almost certainly out of tricks to save the market this time.
Your evidence to the contrary? I’d love to see it.
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VR Says:
February 8th, 2010 at 2:48 pm
#37
Try to paint the complete picture if you cite Vancouver sales and listings information….
First of all, an “increase” in listings is really seasonal.
Is it really a surprise that people took their houses off the market in December and then re-listed in January and February. This supposed “bearish” pattern has been the same all during the boom years. Sorry, but this is no “flood” of listings.
Second of all, listings are still extremely low, around 9000 for the REBGV. Just to keep things in perspective, during the last EIGHT boom years, when MOI favoured sellers, listings hovered between 8000 and 12000. We are STILL in very firm sellers territory and MOI is still around 3/3.5.
It looks like someone is grasping at straws…
Oh well, maybe things will change with the March federal budget. Oh sorry, I forgot there will be no catalyst this year with changes to the DP and amortization requirements…
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Flawed Logic Says:
February 8th, 2010 at 2:51 pm
34 Logic
Try to read and/or quote properly. There is no reference to “you people” in post 33. Nice one git.
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VR Says:
February 8th, 2010 at 3:05 pm
What a fantastic day here is the best place on earth! It is a balmy 12 degrees, and even the arriving international Olympic press is commenting on the great weather and the beauty of Vancouver! So much for all the gloom and doomers hoping for our traditional rainy and foggy February!
The exposure of a quarter million people to this piece of paradise during this fantastic weather will certainly stimulate interest in our real estate! This weather is conducive to walkabouts, visits to open houses, and patio dinners at a time when the rest of the country is buried in snow. The massive party, coupled with the weather and scenery, will leave a positive lasting impression on people! All those people that bought hoping to sell to Olympic visitors may have their gamble pay off.
And anyone who thinks that snow is a requirement to sell the city obviously does not know their Olympic history (venues in Nagano, Turin all had similar issues). What will sell this city is outdoor beer gardens, with weather and views unique to Vancouver!
Better start doing your rain dances bears, become nothing is going to cramp the Olympic spirit!
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Bubble Lad Says:
February 8th, 2010 at 3:07 pm
@wasabe: LOL!
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Anonymous Says:
February 8th, 2010 at 3:13 pm
http://www.homesandland.com/Re.....GoogleBase
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Bubble Lad Says:
February 8th, 2010 at 3:14 pm
@VR:
The only coverage I’ve seen so far in the international media is a BBC report about the protests in the DTES and footage of homeless people…
…or are you being sarcastic? Honestly, I just can’t tell anymore…(apologies if you’re making a joke and I missed the initial thread).
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Anonymous Says:
February 8th, 2010 at 3:16 pm
http://www.homesandland.com/Re.....GoogleBase
Sorry about that (for not explaining the link before posting it). Anyways, a 1.18 million dollar house in Cloverdale (Surrey’s cowboy country) has got to be the best anectdotal evidence of a real estate bubble in the Lower Mainland.
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Drachen Says:
February 8th, 2010 at 3:18 pm
@VR:
“anyone who thinks that snow is a requirement to sell the city obviously does not know their Olympic history”
Good phrasing. The difference being, of course, Nagano and Turin weren’t literally trying to sell the city. It’s a figure of speech you know?
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VR Says:
February 8th, 2010 at 3:27 pm
45
Yes, of course host cities never try to SELL their city…
They always put the Olympics on for altruistic reasons, and spend billions in infrastructure just for the feel good factor. They never ever try to sell their cities to attract new investment and build a better city…
Lol.. you have to take your nose out of your books and ivory tower once in a while sessional…
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Not much of a name Says:
February 8th, 2010 at 3:31 pm
@VR: 38
Stats are what they are. When comparing stats from early 2010 to early 2008, the seasonality argument is non-existent…apples to apples.
It does look very similar to 2008 and we all know what happened that year. What will put the brakes on the slide (if it starts) this time around? Interest rates aren’t going any lower.
