Is Emili smart enough to know your house price?

Now that the Canadian housing bubble appears to be running out of steam we’re starting to hear concerns that automated appraisals have helped push prices up higher than they ought to be.

This article in the globe and mail was linked in fridays free-for-all post, but is worth a closer look.

Automated appraisals save time and money but have such a big margin of error that they are practically worthless.

Now people involved in lending are starting to worry about the fall out of relying too much on an automated system:

Introduced in 1996 as a way for the CMHC, banks and other lenders to quickly and inexpensively determine how much money can be lent against a residential property, the database known as Emili is relied upon too heavily by lenders, the documents suggest.

Emili is an automated system that uses figures such as recent sales of nearby homes to gauge values, without sending an actual appraiser to the address. However, the potential margin of error in calculations may pose significant problems. For home buyers, or homeowners with home-equity lines of credit, an inaccurate valuation by the database could allow them to overpay or borrow much too heavily for the home, industry members argue.

For banks, it could mean the collateral they have against the mortgage is not worth as much as believed.

Ooops!  But as a comforting side effect, it appears that appraisals that came in too high in a hot market did enable the CMHC to collect higher fees.  Read the full article here.

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patriotz
Member
Canadian housing market peers over the edge Housing markets across Canada – with the exception of Calgary – are continuing to soften, even as the fall sales season kicks off. Figures to be released Monday by the Canadian Real Estate Association are expected to show falling sales in most major cities in September, with Vancouver leading the decline. September’s decrease in sales comes on the heels of a 5.8-per-cent monthly drop from July to August. The data are being monitored closely by policy makers in Ottawa, who are attempting to steer the market toward a soft landing. To that end, Finance Minister Jim Flaherty tightened mortgage insurance rules in July to slow demand for homes. But it’s a tricky balancing act, and some real estate players fear Vancouver’s market, in particular, might now be cooling too quickly. And some real… Read more »
More Data Please
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More Data Please
“Is [the] Emili [story writer] smart enough to know [that this is a red herring]?” Now for the real question. Drumroll please… Is the CMHC, operator of Emili, achieving the mission of making homes affordable for Canadians? Short answer. NO. Because CMHC focuses mainly on the demand side financing, a legion of reckless idiots will borrow as much as CMHC will insure and overpay whatever the market asks because reckless idiots, per definition, think it is free money! If CHMC was disbanded or at least legally obligated (for example) to focus solely on the supply side financing of affordable construction, the correct and undistorted demand prices would follow the supply curve down to an equilibrium price with wages and rents. In the supply side scenario, the CMHC would have the tangible effect of further reducing prices below demand equilibrium because… Read more »
Makaya
Member
Makaya
Don’t worry guys, sales have gone up in September… on a “seasonally-adjusted” basis. The CREA guys are better than the yuk yuk folks… Year-over-year home sales plunge 15.1 per cent in September National home sales in September were 15.1 per cent below a year ago, with more than half of the country’s local markets down by at least 10 per cent. But, adjusting the numbers for seasonal trends, September’s sales edged up 2.5 per cent from August’s, the Canadian Real Estate Association (CREA) said Monday. That marks the first monthly increase since March. Even Greater Vancouver showed a month-over-month rise in sales on a seasonally-adjusted basis, the association said. According to the Real Estate Board of Greater Vancouver, there were 1,516 sales in September, down 8.1 per cent from the 1,649 sales in August. But sales tend to peak in… Read more »
Turkey
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Turkey

Year-over-year home sales plunge 15.1 per cent in September

Here’s the really egregious bit:

The national average price for homes sold in September was $355,777, up 1.1 per cent from a year ago. Excluding Vancouver the average price of a house sold rose 3.4 per cent.

(emphasis mine.)

"A Sharp" Accountant
Guest
"A Sharp" Accountant
I agree with “More Data” I’m not too worried about Emili; I believe that it could have had some impact on the market, but the requirement to appraise, in my opinion, would not have changed much. Loan applications are not foolproof. The real story of the last 4 years (and the following 4), is the CMHC, and the effect of moral hazard. I put myself in the shoes of a loan originator. I have an incentive to ensure that the loan application is acceptabe to CMHC for underwriting so that I increase my performance, but barely any incentive to perform any other due dilligence. The CMHC (after a few years of double digit growth) is projecting mid to low single digit growth for the next few years, and this slowdown in growth has begun recently. Let’s say that 60% of… Read more »
jesse
Member

As the post indicates it’s not clear to me who’s complaining louder: those who think emili has exacerbated a credit bubble or those who think it’s acting as a wet blanket. BTW emili is not the only AVM around. Remember the story of BMO suing some people in Calgary a few years ago because of fraudulent loans, in part because BMO relied on their automated appraisal system that was easily gamed?

gordholio
Member

It may be a new week, but as Makaya and others have already pointed out, don’t worry – we still have the same old slimy CREA scum:

From CBC: “New mortgage rules continue to keep a lid on national sales activity,” CREA president Wayne Moen said in a release.

Sure thing, Wayne, you lying bastard. Plummeting sales would have nothing to do with savage overpricing or that nobody has any money or that the ecnomy sucks or that way too many of us already own, or that the hurtful effects of nation-wide, realtor-fueled/media-fueled brainwashing are finally ebbing, right?

F’ing criminals.

Manna from heaven
Guest
Manna from heaven

“Canada household debt-to-income ratio revised sharply higher, and still rising”

http://ca.reuters.com/article/businessNews/idCABRE89E0P020121015

Wow!

fatso
Guest
fatso

“Canada household debt-to-income ratio revised sharply higher, and still rising”

I wonder where is the limit? How far you can go?

rp1
Guest
rp1

#8 @fatso: “I wonder where is the limit? How far you can go?”

