What are they smoking?

One reason Canadian cities can never have a housing bubble like they had in the US is that our lenders are much more diligent and properly manage risk. At least that’s what I heard, so you can imagine my surprise when I read this article where two different Canadian banks gave mortgages to a grow op owner with no proof of income:

Alarm bells should have gone off the moment Hai Le walked into the Bank of Montreal and asked to refinance the mortgage on his million-dollar home in Vancouver’s up-and-coming Marpole area.

His alleged inability to provide proof he had the means to make the hefty monthly payments of about $4,000 should have been reason enough to crumple up and toss the application into the nearest trash can.

Le, a “sales manager,” was also asking the bank to mortgage the property for its full value, a strategy that authorities say marijuana growers often use to minimize their losses should and when they get busted.

Yet despite these blatant red flags, the bank approved Le’s application for a $976,000 mortgage on Oct. 22, 2008, some 15 months after he’d bought the house from a Viet Van Truong for $980,000.

Ten months after the purchase, in August 2009, Vancouver police raided Le’s West 63rd Avenue home and uncovered a massive grow-op. Two days later, Le sought and received a $70,000 mortgage from the Royal Bank of Canada.

The Forefeiture Office is now seeking to have the mortgage proceeds seized from the bank. Read the full mind-boggling article in the province. Thanks to Jimmy for the link!

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doubladay
doubladay
10 years ago

Job creation comes from private demand. The government reduces that private demand by taxing the transaction and reduces the incentive for business to meet that demand by taxing the income, and redistributes a token portion of those proceeds to programs with mandates such as "job creation".

jesse
10 years ago

@patriotz: -40% in 4 years is -12% per year. The government knows that funding a housing bailout is folly. They will manage it with lightly funded "bailout" programs and concentrate on job creation instead.

patriotz
10 years ago

@Limey: You already have your answer really, from Alberta 2007-2008, Vancouver 2008, and California 2006 on. That's the natural course of events and this time nothing is going to avert it because nothing can avert it. Like many other posters I think you'll see 40% come off within 3-4 years, and then a slow bear market for decades. Vancouver looks a lot like San Diego in many respects, take a look at the excellent charts and commentary from Piggington: http://piggington.com/ Because the decline here will be far more rapid than in Ontario – and no government reacted to the recent 20% decline in Alberta – any federal attempt to support house prices would be seen primarily as a bailout of BC. I think a lot of people here don't really appreciate petulant and juvenile this province appears to the rest… Read more »

No Longer Looking
No Longer Looking
10 years ago

The individual doomed home debtor will only get a bit of a reprieve if the system for dealing with them is overwhelmed. That could happen, I guess. I'm curious how some here think that the banks and CHMC would handle such a scenario.

Limey
Limey
10 years ago

I'm interested in hearing peoples theories about the time line of the unraveling.

What are we thinking? A quick kill on prices over 3/4 years or a long drawn out wounded erosion over a decade? And why.

Patriotz?

evtron
evtron
10 years ago

@space889: what are you smoking rocks? Legalize it

Animal Spirit
Animal Spirit
10 years ago

@Animal Spirit: Median price change in Victoria – using last 50 price changes for central areas, houses and townhouses listing <525,000.

Median price change: -3.2%

Maximum price change: -7.0%

Median new listing price difference to assessment: +9.2%

VHB
VHB
10 years ago

@Anonymous: what precisely can the govt do? Do you seriously expect them to start handing out multi-100K cheques to bail out individual underwater cases? I don't. Overleveraged fools will drown in their own debt and there is nothing the government will do to help them.

They WILL bail out banks and the CMHC, but they will NOT bail out individual homeowners, beyond windowdressing 'we care' types of policies. Just do the math. It is simply WAY too expensive to bail out millions of homeowners at 100's ok K each.

It's not like they can wave a wand and make the personal debt go away.

domus
domus
10 years ago

@paulb.: cheers mate!

Anonymous
Anonymous
10 years ago

@patriotz: Good points. I hate more than using the "it's different this time" line, but here are my two cents: (1) It was different in the 80's. People bought houses with 25% down. Some more. A 40% reduction left fewer homeowners underwater than a 10% reduction would in today's environment. In the 80's, we actually produced things. We had things to fall back on. Now, all we do is consume. We've become dependent on consumption. Underwater homeowners do not make good consumers. In the 80's, politicians were brave. Raegan and Voelker actually cared about the integrity of money. They were trying to do something about inflation. (2) My understanding of the Ontario housing bust is that house prices fell 20%, then flatlined for 10 years. Again, in the 90s, homeowners had better balance sheets and purchased homes with larger amounts… Read more »

Banklender
Banklender
10 years ago

@ Happy Renting

I wrote liberal not Liberal.

