Vancouver Condo Info

There’s an article over at CNBC talking about the National real estate market, it’s warning signs and various slumps.

They revisit Vancouver Real Estate agent Keith Roy’s very public decision to sell his house last year and say prices have dropped 3.9% in Vancouver, 5.6% in West Van.

They also talk about lending practices in Canada and recent efforts to return CMHC amortization terms to their historical norm.

Some of the loopholes people use to avoid the mortgage restrictions are quite extraordinary. For example, although the government requires buyers to purchase private mortgage insurance on mortgages with 100 percent loan-to-value ratios, eHow says this can be avoided just by getting two mortgages, each for 50 percent of the home value.

Canadians are also allowed to borrow against pensions and life insurance policies to fund their down payments. Even credit cards can be used to fund down payments. So it’s very possible that the total housing debt is actually much higher than the official mortgage debt numbers.

If this sort of thing is being openly discussed even after the government has launched its efforts to curb lending excess, just imagine what kind of shenanigans were going on before the crackdown. The quality of the mortgages made in 2011 and 2012 may turn out to be much worse than is commonly suspected.

Read the full article here.

So is the Canadian market falling apart at this point?  Vancouver has certainly fallen over the last year and this is starting to have an effect on developers as well – the Alba has been put on hold due to a ‘challenging real estate market‘.

The age of bankruptcy in Canada is growing.

There’s a troubling move towards more debt later in life.  Many Canadians are now going through their 50s with an increasing debt load rather than using that time to pay off debt.

But between 50 to 59 is usually the time when a person is trying to reduce debt and prepare for the golden years, says Douglas Hoyes, a trustee with the Ontario-based bankruptcy and consumer proposal services firm.

“We found, nope, in fact it’s the opposite. It keeps building and building,” says Hoyes, referring to debt loads.

The surprising thing is that the majority of these bankruptcies aren’t occurring due to unemployment:

A common stereotype is that the average bankrupt person is unemployed, but the study shows that 81 per cent of insolvent debtors were employed at the time of filing. The average take-home pay for Joe Debtor was $2,366 per month on a net basis, while the average household income was $3,058.

Read the full article here.

There’s another one of those semantics question articles in the Financial Post:

Canadian Housing: Bursting bubble or gentle landing?

Here’s one chunk of that article with a few asides that always seem to be missed:

Lewandowski believes Canada will not suffer a U.S.-style housing crash simply because policymakers had the benefit of watching it happen next door.

“What we experienced here in the U.S. with housing markets and regulators goes directly to the attitude and changes the minister of finance has made in Canada. A regulator who is being proactive is taking Step One in making sure the housing market doesn’t find itself in a bubble,” Lewandowski said.

So often it seems that ‘bubble’ is used as if it refers to the collapse in prices. It doesn’t. The ‘bubble’ is the inflation of prices beyond reason. By the time the collapse comes the damage is already baked in, falling prices are a correction of the problem, not the problem itself.

Both Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have been on the march against a housing bubble for years, aware how low rates and loose lending standards in the United States ignited a boom and bust there.

Well, Carney and Flaherty have definitely been ‘warning’ of consumer debt levels for a while, but government policies like following the US into 40 year zero down mortgages didn’t help to prevent a housing bubble.

The central bank has held rates low since the global financial crisis because growth remains tepid and global woes weigh on Canada’s export market, and Canadians can find a five-year mortgage rate below 3%.

Meanwhile in the states you can lock in to a 30 year mortgage for 3.35%. In fact, while house prices in the US were correcting, interest rates were falling as well.

But the government’s gradual tightening of rules for borrowers — a firm admission that the market was hotter than anyone was comfortable with — has taken some steam out of the market, and economists, like Carney, seem to believe a soft landing may be at hand.

“We’re encouraged by the fact the level of housing starts has come down to slightly below demographic demand, as we see right now, there’s still more adjustments to go,” he said in testimony to Parliament last week. “We’re encouraged by the evolution of house prices in a number of markets. We’re on the path to a balanced evolution of the household sector and we all have to continue to be vigilant.”

Ok, we’ll continue to be vigilant then.

When it comes to getting out of debt, Canadians have the best intentions.

But habits are hard to break.

PWC ran a survey last year where 64% of the people intended to cut their debt levels.

Unfortunately the follow up this year shows that only 23% had any success in doing so, 26% reporting that they were ‘completely unsuccessful’.

Noting that the current debt-to-income ratio sits at more than 160 per cent, the consulting firm called the trend to higher debt levels “unsustainable” for consumers.

“Similar with any diet, saying you’ll cut back and make better choices is one thing, while actually doing it is quite another,” said John MacKinlay, a national financial services consultant at PwC.

“We advise Canadians to take a hard look at their discretionary spending and prepare to make some tough choices on where to trim the fat.”

Read the full article here.

Johnny O pointed out this CBC feature on ‘the Monarchs of Money‘.

Central Bankers pulled the global economy back from the brink of a debt laden collapse by printing money.

Where does this lead and who benefits?

