Laadies aaand Gentlemen! Step right up, one and all and ride the bubbliest market in North Americaa!. The Great Vancouver Real Estate Roller Coaster is now open for bizness! Experience the thrills! The Spills! The mind-boggling economic waste of it all!
Front row seats for you only my friend, here’s your tickets:
@Absinthe: Which is causing me to somewhat scratch my head because I’d think it unnecessary here, with the underwriting. Is the program to address a liquidity issue for the banks? (?!) I’m not sure what the program addresses, really, other than a cattle prod to the banks against freezing credit… but why with a program that looks so much like what just sunk the states? My lack of understanding of the program is why I’m confused as to the significance and effect. Yes, the program was to address a liquidity issue for the banks in the wake of the Global Financial Freeze that occurred in early 2008 and went ice age late that fall. The hope was that with the mortgages off the banks' balance sheets, they would be free to lend to businesses, etc., to keep the economic gears… Read more »
@Absinthe: @Ahab: This program differs from the base issue of CMHC underwriting risky loans, however, yes? This seems to me like the repackaging of derivatives that the American giants were doing.
EXACTLY. This program is precisely what Fannie and Freddy were doing for the banks in the US, as well as the banks themselves through the sale of mortgage backed securities.
That is what makes it so infuriating. This program was started with the results of the same policies in the US IN FULL VIEW. It is criminally negligent, in my opinion, as there is no credible excuse for Flaherty/Carney/The CMHC to say that they could not foresee the outcome with any certainty.
@Ahab: This program differs from the base issue of CMHC underwriting risky loans, however, yes? This seems to me like the repackaging of derivatives that the American giants were doing. I had thought the 40 year, 5% down underwriting of loans was the easy credit that really fueled the bubble and is ongoing, only first pulled to 35 years, and now with the April 19th changes. Which also will have a cooling effect. This seems to me like a different (equally silly) program: one where the taxpayer is ALREADY buying the mortgage, as opposed to waiting to insure the bank upon default. The Cdn taxplayer playing the repackaged shitty mortgage as well rated bond shell game… Which is causing me to somewhat scratch my head because I'd think it unnecessary here, with the underwriting. Is the program to address a… Read more »
@jesse: @Ahab: So you’re saying a program that came to an end 3 weeks ago is the reason the banks just raised rates yesterday and today? I’m not trolling; I’m trying to understand the causality of the most recent move and your post offers little to reconcile that.
Interest rate hikes started earlier than just this week.
You don't turn off a $125B dollar tap overnight.
[…] If listings were floors in a building Spectrum would be the tallest building in Downtown Vancouver. This infographic shows a skyline based on number of units for sale in a few of the new buildings downtown, based on Supersogs post from Monday. […]
"A Sharp" – 2 short answers for your question:
1. Too low interest rates kept for too long.
2. Government intervention in the RE market in favor of buyers/owners – home renovation tax credits, home buyer plan from RRSPs, government guarantee on risky mortgages (issued through CMHC), etc.
These have substantially distorted the markets and I believe are on their way to be corrected, forcing a market correction with them.
@Ahab: So you're saying a program that came to an end 3 weeks ago is the reason the banks just raised rates yesterday and today? I'm not trolling; I'm trying to understand the causality of the most recent move and your post offers little to reconcile that.
@Astarte 130 — I would caution you about using that rent-buy calculator. Remember in the US, mortgage interest is tax deductible, not here.
@Absinthe: However, it seems a pretty new program so I wouldn’t guess it was a root cause.
It was THE cause of the runup after the start of the recession. And it's effects did not go unnoticed:
http://americacanada.blogspot.com/2009/07/cmhc-an…
Can some of the techy masters build a real time listing widget and put it on the website? That'd be a cool thing to watch. 🙂
@jesse: "So banks didn’t have mortgages on their books before? I’m trying to understand what has changed in the past few weeks that has caused banks to increase their spread above securitization. " Did you bother reading my first post at all, or are you trolling? Follow the link. Read. THEN respond, if you care to. http://americacanada.blogspot.com/2010/04/housing… Here is the highlight for you: "Canada's Economic Action Plan's $125 billion Insured Mortgage Purchase Program finally came to an end yesterday [Mar 30]. The program eliminated the risk to banks, encouraging them to extend credit. In the event of a credit shock the banks could strengthen their balance sheets by offloading insured mortgages onto taxpayers. " The CMHC bought the mortgages off of the banks and then sold them off as bonds. Therefore, those mortgages were no longer on the banks' books.… Read more »
Vancouver rollercoaster only go up to the moon like kite. I live in cartboard box with big rent. Rent go up every week and twice every day. But I savng for buy my own cartboard box in sky excatly the same. I buy 3, bride I get in magazine buy 3. Then I rent because rent always go up and rainy city always full of good renters.
