BMO CEO: House prices bound to come down

Bank of Montreal Chief Executive Officer Bill Downe is saying there are ‘legitimate’ concerns about house prices being over inflated and coming down, particularly in Toronto and Vancouver.  He is now calling for the fabled ‘soft landing’ to swoop in and fix the problem:

“We took a long, hard look at the Canadian housing market and concluded … there was a legitimate concern that house prices – particularly in the largest cities – had been rising at a rate that was simply unsustainable,” Mr. Downe said.

“With growing concerns over household debt, a soft landing in housing is in the best interests of our customers and the national economy.”

For those that are curious, yes this is the same BMO that kicked off a rate war with competitors over a special 2.99% mortgage deal. If you’re wondering why a bank would offer credit crack and then tell the addict they should cut back I think Patriotz puts it very clearly:

Because he runs a business and it’s his responsibility to the shareholders to make money. It’s either lend at 2.9% or give the mortgage business to someone else.

Banks like every other business have a responsibility to obey the law and that’s what they are doing. If you don’t like the parameters that the government has established, blame them not the banks.

This is why you’ve been hearing more call from the banks for the government to tighten lending standards.  No single bank can cut out a huge percentage of the market just because they’re concerned about over-debt households.  The banks can’t even get together and agree that they’ll adjust their lending standards themselves, because that would be collusion and illegal.

It’s all up to Flaherty now.

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registered
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registered

“Bank of Montreal Chief Executive Officer Bill Downe is saying there are ‘legitimate’ concerns about house prices being over inflated and coming down, particularly in Toronto and Vancouver.”

Toronto concerns outweigh markets like Calgary, Edmonton and Winnipeg? The percentage increase in Teranet HPI in those four markets, referenced to the earliest complete data available, suggests otherwise:

http://oi42.tinypic.com/2a5f13r.jpg

Maybe what Bill meant was that even with the greater stability of the Toronto market, his employer stands to take a much more painful clock cleaning from central Ontario than from far bubblier, but smaller, markets. He might not have been thinking about BMO’s customers at all.

jesse
Member

My father hates banks, my grandfather hated banks, Based on their actions I see little reason to stop a family tradition.

Joe_Blown_Away_By_High_Housing_Costs
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Joe_Blown_Away_By_High_Housing_Costs
Real estate booster article in the Vancouver Sun today. Some choice quotes: “The Canadian housing market is off to a strong start this year, with gains in sales and prices in most major markets” “Given the current economic climate, the strength of the country’s housing market clearly reflects the value Canadians place on home ownership” “One driving factor has been the overall performance of the market over the past decade. Existing homeowners have realized substantial equity gains, especially in recent years, and many are taking advantage of the combination of historically low interest rates and equity to upgrade.” “Vancouver-area sales were down 16 per cent in the early part of the year, joining Winnipeg and Kitcherner-Wateloo, Ont., as the only spots where sales were down from one year earlier, Re/Max said. Still, Vancouver had the highest average sales price of… Read more »
Joe_Blown_Away_By_High_Housing_Costs
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Joe_Blown_Away_By_High_Housing_Costs
More real estate boosting in the corporate media. Choice quotes: “Major Canadian housing markets have continued to show “exceptional resiliency” so far this year, setting the stage for a busy spring” “More than half of the cities reported double-digit increases, “with the strong demand and diminished supply setting the stage for a heated spring 2012.” Re/Max said low interest rates, coupled with strong consumer confidence levels and a mild winter played a significant role in the upswing, ushering in an early start to the spring market” “Meanwhile, despite expectations of continuing strong sales, prices gains are likely to be “much more moderate that in years past,” said Elton Ash, regional vice-president for Re/Max in Western Canada. “We expect this will remain the trend moving forward, in line with the Canadian economy, as GDP growth also moves ahead at a more… Read more »
vangrl
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vangrl

Flaherty just said all this talk from OFSI is “a bit much”

and that he’d like to see the market correct by itself.

So much for all these predictions and Garth’s inside sources, doesn’t look like he’s going to do anything

Patiently Waiting
Member
Patiently Waiting

Soon every BC town will get a popsicle stick skyscraper, a 100 ft. magnifying glass, and a monorail.

http://www.vancouversun.com/technology/North+America+tallest+wood+building+built/6339648/story.html

Yalie
Guest
Yalie

@Joe_Blown_Away_By_High_Housing_Costs:

One driving factor has been the overall performance of the market over the past decade.

In other words, prices are rising because they’ve been rising!

I don’t know what’s worse: the fact that the Vancouver Sun just admitted our housing market is a giant Ponzi scheme, or the fact that they don’t even realize they did.

Conrad
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Conrad

http://www.theglobeandmail.com/news/politics/ottawa-notebook/federal-budget-will-include-only-modest-spending-cuts-flaherty-says/article2377866/

On the issue of Canada’s housing market, Mr. Flaherty made comments Thursday that suggest he is not preparing new measures in the budget to cool prices.

Mr. Flaherty said he would like to see if the market will “correct itself,” and noted that there are some signs that this is currently taking place.

VMD
Member

@Conrad:
– but the government/CMHC removes the risks from banks, who decides whether to approve a mortgage…

“Some Canadian banks are calling on Ottawa to intervene – either by lowering the maximum amortization period for insured mortgages or by raising the minimum required down payment.

Mr. Flaherty said he finds those suggestions “a bit much” given that the banks ultimately decide whether to approve a mortgage.”

data junkie
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data junkie

The one silver lining to the forthcoming Canadian financial apocalypse is that the Harper idiots will absolutely WEAR this shit.

jesse
Member

@Conrad: Of course he would like it to “correct itself”. I would too but that doesn’t mean it will happen.

This should come as no surprise; I still believe the government has already acted behind the scenes, through CMHC loan quotas and the recent OFSI guideline changes.