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Anonymous Says:
February 8th, 2010 at 3:34 pm
47
“What will put the brakes on the slide (if it starts) this time around?”
Exactly – IF it starts..prices can stay flat for many many years…that is the elephant in the room
Prices might not correct until the next round of mortgage renewals in 2015 which means a lot of bears sitting on the sidelines for many many many years to come
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Not much of a name Says:
February 8th, 2010 at 3:37 pm
48….and with interest rates more than likely to rise, I would be willing to put money on the slide happening at some point this year.
If prices slide and interest rates rise well in advance of those mortgage renewals, there will be some pain to be felt by a great number of people.
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patriotz Says:
February 8th, 2010 at 3:37 pm
@VR:
That handle means “virtual reality”, right?
I’ll tell you something – international RE investors tend to be a lot more interested in the numbers than local buyers. And anyone with a PC and an hour’s time can see that Seattle (same weather) is 1/2 the price of here and Phoenix (much better weather) is 1/4. They can also figure out pretty easily that Vancouver has about the worst RE metrics on the planet.
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ReadyToPop Says:
February 8th, 2010 at 3:43 pm
Has Flaherty really made a decision? Sounds like “politician-speak” to me. Perhaps he’s not
going to tip off the market early.
“In terms of Canada, we’ve been watching and monitoring carefully and we continue to do that. There are certain tools available to the government if we choose to use some or all of them. As you know, we did so in 2008, and we’re continuing to watch.
Notice the G&M use the word “appears” when referring to Flaherty….stay tuned…RTP
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VR Says:
February 8th, 2010 at 3:45 pm
I’ll stop now. You’re all a bunch of resentful cunts in any case.
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Not much of a name Says:
February 8th, 2010 at 3:47 pm
Why stop now? You sound like a little kid running with hos ball from the park because things didn’t go his way…lol
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VR Says:
February 8th, 2010 at 3:48 pm
52 – Troll, stop posting under my name. Just because you have nothing to add, leave my VR handle and posts alone.
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VR Says:
February 8th, 2010 at 3:51 pm
Please stop stealing my name already. You bears are terrible people.
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nonymouse Says:
February 8th, 2010 at 3:51 pm
Looks like some people are figuring out why the banks would do this.
http://tinyurl.com/ydow9qw
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VR Says:
February 8th, 2010 at 3:53 pm
53 & 55
Nothing like stealing and posting under another handle eh “Not Much of a Name” because you want a some form of one up manship …pathetic
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ta da Says:
February 8th, 2010 at 3:56 pm
VR,
Your assuming we don’t own. I know plenty of smart, rational BEARS that own but realise we are in for a reality check. Fortunately not all our assets (or identity) is tied up in one terribly illiquid, overvalued asset class. Good luck if that’s not your circumstance.
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vancouver2010Disgrace Says:
February 8th, 2010 at 3:59 pm
At YVR over the weekend I witnessed many, many disgusted European tourists riding the Canada line and joking about what a dump Vancouver is. They totally regret coming in the first place and will likely tell all their friends to stay away from Vancouver and the rest of Canada.
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domus Says:
February 8th, 2010 at 4:03 pm
@nonymouse: GREAT LINK! Thanks for clarifying that: I had all the info but had not put the two together! It just makes sense, doesn’t it?
My best theory was a coordination problem, like in the post for this thread. But this legal change might be the real trigger.
I am sure the lobby is in full-swing to pressure the government. And the government is in full swing to prolong the lifespan of this bubble. Crazy times!
The RE market in this city is in for a big drop in prices. At least a third, probably more, of the existing valuations will be shaved off in the next couple of years.
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Not much of a name Says:
February 8th, 2010 at 4:06 pm
@VR:
Why do you assume it was me? Check IP’s for posting. You might be pleasantly surprised.
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patriotz Says:
February 8th, 2010 at 4:12 pm
@domus:
But read this:
Smith doesn’t get that loose lending makes housing less affordable.