@VHB: One consolation: The fact that we can't take short positions in the Vancouver RE market means that the fall will be that much harder. In the general markets short covering provides demand at the bottom. Here… nada!
@jesse: America Canada blog was pointing to a change/end to the insured mortgage purchase program as having something to do with it. To tell truth, I'd never heard of this program before, so I'm don't have a clue at what level it affects the market, but I also tend to trust America Canada blog as having greater savvy than myself. However, it seems a pretty new program so I wouldn't guess it was a root cause.
Anyone else with an understanding of this program?
@Ahab: "Since the mortgages are now on the books, their supply of money to lend out is no longer effectively infinite."
So banks didn't have mortgages on their books before? I'm trying to understand what has changed in the past few weeks that has caused banks to increase their spread above securitization. I don't necessarily disagree with you. I think the chance of price drops and arrears that hit banks' balance sheets is real. The mortgage bond market seems unaffected so it must be the banks being aware of additional risk through their internal research.
Couldn't it be as simple as them closing the gap after the BoC comments last week were confirmed?
"Yes, there's a housing bubble in Canada — but only in three cities"
Ths classic bubble forming as rates rise in the international arena due to the risk and massive soveriegn debt overhang forces rates on a spiral upwards. http://www.vancouversun.com/business/down+Greek+d… And the fools continue to rush in. Anyone who has read about historical manias can transport themselves back into any of them and watch as the piling on effect escalates towards a maginificent collapse. http://www.vancouversun.com/Luxury+homes+sales+si… In the 'Gee Duh' file this morning i notice that an increasing number of seniors are retiring still encumbered with mortgage debt. A couple will receive $1800 between them on Canada Pension etc. What happens to them as rates rise. Was it wise to borrow againsy equity for that 'trip of a lifetime' or subsidize juniors mortgage dreams? There are so many ugly aspects to the coming bust I am setting up a snack tray AND a George… Read more »
@jesse: @Ahab: “it’s the re-introduction of risk that has rates increasing”
Maybe. But what risk exactly? That prices fall more than the downpayments? That banks can’t quickly sell foreclosures?
The risk is that they fill their balance sheet and fun out of money to lend out. Since the mortgages are now on the books, their supply of money to lend out is no longer effectively infinite.
@astarte: If you put an expected appreciation that is higher than inflation and mortgage rates, a buy/rent calculator will always tell you it's better to buy, even in the most overpriced markets!
I heard Michael Levy actually use the "Bubble" word on CKNW this morning.
He was excreting how "remarkably different" the US and Canada RE markets are.
No mention of WHY, of course.
Sounds like he is positioning himself.
@“A-Sharp” Accountant: It is encouraging to see the sane RET members migrating here. Obviously the monkeys haven't figured out the cage door is open.
PS I enjoyed your playing when you put up the videos.
@vreaa:
When you consider that a very large part of our economic growth was a result of our housing upswing, it makes an inverse position look pretty good.
disclosure: I am inverse the TSX as of Yesterday and Friday.
I'm up about $800 as of right now. I see some possible resistance at about 8-12% off this point. It wont go down to there in a straight line however.
BTW, big action in the markets today –
Portugal and Greece debt issues
Stock markets down hard; possibly the beginning of a significant pullback
Loonie down a very large 1.6% at this point
@“A-Sharp” Accountant: Welcome! Hope you'll stick around here.
Two things explain what has happened.
1. Unsophisticated momentum investors have been funded by banks/CMHC to take horribly large and nonsensical risks.
2. The normal financial market forces that prevent these kinds of excesses are not present in the residential housing market–Goldman can short crazy CDOs, but I can't easily take a short position on Vancouver housing.
Add these together, and you have a market dominated by credit-doped fools.
The rest of us just have to wait around until they pass out in a credit-drunk stupor. Then we get to clean up the mess.
Now edward Jones suggests that a Canadian Housing Bubble is in the making…I guess they don't provide mortgages