The UK budget just imposed a 7% stamp duty on all property transactions over ₤2MM. One wonders why. If you think Vancouver has problems with rich foreigners, visit London England.

N
Guest
N
Anonymous
Guest
Anonymous

so if the budget doesn’t change anything re housing, does that then mean that the CMHC cap won’t go up?

Guy Smiley
Member
Guy Smiley

I agree with Jesse on this. They are quietly effecting changes but don’t want to be seen as holding the pin that pricked the bubble.

When comes the decision to leave or extend the $600b limit of the CMHC? Will that be part of the budget?

jesse
Member
@Conrad: Another way of looking at it. Canada’s debt-income ratio is approaching the point where debt cannot be financed without incurring more debt — the so-called point of no returns. I don’t buy for a second that the Dept. of Finance, PMO, and Bank of Canada are unaware of this as a significant risk to the economy in the medium term; another year of debt accumulation could spell game over for Canada for the next decade. I don’t find it plausible that the likes of Flaherty are “hoping for the best” and getting down on the kneeler to pray for the markets to behave themselves. I’m more prone to think their disdain for the ignorance and stupidity of their hapless flock requires more concerted and deterministic measures. Despite all the talk of letting the markets decide, I see this as… Read more »
Conrad
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Conrad

@jesse:
Interesting perspective. I just look at the conservative gov’t history to predict what they will do. On every occasion they have taken full steps when it comes to increasing debt (40 year mtg, 0 down), and the minimum steps when it comes to shrinking debt growth.

So I expect that to continue. They will not let an arbitrary CMHC limit stand in the way of growth. It will be raised one of these days and nobody (besides bloggers) will say anything, like it always has been.

Anonymous
Guest
Anonymous

@data junkie: “The one silver lining to the forthcoming Canadian financial apocalypse is that the Harper idiots will absolutely WEAR this shit. ”

What we really need are more inept and corrupt Liberal governments to force the RE bubble to pop. Or an NDP government to force everything to POP, even stuff that’s not in a bubble.

Anonymous
Guest
Anonymous

@data junkie: “The one silver lining to the forthcoming Canadian financial apocalypse is that the Harper idiots will absolutely WEAR this shit.”

The real silver lining will be the end of cattle mutilations and crop circles.

Many Franks
Guest
Y’know, as much as I wanted and expected Flaherty to pull in amorts, there is some validity to today’s “who am I to tell you how to run your business” statement — but only if the banks who overstepped their limits are left to swing in the breeze later. If that ends up happening, I’ll give him the thumbs-up (if he stops by for my opinion). My fear is that this won’t happen, for the various reasons it didn’t happen (sufficiently) in the States. However, HSBC has just demonstrated that there is an alternative to the race to the bottom, and after two direct rebuffs from Flaherty, I suspect TD is now looking for other ways to proceed. Even BMO is tinkering with the contract terms in their most recent round of brinksmanship. And we have yet to see how… Read more »
N
Guest
N

@Anonymous:

The Conservatives might wear it into the next election, but if the NDP gets in, they will rule in a recession an be remembered as the recession government, just as is happening with Obama at the moment. Cleaning up other people’s mess is not always a recipe for long term love.

VMD
Member
[Flaherty raps banks on lending stance] – Is he going to do it or not?! 3/22/2012 The government has already intervened three times to tighten the rules on mortgage lending and Flaherty said Thursday, given signs of overvaluation in Canada’s property market, the government is prepared to tighten mortgage insurance rules again, if necessary. “I find it a bit off that some of the bank executives are taking the position that the Minister of Finance or the government somehow should tell them how to run their business,” Flaherty said. “They must forget that they are actually the ones who issue the mortgages,” Flaherty said. “It’s their market. It’s not my market. They decide what they want to charge in interest rates. They’re the ones who make the profits out of this business, so I do find it a bit much… Read more »
Anonymous
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Anonymous

@VMD: “”It’s their market. It’s not my market.”

What a BS statement? It sure is. He sets the rules so it’s more his market than the banks.

Guy Smiley
Member
Guy Smiley

According to this news brief, the CMHC is rationing the insurance they issue even thought there is years of room left in it. Again, perfect for JF. He can do what is needed (let the rationing continue) by simply doing nothing.

OTTAWA – Canada’s federal housing agency said its financing arm will issue $39.7 billion in mortgage bonds this year, up $1 billion from its previous forecast.

Canada Mortgage & Housing Corp., an agency owned by the federal government, said in its latest corporate plan that its mortgage insurance portfolio will grow to $557 billion in 2012, up from a previous forecast of $550 billion.

The agency’s insurance-in-force will increase to $588 billion in 2016. CMHC said in January it is rationing insurance for lenders as it approaches its legal insurance limit of $600 billion.

Link

VMD
Member

CMT has Flaherty’s exact quotes:

“They decide what they want to charge in interest rates. They’re the ones who make the profits out of this business, so I do find it a bit much when some of the bank executives turn to the government, the Minister of Finance and say, ‘”You ought to change the rules and make it tighter.”

“The new housing market produces a lot of jobs in Canada so there’s a balance that needs to be addressed. I’d like the market to correct itself, quite frankly, if it can.”

“With respect to tightening up the mortgage insurance market we’ve done it three times…and we watch, we monitor the market, and if we have to tighten it some more we will.”

http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/03/flaherty-tells-banks-do-your-jobs.html#more

SunBlaster
Guest
SunBlaster

Anyone who even remotely though that Flaherty will introduce any sort of mortgage tightening rules simply don’t know who this Government works for and paid by or what it’s main agenda.

What’s another trillion of national debt between friends? It was hard to get from Bil to Tril, but adding +1 Tril to another is a peace of cake!

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