Quietly, without much public fuss or discussion, a new ruling class has risen in the richer nations.

These men and women are unelected and tend to shun the publicity hogged by the politicians with whom they co-exist.

They are the world’s central bankers. Every six weeks or so, they gather in Basel, Switzerland, for secret discussions and, to an extent at least, they act in concert.

The decisions that emerge from those meetings affect the entire world. And yet the broad public has a dim understanding, if any, of the job they do.

In fact, these individuals now wield at least as much influence over the lives of ordinary citizens as prime ministers and presidents.

Read the full article over at the CBC.

Some people express a lack of faith in current house prices by delaying buying or moving to better economic climates.

Others might make a friendly wager with a co-worker that house prices will be lower in 2014 than they are in 2013.

But how confident are you that a market correction will occur not just in Vancouver, but all across Canada?

And even if the national market corrected sharply do you think that would have much impact on our banks or would CMHC insurance protect them from any dramatic losses?

Do you really think a housing market crash would have as much effect on our economy as it did in the USA?

Would you be willing to bet 95% of your assets on the likelyhood of such an occurrence?

Vijai Mohan has made an all-in bet against Canada.

The founder of a small San Francisco-based hedge fund called Hyphen Partners LP has staked 95 per cent of his investors’ assets on a wager that the country’s housing market and banking sector are about to come apart at the seams. Mr. Mohan has amassed large short positions on Canadian bank shares and the loonie, betting their values will fall sharply.

“Canada faces two risks,” said Mr. Mohan in an interview. “Very few people are looking at those risks simultaneously. That collectively presents a lot of opportunity” – for someone looking to profit from Canada’s misfortunes.

Read the full article over at the Globe and Mail.

If you’ve made money by flipping condos or selling assignments for presales projects you probably already know that’s income.

If not the Canada Revenue Agency would like to remind you:

“We do from time to time target some sectors more closely than others,” he said. “We look at the real estate market in general. Of course, [there is more focus], it’s a hot market.”

Thats Sam Papadopoulous, senior public affairs advisor-manager with CRA’s Ontario region quoted in this Financial Post article.

“If you keep [assigning property] then it is not capital gains, that’s trade and that’s income,” said Mr. Papadopoulous, adding you do it a “couple of times” and it’s income. “Of course, that’s part of [what they are investigating].”

“We live in the information technology age,” said Mr. Papadopoulous, who wouldn’t get into how CRA is tracking down the tax evaders. “We are putting our resources to work and following the trail where we can.”

Read the full article over at the Financial Post.

It’s not just Vancouver.

Across Canada the condo market is looking a little peaked.

If this is a party the keg has run dry.

Toronto and Montreal are slamming the last of the jager and slurring. Vancouver is puking in the corner.

The last time we saw Whistler they were snorting white powder on the roof and screaming they could fly.

The hang-over for this one is gonna be a bitch.

It’s evident that the condo markets in Canada’s largest cities are in the midst of some sort of correction. That final chapter on this has not yet been written.

Here’s some advice. For investors, now that the condo party appears to be over, it’s worth wondering if anyone will be left with a hangover. If history is any guide, a hard landing in the condo market tends to hit those holding the financing on condo projects first and foremost.

That’s from this Globe and Mail article by Ben Rabidoux.

If you’re flustered by the Paywall at that site and you have some time downtown in the afternoon you may be able to hear it from the author himself.

Ben is doing a talk from 4 – 5pm at Canada place today on the future of the Canadian real estate market. Free pre-registration is required and we haven’t heard if there are still tickets left, but it’s worth a try if you’re interested in this subject.

Interest rates are at historical lows and it doesn’t look like that’s due to change anytime soon.

Of course if you could predict future changes with accuracy you could become incredibly wealthy.

It’s the unknown that’s the challenge and that’s why some people chose to pay a premium to lock in todays low rates for many years.

Unfortunately you can’t get the incredibly low rates that US buyers enjoy on a 25 year term, but 10 year rates have fallen along with 5 year and variable rates.

Ten year products are growing in popularity recently with terms available as low as 3.6% according to this article in the Financial Post.

only about 1% of the market locks in for longer than 10 years, Bank of Montreal recently did away with an 18 year locked in mortgage:

“We had to shelve that. It wasn’t a very accepted product by customers,” said John Turner, director of mortgages at Bank of Montreal. “People have a problem getting their head around that long of a commitment.”

Vancouver house prices have been falling for the last year, but they saw a small bump last month.

So have prices hit bottom?

And what about the national market?

For one view on what the future holds you might be interested in checking out the 2013 World MoneyShow Canadian Real Estate presentation happening next week at the Vancouver Convention Centre.

The last time Ben Rabidoux and David LePoidevin put on this show it got a fair amount of favorable feedback from commenters here. If you missed that presentation here’s your chance to catch it again.

The show is free to attend but requires pre-registration. It will be held downtown at the Vancouver Convention Center next Thursday the 18th from 4-5pm.

If you attended the last presentation feel free to leave your feedback and thoughts in the comment area here.