Once income starts dropping, to infinity. And that will happen because debt reduces growth. It’s hard to say where the tipping point is however. It could be anywhere around here.

Anonymous
Guest
Anonymous

@fatso: I think the US personal debt level peaked at about 150% with their housing bubble. Ours has already surpassed that, so what could possibly go wrong?

Ralph Cramdown
Guest
Ralph Cramdown

If you want to know what an AVM thinks of your digs, you can try out http://www.zoocasa.com/en/zoopraisal
Like Emili, it can’t see through your roof, so it just assumes you’ve been making the average number of trips to Home Depot and/or hiring contractors to freshen the place every once in a while.

How accurate is it for Vancouver?

Patiently Waiting
Member
Patiently Waiting

@Manna from heaven: “Canadian household debt has shot past the sky-high levels that foreshadowed the U.S. housing bust.

“Debt growth dynamics over the last decade look eerily similar to the U.S. experience, just before their dramatic housing bust,” economist David Madani of Capital economics said in research note.

“The new data shows a much steeper ascent in the growth of household debt.”

A ratio of 160 per cent was the mark that began the unwinding of earlier housing bubbles in both the U.S. and Britain, Royal Bank of Canada economist David Onyett-Jeffries pointed out.”

http://www.theglobeandmail.com/report-on-business/economy/household-debt-surpasses-levels-foreshadowing-us-housing-bust/article4613321/

160 is the magic number.

s
Guest
s

does anyone know what Vancouver’s debt to income ratio is?

raincity
Guest
raincity

@s: I cant find numbers for Vancouver, but of that high national number this article says that BC is the province with the highest personal debt load:

http://www.dawsoncreekdailynews.ca/article/20120829/DAWSONCREEK0101/308299986/-1/DAWSONCREEK/living-large

My guess is that people in Vancouver take on more debt than the provincial average.

Girlbear
Guest
Girlbear
WRAPUP 1-Canada housing market cools as household debt grows 15 Oct 2012 13:30 ET * Existing home sales fall 15 pct yr/yr; up 2.5 pct on month * Revisions show household debt problem bigger than thought * Business sentiment weakens in Q3 due to global woes * Data points to restrained growth, rates on hold for now OTTAWA, Oct 15 (Reuters) – Canadian home sales fell sharply in September from a year earlier while households pile on debt and business sentiment slumps, according to downbeat data on Monday that suggested a struggle for growth in coming months. Two reports on what policymakers say are the two biggest dangers to the Canadian economy – the hot housing market and high household debt – indicate a fairly sharp decline in house sales at a time when consumers are increasingly vulnerable to a… Read more »
Patiently Waiting
Member
Patiently Waiting

@raincity: “Lots of times, the guys that get into the trouble aren’t the people who are making $40,000 a year, it’s the guys who are making $150,000. I don’t have a study to point to, but anecdotally, I’ve seen it’s often the people with big incomes who have financial problems.”

Here is why the Westside will get even harder than other parts of Vancouver, despite the mistaken beliefs of its residents.

Madashell
Guest
Madashell

@fatso: Buzz Lightyear’s favorite catchphrase “To Infinity and Beyond”.

jay
Guest

@Ralph Cramdown: @Ralph Cramdown:

“How accurate is it for Vancouver?”
Wow, not bad. It is only 15% off. However, if I correct the lot size and floor footage, it is almost the same as assessed value. I think this is good enough to replace Emili -;)

/dev/null
Member
/dev/null

@Makaya: Perhaps they could use a similar “seasonal adjustment” for realtor salaries, only based on the market cycle. i.e. “Well sure, it might seem like you only made $34k this year, but normalized against the 2011 baseline that’s over 100k!”

/dev/null
Member
/dev/null

Ouch. $20/month for Globe and Mail online access. I know they’re losing revenue, but still. I would have paid $5 probably. I think they’ve found a price-point just above what most would be willing to spend.

http://www.theglobeandmail.com/report-on-business/the-globe-to-roll-out-metered-paywall-as-industry-shifts-to-digital-revenue/article4612259/

Bag it and tag it
Guest
Bag it and tag it

@/dev/null: “Ouch. $20/month for Globe and Mail online access. I know they’re losing revenue, but still. I would have paid $5 probably. I think they’ve found a price-point just above what most would be willing to spend.”

I’d be happy to pay that if it came with a guarantee that they won’t publish any quotes/forecasts from Realtors, REA’s, or bank economists.

QWERTY
Guest
QWERTY

charging customers for online content is loosing proposition. NY times is still has huge loses even with increased subscription. It just show that papers can not rely on online advertising for their revenue.

Supersogs
Guest
Supersogs
Turkey
Guest
Turkey

Again, from the G&M (who I’d happily pay a couple of bucks per month for access, but not $20!): Household debt surpasses levels foreshadowing U.S. housing bust. The last lines should strike holy terror into the heart of bubble buyers:

But economist Diana Petramala of Toronto-Dominion Bank said only rate hikes can put Canadian households on a sounder footing.

“A gradual increase in interest rates by the Bank of Canada over the medium term will ultimately be required to ensure a more sustainable picture for household balance sheets,” she said. “With the cost of borrowing at record low levels, there is still a large incentive for borrowing to reaccelerate.”

In other words, “skin ’em alive and pack the quivering remains in salt” for the good of the nation.

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