In fact, it appears he doesn’t seem to get that there is a bubble at all, and that he thinks the banks are inventing the issue for their own ends.
Disappointing, as he is usually on the ball. Someone should send him that article by Murray Dobbin, someone whom Smith is likely to pay attention to.
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domus Says:
February 8th, 2010 at 4:19 pm
And some more bubble talk for Canada on international sites. This latest is from the ‘Mess that Greenspan Made’, one of the top rated econ blogs with CR and Mish:
http://themessthatgreenspanmad.....ubble.html
Funny that all these analysts (who usually make right calls and have great track records) are calling Canada’s RE market a “bubble”.
They must be wrong, hey? It can’t be that way. Canada is different! Here money grows on trees, right?
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Delusional Says:
February 8th, 2010 at 4:21 pm
Looks like the regular real estate agent trolls are bored again. Olympic visitors are not prospective home buyers. I’d own over 30 houses around the world if I decided to buy based on the availability of beer and a good view. Our city has some good selling points, but let’s not pretend insipid Molson Canadian beer and a view of mountains is going to make 99.9% of the European and American visitors whip $900,000 out of their back pocket for the worst real estate deal in the English speaking world.
It’s just common sense.
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oneangryslav2 Says:
February 8th, 2010 at 5:10 pm
@patriotz:
.
Does anyone remember the Seinfeld “pig man” episode. The one where Kramer thinks that he’s spotted a “pig man”–half-man, half-pig–in the hospital and tries to convince Jerry that the pig man is not just a figment of Kramer’s imagination. Kramer’s last line is hilarious and epitomizes that insanity of the Vancouver RE market.
Just like Kramer is telling Jerry to grab a dose of “reality”, the RE bulls are imploring patriotz to wake up to reality. Don’t you understand, patriotz, RE metrics don’t mean a thing. People are going to want to buy in Vancouver because Anton Apollo Ohno once skated at the Pacific Coliseum. Sure, the weather’s crappier than Phoenix, and the economic climate is worse than Seattle, but that glorious sheet of ice off of Renfrew Street, well if the milfs in Scottsdale knew about it, they’d be beating the door down to buy that million dollar shack across the street. “Wake up to reality,” indeed.
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Drachen Says:
February 8th, 2010 at 5:26 pm
@VR:
“They never ever try to sell their cities to attract new investment and build a better city…”
Ok… That would be ‘figuratively’ trying to sell the city. You do know the difference between ‘figuratively’ and ‘literally’ right?
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Dave Says:
February 8th, 2010 at 5:29 pm
@Delusional:
Not all buyers are looking for a $900k house.
There are lots of options at all price points across the Lower Mainland. For example, there are over 600 apartments that you can buy for under $200k.
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VR Says:
February 8th, 2010 at 5:35 pm
Drachen, no. Please inform me oh master of the dictionary.
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Logic Says:
February 8th, 2010 at 5:37 pm
67 – Dave:
So you are suggesting that the Olympic tourists who are paying 500$ to watch some skinny rich kids play on a snowboard are going to buy a 200k 1-bed 1982 apparetment in Surrey? Yeah, that’s that I’d do if I was an Olympic tourist…
Come on, you’re not even trying anymore mr troll.
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ReadyToPop Says:
February 8th, 2010 at 5:43 pm
Even the Fraser Institute sees taxpayer risk, in new study…
This study recommends that the Canadian government reduce taxpayer vulnerability, including withdrawing government guarantees from all mortgage insurers-public and private-and privatizing the Canada Mortgage and Housing Corporation’s mortgage insurance business.
Mortgage Finance Reform: Protecting Taxpayers from Liability
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Boombust Says:
February 8th, 2010 at 5:44 pm
“This is the equivalent of a horse’s head in Flaherty’s bed.”
…and, spotting the Pigman!
…er, another movie, by the way. “O Lucky Man”.
