Category Archives: Canada

Housing crash implications for banks

If you haven’t seen it yet, you should really check out this post by Ben Rabidoux over at The Economic Analyst.

This report was put together mid-June and things haven’t gotten any better since then.

It’s a lot of stuff you already know, but some data you may not have seen and it’s jam packed with beautiful charts.

Check out the how the BC economy has grown in construction, but flatlined outside:

And there’s this little data point as well:

Before diving into the data, consider this fun anecdote: There are currently over 5,000 homes in Vancouver metro area for sale for over $1 million according to MLS.ca.  In comparison, the NAR reports that in April, just over 7,000 homes sold in the entire US were sold for over $1 million.  And this despite the fact that the US population is 135X greater than the metro Vancouver market, the average personal disposable income in the US is 20% higher than the Vancouver average ($37,100 vs. $30,800) while US per capita GDP is higher than the average for all of BC.

Do yourself a favour and read the full post over at The Economic Analyst if you haven’t already.

 

 

 

 

Friday Free-for-all!

It’s that time of the week again!  Friday is when we do our regular end of the week news roundup and open topic discussion thread for the weekend.  Here are a few links to kick off the chat:

Vancouver market in full retreat
Championship of lost sales
REBGV news release for July 2012
GVREB news release for July 2012
How much $ has left the economy?
New site forces realtors to compete
‘Think Housing’ contest winners
Renovation Boom
BCSC alleges million $ fraud
No new steps to cool market
New framework for credit unions
Global slowdown dashes hopes
Unsold Toronto condos growing

And here’s a couple of charts, the first one is from VMD and shows what the average Vancouver house price has done in the last two years:

This second chart is from Ben Rabidoux and was linked by Jesse – you can draw on your own red line for July:

So what are you seeing out there?  Post your news links, thoughts and anecdotes here and have an excellent weekend!

 

Business Confidence dips again, now at 3 year low

It’s not just Vancouver house sales that are heading down.

Business confidence in Canada dipped for a fourth month in a row and is now at a 3 year low.

This according to a survey from the Canadian Federation of Independent Business.

The last time it was lower was in July of 2009, when it stood at 58.6.

CFIB chief economist Ted Mallett says the index’s current position in relation to gross domestic product puts it very close to the zero-growth mark, suggesting Canada’s economy is nearing a standstill.

On Tuesday, Statistics Canada reported the economy had grown a disappointing 0.1 per cent in May, leaving the pace of the recovery at slightly below two per cent on an annualized basis.

The CFIB says confidence declined in July even in resource-rich provinces like Alberta, which saw a drop of three points to 70.3.

So taking out a home equity loan to fund your underperforming small business?  Maybe not such a good idea unless the revenue is there.

7 Canadian banks get negative outlook

Standard and Poor’s have downgraded their outlook for 7 Canadian banks from stable to negative.

And what has motivated this downgrade?

High housing prices and consumer debt.

Now you can bet that S&P are aware of the CMHC and the backdoor bank bailout, but when things get this out of balance there is a spill-over effect.  If you can’t pay the mortgage you probably aren’t paying the credit card bill either, and there’s no CMHC buying up credit card debt.

“A prolonged run-up in housing prices and consumer indebtedness in Canada is in our view contributing to growing imbalances and Canada’s vulnerability to the generally weak global economy, applying negative pressure on economic risk for banks,” the rating agency stated in its decision. “Growing pressure on banks’ risk appetites and profitability arising from competition for loan and deposit market share could also lead to a deterioration in our view of industry risk.”

The seven Canadian banks with a negative outlook are:

-Bank of Nova Scotia
-Central 1 Credit Union
-Home Capital Group Inc.
-Laurentian Bank of Canada
-National Bank of Canada
-Royal Bank of Canada
-Toronto-Dominion Bank

Full article in the Globe and Mail.

 

Ready for a 25% off sale?

A day after the RBC released a report saying there is no condo bubble in Toronto we get a conflicting report from Capital Economics.

Not only do we have a housing bubble problem in Canada, it appears to be peaking and bursting right now.

Economist David Madani says get ready for a 25% drop in prices.

The thing people always seem to forget when it comes to housing markets is that they move SLOWLY.

Housing prices typically respond to changes in the market with a lag of five to nine months, according to Mr. Madani. He points out that home sales have already seen material declines, down 4% over the last two months. Vancouver in particular has been hard hit, with sales down 28% year-over-year.

“Overall, the willingness of buyers to pay these historically high house prices now looks to be proving fragile against the increasingly disappointing macroeconomic backdrop,” he said. “The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.”

Check back here in two years to see whose prediction was more accurate: RBC or Capital Economics.