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Macleans on the CMHC bubble

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108 Comments

Some juicy quotes about the CMHC fueled Canadian housing market in this article over at Macleans. How much longer can this madness go on?

“The CMHC is a driving force in the housing market. But critics warn its policies could fuel a U.S.-style meltdown.”

“CMHC’s balance sheet looks strikingly similar to both Fannie and Freddie”

“CMHC has distorted the housing market by making homes, especially ones that are on the pricier end of the spectrum, more affordable and encouraged a lot of people to get in over their heads.”

The full article is here and is worth the read.

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Aleks

Take it up with StatsCan, Dave. I'm sure they will give your arguments the attention they deserve. Especially the "trust me on this" one.

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Dave

@Aleks:

$180k seems low for the upper 1%.

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Aleks

Unfortunately I couldn't find any data specifically about Vancouver, however at the last census the top 1% of income earners in Canada made at least $181,000 per year. The population of Greater Vancouver was 2,116,581, which means the top 1% is 21,116 people. There were 30,595 sales in 2010. By definition, half of those sales were for above the median sale price. So to be dragging prices up, the people making $181,000 or more would have to have bought 15,297 homes in 2010, and would have to buy a new home every 16.5 months for the duration of the price surge. How likely is that?

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macho nacho

@UnagiDon: From my observation & personal contacts, these are some positions that would pay over $300k (excluding CEOs & business owners):

– Surgeons (not GPs = although there are GPs who freelance, who could pull this down)

– Dentists (large practices)

– Partner Lawyers (only at big firms)

– Partner Consultants (IT)

– Investment Bankers (not many in Van)

– Stock Brokers/Market Makers (only those with large books/private placements)

– Any VP+ position with Fortune 500 (not many in Van)

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Drachen

@Gyts n blod:

"It’s one thing if Dave previously acknowledged in posts that he was a securities lawyer or an engineer, and commented extensively on compliance with private placements for (ahem) geo-thermal heating systems. Maybe, just maybe, I might think something of his “trust me on this.”"

Only a few years ago he was telling us his career did not involve real estate, it was just a sideline for him. Was he lying then or is he lying now (probably both times). Who cares? He is dishonest as hell and he's going to get burned in the collapse, that's all that really matters.

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Drachen

@Dave:

"Laugh away. I really don’t care. Your loss."

Oh Dave we do. But it's not really our loss, per se. We gain the medical benefits of laughter from you, and because you are such an unreliable person we don't run the risk of accidentally trusting you on anything. When the market collapses look me up and I'll donate some food for your family, just for old times.

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Squeeker

When I use the phrase, ‘trust me on this’, you can be assured that I am completely certain of my statement.

*******

Lol – this is the best phrase ever!

"Trust me on this because trust me on this"

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Dave

@Gyts n blod:

I prefer to be anonymous and I have nothing to gain by telling you what I do. When I use the phrase, 'trust me on this', you can be assured that I am completely certain of my statement. 100%. When I tell you that I had involvement with the SE False Creek NEU, I am being factual. When I tell you that I have first hand knowledge of geothermal systems, it's because I do.

Laugh away. I really don't care. Your loss.

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Dave

@slurker:

The market in the Lower Mainland isn't Vancouver SFH's. That's only a small segment of the market. The original question was about who was buying Vancouver SFH's, not who is buying Burnaby Townhouses.

High income drives the Westside. Lessor incomes drive other markets.

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slurker

: Ok so my friends are making median incomes. What is your point? I suspect MOST peoples friends are making median incomes… that's why it's called median.

You still didn't really answer my question though. I asked who is buying houses in Vancouver and you go 'People making 300k a year!'.

Now given all I know about Vancouver income distribution, rents, job market and general price levels (aside real estate) I highly doubt that there are enough people in Vancouver making that kind of money to carry the market.

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Gyts n blod

I always love Dave's "trust me on this."

It's one thing if Dave previously acknowledged in posts that he was a securities lawyer or an engineer, and commented extensively on compliance with private placements for (ahem) geo-thermal heating systems. Maybe, just maybe, I might think something of his "trust me on this."

But when a generalist, with no stated profession, qualifications or experience says "trust me on this" you have to just laugh.

Just trust me on this assessment folks 🙂

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Gyts n blod

Out of curiosity, I’m quite curious who the $300k crowd is. Which jobs in Vancouver pay more than $200k?

——

Uuumm real estate "professionals" duh….

And anyone, and I mean anyone, in the junior mining market here…

And of course, all homeowners in the past 10 years – because they count their rise in home prices as part of their income…

So lots of 300k plus people 🙂

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Dave

@UnagiDon:

I am not sure you call those income levels 'jobs'. Most people at that level are working for themselves and run businesses. There are also lots of professionals who make that level of income. Trust me on this.

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UnagiDon

@Dave: "Such people probably don’t hang with the $300k crowd."