Animal Spirit
Animal Spirit
10 years ago

@VHB: Using the archived stats in the May and June daily numbers forums (is there data for early May and April?), there was a gross total of 4091 price reductions between May 14 and April 14 (21 selling days).

If each of these were unique (which they aren't), using the June 2 inventory of 18,417, 22% of listings have had price changes in the last month.

I'll find the median price change from my Victoria matrix account in the next few minutes.

VHB
VHB
10 years ago

@elvince: yeah, but 300 IN ONE DAY is what is being talked about here. THAT is significant. If that pace were repeated for a month, that would mean about 1/3 of inventory having price reduced in one month.

anonymous
anonymous
10 years ago

thanks for providing us with daily stats Paul and Inventory.

regarding the daily price changes, does the total value of the price changes get reported as well? Up or down, I'm assuming down, I'm curious about the average reduction per change. If sellers are only reducing their listing by <1% then we have a long ways to go.

Happy Renting
Happy Renting
10 years ago

@Banklender: What do mean by Liberal?

I don't think you understand where Canadian political parties are on the map: http://www.politicalcompass.org/canada2008

Dan in Calgary
Dan in Calgary
10 years ago

, regarding "One more thing – the Feds don’t give a rat’s ass about Vancouver, and prices will fall 40% here by the time they fall 20% in Toronto anyway."

This is a key point, not merely "one more thing". Years ago John Turner set up a Vancouver residence (in Arbutus village I think) to reach out to "the West" and was Prime Minister for exactly 79 days … he lost the 1984 election by a landslide. Earlier (1980?) Joe Clarke had talked about including "the West" in his plans, and lasted only 9 months as Prime Minister. So it's not that Ottawa just doesn't give a gnat's ass about Vancouver. It's more like "ignore the West or get voted out of office by the East."

Anonymous
Anonymous
10 years ago

Get all your latest RE BS from the Vancouver Sun:
http://www.vancouversun.com/business/Home+sales+d

Disbelief
Disbelief
10 years ago

All the people in the article are not Chinese they are all Vietnamese , many are heavily in to the cultivation of Marijuana. All the Pho restuarants only take cash and are a great way to launder money and maintain a business like income. Very astute business minded people who are willing to take a chance and big gamblers.
I want to quote Kevin O'leary in regards to the condo market "when condo prices fall they don't touch the sides"

coastal
coastal
10 years ago

Looks like Muir's Chinese excuse may be running out of steam soon.

China’s Bank Regulator Sees Growing Real Estate Risks

June 15 (Bloomberg) — China’s banking regulator said it sees growing credit risks in the nation’s real-estate industry and warned of increasing pressure from non-performing loans.

Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website today.

http://www.bloomberg.com/apps/news?pid=20601087&a

No Longer Looking
No Longer Looking
10 years ago

@Banklender: I'm not even sure what is "liberal" or "conservative" anymore. And that was one of Patriotz points, that Conservative government aren't acting conservative.

Anyhow, I'm for political discussion in here. The bubble is interwoven with all kind of aspects of ideology and party politics. Keep talking this out. And, Banklender, you are being a bit hypocritical because you are politicking too. Not that there is anything wrong with politicking, just hypocrisy.

joeblow
joeblow
10 years ago

Hey elvince,

300 price reductions???????

We've been getting about 200 a DAY, that's about 4000 a bloody month. If you think that's not significant, you're about as blind as most other NDPers….just couln't resist.

Cheers

No Longer Looking
No Longer Looking
10 years ago

My question is, where are these price reductions happening? Not in New Westminster. I went through every listing outside of (shudder) Queensborough, and found very few reductions. And those few reductions were mostly miniscule. Maybe wealthier or more central areas of Greater Vancouver are leading the way down.

elvince
elvince
10 years ago

Guys, don't get too excited yet. Those prices are still WAY out of whack. It's gonna take a lot more than 300 reductions out of 19k listings for prices to reach a semblance of sanity.

PRICE REDUCTION
PRICE REDUCTION
10 years ago

Are you guys friggin serious about blaming political parties for the bubble????

Plain and simple, it was caused by idiots regardless of race colour or political conviction.

Now, can we please all get along and watch the meltdown in peaceful harmony.

Yalie
Yalie
10 years ago

I agree – while the Conservatives definitely helped the bubble along with their bubble-blowing policies like 0/40, CHMC, etc, can anyone honestly claim that the other parties would have done anything different?

To this day, I have yet to hear Ignatieff, Layton, or any other politician (except maybe Garth) say one word about the housing bubble, or about the above-mentioned policies that enabled it.