Just sayin’…
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Delusional Says:
February 8th, 2010 at 5:48 pm
@Dave:
Dave, the comment was not in regards to price points but the absurd notion that Olympic visitors will buy here. We get millions of visitors every year and an incredibly small percentage probably fall far enough in love with the place to actually buy here.
Additionally, I’ll clarify that Vancouver is probably the worst real estate deal at all price points in the English speaking world.
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domus Says:
February 8th, 2010 at 5:55 pm
Yeah, I liked Patriot’s doctor Strangelove reference as well.
“Flaherty has decided to ride this bomb all the way down to ground zero. Hold on to your hats.”
Like in the famous Kubrick mvie of 1964, I can imagine Flaherty riding an atomic bomb just dropped from a plane, with a cowboy hat on!
This market is going to implode so hard that it will be fun to watch.
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realpaul Says:
February 8th, 2010 at 5:57 pm
I keep getting a laugh out of this propaganda point that ‘the Olympics will sell vancouver to the world’ bullshit. haven’t we been inundated with crap polls and articles about how we are already number one in the eye of the international media and traveller set etc etc, what about all those articles in Conde Naste etc? Wasn’t the city ’sold’ during Expo 86? Are we now supposed to believe that nobody knew where we aere until now?
How many times do we have to throw a coming out party for this little whore?
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Dave Says:
February 8th, 2010 at 6:12 pm
@Delusional:
The residential market only has a small component of foreign buyers at present. That will definitely grow after the Olympics, but it will still be relatively small.
I think the larger growth area is going to be in the recreational market. BC is a phenomenal place to have a recreational property, especially during the dry summer months. Whistler and Squamish will benefit from that respect.
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Logic Says:
February 8th, 2010 at 6:35 pm
so dave, recreational buyers from Alberta will buy 200k shitty condos in Surrey then, will they? Cos you can’t get a condo in Whistler for 200k. FFS.
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patriotz Says:
February 8th, 2010 at 6:39 pm
@ReadyToPop:
Wow, the worm certainly has turned. Back in 2002, they weren’t talking about getting rid of the CMHC. In fact, the FI thought that the feds weren’t doing enough to inflate house prices, er, “encourage home ownership” (page 3 of the following):
http://www.fraserinstitute.org.....ldhuis.pdf
What brought about this 11th hour move? Maybe because they realize that the bust is inevitable and they want to pretend that they were opposed all along to putting the taxpayers on the hook? That PDF above was the only Google match for “CHMC” and “Fraser Institute” prior to the new report. I know because that’s how I found the 2002 report.
Oh, BTW, I didn’t have time to read the new report, but I did search for “bubble” and guess what, I didn’t find it.
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arit Says:
February 8th, 2010 at 7:02 pm
I like it. The sudden apparition of fear and arguments in the blog is indirectly telling me the time is near. This is the peak. It will take a few more years until prices return to normal, but “my bear-senses” are telling me this is it.
We are seeing a surge in listings that will create the expected trigger which reverses the house prices, somewhere between now and July. This time they cannot lower the interest.
The best they can do is throw a few thousand dollars at first time home buyers, which might delay the end for a while, but it did not help in the US and will not help here.
The best place on earth is about to teach a few speculators a hard lesson…
Regards
arit
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domus Says:
February 8th, 2010 at 7:11 pm
Yup, I have the same feeling as Arit. This might be the top. Loads of small pieces coming together for the beginning of the plunge. Of course, gravity has been defied before, so don’t hold your breath. But if we put in a double top, then I would call it!
I sincerely hope nobody will start saying ‘who could have known’ and ‘nobody saw it coming’. Somebody will have to hold politicians accountable: the current batch (both at provincial and federal level) have a lot of responsibilities.
PS Is it possible that this blog is read by more people than we think? Maybe it will come across like delusional or arrogant, but is it possible that some of the people who are finally discussing openly the shortcomings of the CHMC have taken the cue from the discussion on such blogs over the past few years?
