Category Archives: Canada

The ‘cry wolf’ club

There are a few organizations that have raised a public alarm over the state of the Canadian housing market, with particular focus on Toronto and Vancouver:

The IMF, The Bank of Canada, The Canadian Mortgage and Housing Corporation, The Office of the Superintendent of Financial Institutions, Most of the big banks, The OECD, and more.

It seems that everyone is freaking out about the Canadian housing market.

Despite industry assurances that the hottest housing markets in Canada, particularly Vancouver, will always remain hot, and that it is physically impossible for prices to decline in this miracle economy, Canadians are now becoming aware that those assurances have just been another load of industry hype. And a larger share of them are starting to grapple with a new reality – a reality in an over-leveraged, inflated housing market where prices have come to rest on the edge of a cliff.

In Vancouver’s once white-hot commercial real estate market, the hunt is now on for Chinese buyers as big institutional investors are trying to unload.

And yet, despite years of warnings here we are near record high house prices. If you bought a few years back and sold a month ago, you’ve done quite well.

So it seems we’re now entering another down phase, with reports of softening sales and prices, especially at the high end. The warnings are getting louder, but of course there are always people who propose that this market is different and will never truly crash.

Sometimes the number of warnings and lack of crash almost seems to prove it – Just like the boy who cried wolf, we start to get desensitized to all the warnings.  Unfortunately for some of the villagers we all know how that story ends.

Will dropping house values help affordability?

According to RBC, Vancouver just saw the biggest back to back deterioration in housing affordability in 26 years of record keeping. So for those thinking they might want to be able to afford property, they might like to hear that the Vancouver market is apparently ‘softening’ according to TD:

A new study suggests the two hottest real estate markets in Canada appear to be headed in different directions, as Vancouver softens and Toronto looks to maintain its momentum.

In a report published Tuesday, TD Bank said Vancouver has started what is expected to be a modest correction, which will be reinforced by the recent implementation of the land transfer tax on non-residents.

“Home prices are projected to decline by about 10 per cent in the region by mid-2017, before stabilizing later in the year,” TD said.

Of course even with that predicted price decline, it’s not exactly going to bring Vancouver house prices into the really ‘affordable’ range.  Read the full article here.

Canadian economy is doomed

Do low oil prices and a real estate bubble spell trouble for the future of the Canadian economy? Jared Dillian, former Lehman Brothers trader and financial writer is predicting a continuously dropping dollar with a long drawn out housing market crisis:

Unlike the US market, the mortgage market in Canada is not securitized. This means the housing crisis in Canada won’t be quick the way it was in the US (6/2007 to 3/2009).

Dillian says a long, drawn-out “death by a thousand cuts” scenario is in the cards for the Canadian housing market. And, this economic pain will probably last years.

He also notes that nearly all mortgages in Canada are “recourse mortgages” (except in Alberta). This means in-the-hole homeowners are not as likely to walk away as they were in the US housing crisis.

Is this the time that the wolf actually shows up, or just another failed prediction of doom? Read the full article and view the video interview over at Business Insider.

Bubble mostly driven by risky lending conditions

A UK firm is saying that Vancouver house prices are being primarily driven by low interest rates and lax lending standards rather than foreign buyers:

In an effort to explain why Vancouver and Toronto have experienced sharper increases in home prices compared to other Canadian cities, the paper looks at lending conditions for insured mortgages.

It states that last year in Montreal and Ottawa, about 10 percent of insured mortgages had a loan-to-income ratio of more than 450 percent.

Meanwhile, in Toronto, about 40 percent of insured mortgages were made at that risky quotient, and in Vancouver approximately 33 percent of insured mortgages had a loan-to-income ratio of more than 450 percent.

“We’re reliably informed that the mortgages in Toronto now stretch to 600% of combined gross income,” the newsletter reads. “So two people both earning $100,000 gross can borrow $1,200,000. What has really changed in the past 12 months is not a big increase in foreign buyers, but a further decline in interest rates, which has allowed lenders to relax lending standards even further.”

The paper concludes with an alarming statistic related to Canada’s gross domestic product (GDP).

It states that while real estate ownership-transaction costs still only account for 1.8 percent of GDP, since the first quarter of 2014 commissions on real-estate sales accounted for 21 percent of Canada’s overall gain in nominal GDP.

Read the full article in the Georgia Straight.

CRA plans increased ‘lifestyle audits’ in Vancouver

The CRA suspects some people in Vancouver might not be paying tax on all world-wide income and are going to be taking an extra hard look at big spenders who aren’t big tax-payers.

Over at the Globe and Mail Christine Duhaime a lawyer who focuses on financial crimes explains how it works:

“They all follow what we call the same typology. … They all want an expensive Lamborghini or a Ferrari, they want a really expensive house, they send their kids to the most expensive private schools they can get in Vancouver,” she said. “So when you try to find money launderers, that’s what you look for. Who went to the Ferrari shop? And that’s what they mean by the ‘lifestyle audit.’”

Ms. Duhaime said while many people think of money laundering as something done by drug dealers, in fact the activity is more often associated with white-collar crime and usually involves tax evasion.

Will going after tax cheats have any effect on the overinflated housing market in Vancouver?  Read the original article here.