Out of curiosity, I'm quite curious who the $300k crowd is. Which jobs in Vancouver pay more than $200k?

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patriotz

@paradox:

first credit has not been cheap for all the last 10 years the prices have been going up

You think credit hasn't been cheap for the last 10 years?

Were you around for the previous 20 years?

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Dave

@UnagiDon:

Good point, but I don't think so because there is a pretty wide range of income levels in our society. There are lots of people who make around 30k and lots who make well in excess of 100k.

There is probably some effect due to rising incomes with age. People in their 40's and 50' make more than those in their 20's and people tend to be friends with those of similar age.

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UnagiDon

@Dave: “I read an interesting thing about that recently. It has been suggested that most people have an income that is the average of their five closest friends.”

This sounds impressive, but it is a consequence of the law of large numbers. If you picked a random salary X from the distribution of all salaries, then randomly picked 5 more salaries Y1,…,Y5 for their friends, then with decent probability, X would be close to the average of Y1,…,Y5.

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Dave

@slurker:

There simply isn't a lot of SFH product available in Vancouver. Who can afford it? More people than you might think. Lots of people make significantly more than $80k household income per year. I guess it depends on what circles you are in.

I read an interesting thing about that recently. It has been suggested that most people have an income that is the average of their five closest friends. We tend to surround ourselves with a similar demographic and income level. That raises the potential of confirmation bias because somebody making say $50k, probably surrounds themselves with people that make around $50k. Such people probably don't hang with the $300k crowd.

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rp1

@paradox: "Cheap credit does not explain everything, first credit has not been cheap for all the last 10 years the prices have been going up, then if cheap credit is such a powerful driver, why are the prices still going down in the US where the credit is even cheaper than here?" Cheap credit and mass psychology is the driver of prices. We had a slower, later start, and the government is far more involved in propping it up. In the US the 10 largest cities first saw their first +10% increases in mid 1998, the rate of price increase hit a maximum of +20% in early 2004, and the bubble popped decisively in 2006: http://tinyurl.com/68ydmfr In Canada we have the comparable Teranet index. You can download their data at http://housepriceindex.ca and for the biggest 6 cities, this is the… Read more »

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Anonymous

@paradox: I am no expert, but for the majority of small grow ops in BC this is very simple. ……… It's a lot easier than that. For those of you that want to start a grow op and want a very easy way to wash all that ill-gotten lettuce: You need some seed money, just enough to legitimized a down payment on a house, not a nice house, preferably one that needs lots of fixing up – say $100k down on a #1M Vancouver property (hell, apparently you can even get CMHC to guarantee the loan for you if you lie about your income). Then, you fix it up. You don't fix it up of course, you pay someone else to fix it up (you pay in cash of course) and you provide all the materials (which you pick up… Read more »

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Anonymous

@real_professional: ……It is said there are around 64 million empty apartments in China”…….

Almost as bad as Yaletown.

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slurker

@Dave #84: This all comes back to the same old question again then. If not the average (median) person/household then who? The only people I know personally that have bought in Vancouver the last 3 years all had incomes around the median and with down payments provided in most part by their parents. These people are all in the early to mid thirties making roughly 70k-80k in total household income buying houses in the range of 500k-700k. Another couple I know want to buy but they don't have a down payment large enough to afford it although they are probably ~100k in total house hold income. None of them I argue can afford the average Vancouver house. In fact come to think of it I don't know anyone outside my workplace that could actually afford to buy the average house… Read more »

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stagnate

mohican says: from the cursory analysis I’ve done, the CMHC may be politically very unpopular in coming years as it will suck cash from the federal treasury to pay out claims from defaults

no chance, the cmhc has direct ties to the central bank, any liabilities will be monetized directly. in fact, the cmhc will continue as a reflation tool, government liabilities will be filtered through the cmhc, not the other way round. what is the cost to canadians? a lower dollar, which won't be a concern. oh yeah, the cmhc will continue involvement in the bond markets also. i advised on this years ago and will advise again, pure deflationists will view the cmhc as an arch enemy for years to come. the macleans article is a decent coles notes on the cmhc.

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Dave

@paradox:

The median person doesn't buy a SFH in Vancouver.

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Best place on meth

@paradox: Cheap credit has indeed been around for all of the last 10 years, ever since the first big stock market crash. Interest rates have varied in that time but have been historically low for the entire duration. Credit is not cheaper in the US, a 30 year mortgage is 5% while a 5 year in Canada is 4% with a variable at 2.3% so ours are cheaper. The other big factor is the loosening of mortgage rules in Canada since the Cons took power. We went from 25 years to 30 to 35 to 40 not to mention all the other ways they loosened lending. Every time they did this it brought a whole new wave of buyers into the market and drove prices up accordingly. That's one thing the US didn't have, it's been 30 year mortgages the… Read more »

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