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domus Says:
February 8th, 2010 at 7:15 pm
Wow! Even CTV talking about RE bubble today?
http://www.ctv.ca/generic/gene.....60610.html
I am really starting to think the tide has turned.
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arit Says:
February 8th, 2010 at 7:39 pm
Domus,
Look, it is clear that when the fecal matter hits the ventilator all the ‘experts’ (read Tal, Flaherty, Harper, Rennie, Dave and friends) will say “Nobody could have seen it coming”.
If you mention people like ‘the bloggers’, their response will be a condescending look in their eyes and a response like “Yes, but those are the lunatics, the parias, the nobodies, the basement-dwellers, the gloomers… they did not really know what they were saying. They are insignificant, let’s just tax them as they are the only liquid ones now”.
Our consolation is only the lack of debt… and the stash.
Regards
arit
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Drachen Says:
February 8th, 2010 at 7:40 pm
@arit:
“The sudden apparition of fear and arguments in the blog is indirectly telling me the time is near.”
More shades of 2008. Again I have to say, the jump to historic low interest rates saved the market last time and it’s true, we Bears didn’t see that coming but the tank is empty, the government is out of tricks, the Emperor has no clothes and Dave is still wrong as ever.
I will enjoy winning our bet Dave, the time is coming, the market is turning, the end is nigh!
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realpaul Says:
February 8th, 2010 at 7:49 pm
CMHC seemes to think that the new home builders will be giving houses away for cheap and therefore ‘balance the market’.
Where do they find these commentators . Are they all doing crack with Vanoc?
http://www.montrealgazette.com.....story.html
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arit Says:
February 8th, 2010 at 7:49 pm
Drachen,
My friend, the tank is not empty. Here are the last fumes:
1. First home buyer tax credit.
2. Second home buyer tax credit.
3. Mortgage moratorium.
4. Home-owner bailout plan, refinances plan paid by taxpayer.
5. Keeping foreclosures of the market by the banks.
6. Return to 0/40.
All these measures WILL be taken by our clueless lords. It will delay the end, but cannot prevent it.
We have a crystal ball, remember? It’s all recorded in patrick.net et all.
My timeline is still a big party at my place in 2016, not before. Save the date. All bears and bulls are invited.
Regards
arit
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arit Says:
February 8th, 2010 at 7:54 pm
realpaul,
What are my chances of constructing a house NOT from plywood, on top of a buried barge (not buried deep, maybe 50cm)? In Richmond? I am thinking protection from earthquake, leaks and flood all in one… I am serious, what do you think?
Regards
arit
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Drachen Says:
February 8th, 2010 at 8:11 pm
@arit:
“1. First home buyer tax credit.
2. Second home buyer tax credit.”
Will only have a maximum effect of increasing market levels to the amount saved.
“3. Mortgage moratorium.”
What does that mean?
“4. Home-owner bailout plan, refinances plan paid by taxpayer.”
Won’t keep prices afloat, just keeps them from falling too fast.
“5. Keeping foreclosures of the market by the banks.”
What?
“6. Return to 0/40.”
Minimal impact, maybe draw things out ’till next year at best.
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arit Says:
February 8th, 2010 at 8:41 pm
Hi Drachen
Mortgage Moratorium means whatever you define it to be:
It can be this:
“A method for creating a moratorium period for a mortgage, comprising the following the steps: creating an equity loan amount to be loaned based upon the value of a mortgagee’s property; determining the monthly payment on the loan; determining a period of months which the mortgagee desires to avoid personally making monthly payments; placing a portion of the loan amount equal to the monthly payments for the desired period of months into a fund; and making the monthly payments for the predetermined period from the fund.
Read more: http://www.faqs.org/patents/ap.....z0f0Sl2qjH
Or any other method for postponing a foreclosure.
” Keeping foreclosures off the market by the banks”
Is a method used by US banks to prevent prices from falling. They artificially hold the foreclsed home to avoid price depreciation. Like crashing eggs and tomatoes during the GD.
Regards
arit
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Disbelief Says:
February 8th, 2010 at 8:47 pm
Wow a $1.18 million home in Cloverhole on a small lot. The crack out there must be powerful or maybe there smoking horseshit out there. If that doesn’t spell bubble I cannot imagine what does.
Dave seems to be speaking out both sides of his mouth. Are these rich Europeans buying a $200k condo in the valley or a piece of recreational property in Squamish or Pemberton maybe. They are two very different animals one is possible the other is doubtful.
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Drachen Says:
February 8th, 2010 at 9:13 pm
@arit:
Well then if it’s proven ineffective at propping up prices and only slows down the fall (at best) in the states why would it have a different impact here?
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Dave Says:
February 8th, 2010 at 9:24 pm
@Drachen:
Nah. Things are good. The future looks good. At least that’s the case from my little perch.
If I’m wrong, then you can bail me out.
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Dave Says:
February 8th, 2010 at 9:30 pm
@Disbelief:
All of the above. Money isn’t a barrier to everybody. Whistler is unique and is a premium market. A lot of people who will attend the Olympics come from a demographic with lots of money. Real estate prices are sometimes a secondary issue. People will spend a million or two and might only use their place for a week a year (if at all).
Squamish and Pemberton will also appeal to a different demographic.
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logic Says:
February 8th, 2010 at 9:37 pm
“Whistler is unique and is a premium market”
—————
Which is why Intrawest (developers) went bankrupt, hey? Start speaking sense or STFU Dave.
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Disbelief Says:
February 8th, 2010 at 9:45 pm
I guess we’ll have to wait and see. What about the poor stupid schmucks that would buy in at $200k in the valley where are they from???
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Dave Says:
February 8th, 2010 at 9:53 pm
@logic:
They aren’t just developers. That is only part of their business. I looked at their financials back in 2005 and thought their balance sheet was pretty sketchy and that was during the boom years. Their debt levels and obligations have always been relatively high. From what I recall, the only thing that kept them from going bankrupt for the last number of years was their ability to sell off/develop land assets. The market correction and difficulty is obtaining capital was the nail in their coffin.
Developers and development are a different game altogether.
In any case, how does the health of Intrawest relate to Whistler being a premium market?
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Dave Says:
February 8th, 2010 at 9:58 pm
@Disbelief:
The Lower Mainland.
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Vansanity Says:
February 8th, 2010 at 10:08 pm
I keep hearing the term the “Canadian Housing Market”. Is there such a thing?
I recall hearing story after story about the US Housing Market and how strong it was and how it had no bubble. Meanwhile bloggers like most the bears on here saying that there is no US housing market, rather each pocket in the US is its own market. Well we all know how that went down. Once again the blogger’s were right.
So, sure there’s no Canadian Housing Market bubble, because there’s no such market. But there is a Vancouver RE Bubble, n’est pa?
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pricedoutfornow Says:
February 8th, 2010 at 10:25 pm
@Vansanity:
Good point. Flaherty can deny there’s a “housing bubble in Canada” since median prices are only $300kish. However, I think we all know that housing bubble in Vancouver is a reality, and perhaps he would not deny that.
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Betamax Says:
February 8th, 2010 at 10:40 pm
#74 realpaul – best post I’ve read in a long while. Well said.
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ReductiMat Says:
February 8th, 2010 at 10:42 pm
Dave, I hear you. People will finally hear about the backwater hill known as Whistler.
Speaking of which, any idea why sales volumes has halved two years in a row there? And is it a good thing or a bad thing that in 2009, 75% of all sales were to Lower Mainland-ites?
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Dave Says:
February 8th, 2010 at 10:48 pm
@ReductiMat:
Whistler is believed by some to be counter-cyclic. Sales have dropped due to the US recession and housing market. It’s neither good or bad that sales have been from Vancouver. I have a hunch that number will be dropping.
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Drachen Says:
February 8th, 2010 at 11:09 pm
@Dave:
“…is believed by some…”
Those are excellent weasel words. You might as well throw away the whole argument if your whole evidence lies in the belief of a few.
It’s believed by some that aliens landed at Roswell Dave. Utterly useless.
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Phil Says:
February 8th, 2010 at 11:17 pm
If the fed budget introduced changes to mortgages, when would they be effective? Immediately?
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VRNGD Says:
February 8th, 2010 at 11:30 pm
Conservatives hold lead: poll
because vrengd.
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ReductiMat Says:
February 9th, 2010 at 12:04 am
@Phil: There is no law that would force their hand either way. It’s up to them. Any type of answer would be pure conjecture.
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logic Says:
February 9th, 2010 at 12:05 am
“I have a hunch” that Van RE is fucked. According to Dave, this is now gospel.
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domus Says:
February 9th, 2010 at 12:17 am
Some more about the fight between Realtors Inc. and the competition Bureau:
http://www.theglobeandmail.com.....le1460839/
Before the 2007 changes, some discount brokers offered to list homes on MLS for a fee, typically less than $700. The homeowner then handled the sale.
The CREA changes required all agents to inspect homes before listing them on the MLS and work with other agents throughout the sale. As a result, discount brokers say they could no longer offer their low-fee services and had to charge more to carry out the various CREA requirements.
Mr. Neil, for example, charges customers $299 to list their home on MLS, plus $79 for each week the house is listed. When the house is sold, he charges a fee of 0.25 per cent of the sale price. Mr. Neil said if the bureau wins its case, he would likely lower his fees and change his services.
“We would offer probably a sort of à la carte -type menu of services; if [customers] want them they can pay for them,” he said. He also believes several American online services would expand into Canada.
“The consumer demand is phenomenal for this service,” added Donald Hewie, a real-estate agent in Ottawa who has also been pushing for changes. “This could be the beginning of the end for CREA.”
Imagine:
Lower fees +
No CHMC =
——————–
Huge savings for consumers!
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VRNGD Says:
February 9th, 2010 at 12:29 am
HOUSING STATS are moving up from the MIND BLOWING success of CANADIAN REAL ESTATE,Developers are in need of MORE shipments,MORE trucks to haul construction material.Oil prices start moving up to fuel the pick up of inflection point beyond January 2010.Gauge will be countinue in process to assist Vancouver Boom2.
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Starving Artist Says:
February 9th, 2010 at 1:21 am
Methinks the bulls doth protest too much.
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patriotz Says:
February 9th, 2010 at 4:04 am
@arit:
Aside from the fact that it doesn’t work (at pointed out above), banks in Canada have no financial incentive to keep prices from falling, as CMHC is guaranteeing the principal. Their incentive is to foreclose and sell as quickly as possible, to get their money back. Any program to keep houses off the market would have to be paid for by CMHC, and that would ultimately jeopardize the Feds’ credit rating, as I have pointed out. And that truly would be the nightmare scenario.
Frankly I think the Cons are not going to go a damn thing about the bust, just as governments did not do a damn thing about the Ontario bust of the 90’s and the BC/Alberta bust of the 80’s – and for those who weren’t around for them, those were major upheavals. It’s politically and fiscally cheapest simply to deny there is a problem, as indeed they are already doing. Recall again that the Con’s support is based in rural areas which would be antagonized by efforts to bail out urban homedebtors. Also any bailout program would be seen in Quebec as punishing them for the sins of the Anglos, and the Cons learned an expensive lesson last election to tread lightly there.
All of the homedebtor “bailout” programs in the US are really to the benefit of the banks and the banks in Canada already have their bailout.
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Drachen Says:
February 9th, 2010 at 10:46 am
@Starving Artist:
I know what you were going for but “doth” is third person singular, “bulls do” in old English, “a bull doth“.
Now watch the slings and arrows of outrageous grammar hounds hit me from all angles for calling someone on old English grammar while messing up modern English.