Vancouver Condo Info

Banks in Canada get a lot of protection.

One thing that helps drive profit is CMHC mortgage insurance.

Wouldn’t it be great to make an investment where you got the profit and somebody else took over the risk?

The unfortunate side effect of this economic boosting is the the spectre of taxpayer liability for housing bubble fallout.

But what if the banks bailed out the CMHC after being bailed out by the CMHC?

Sounds a bit like a perpetual motion machine but that’s what BMO analyst John Reucassel is suggesting could happen if the CMHC went bust:

“It appears to us that the CMHC is reasonably well capitalized and positioned to meet the challenges from a housing slowdown.  However, investors may be concerned that, in a severe downturn, Canadian banks may either a) need to recapitalize the CMHC; or b) absorb some of the losses.”

Read the full article over at the Financial Post.

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‘.

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.

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.

What is going on in the mortgage world?

Now Flaherty is personally calling up banks and asking them to raise their mortgage rates.

On Tuesday, Manulife Bank dropped its posted interest rate for a five-year fixed-rate mortgage to 2.89 per cent. That’s the lowest posted rate for that time frame the company has ever offered. But in an about-face later in the day, the company pulled the offering and reverted to its former rate above three per cent.

“After consulting with the Department of Finance, Manulife Bank has withdrawn the promotional campaign and reverted to our previous posted rate,” the company said in a statement.

Read the full article over at the CBC.

Are a few pips in mortgage rate really driving people to run out and overpay?

There’s an interesting opinion piece over at the Tyee:

Canada’s Reckless Banks Inflate House Price Bubble

The story suggesting house prices were overvalue by just 20 per cent was based on a report from Fitch ratings — a company which rates mortgage backed securities. A less sanguine and more objective estimate of the overvaluation comes from a report by The Economist, which says the figure is 78 per cent as against rents (the highest in the OECD) and 34 per cent (second only to France) as against income. The U.S. is undervalued by seven per cent and 20 per cent respectively, which gives you an idea of how bad things can get when a bubble bursts, or even if a balloon deflates — the favourite analogy of the wishful thinkers.

Writer Murray Dobbin calls the banks ‘reckless’ for pulling in buyers with rock bottom interest rates, but they aren’t being reckless at all. It would be reckless to leave taxpayers money on the table when the government is so eager to give it to them via the CMHC.

He does wrap up the piece with a very clear statement of who is to blame for the mess we now find ourselves in:

Responsibility for the intractable mortgage dilemma can be laid decisively at the feet of Flaherty and his own recklessness back in 2007. That’s when he opened up the CMHC’s mortgage business to U.S. competition. We soon had the same lunacy here as they did south of the border: no down payment, 40-year sub-prime loans. That year-and-a-half experiment (Flaherty finally got scared smart and started to rein it in) is what spurred the irrational drive by so many Canadians to own a home.

Read the full article over at the Tyee.

It’s not April 1st yet is it?

Because this article in the Globe and Mail reads like some sort of weird parody.

Canada’s Finance Minister has taken his battle against a housing bubble an extraordinary step further, issuing rare praise for the country’s banks for not matching Bank of Montreal’s cut-rate mortgages

What?

Ottawa is growing concerned the banks could end up causing the housing market to overheat, especially after Mr. Flaherty has gone to great lengths to cool the market over the past year.

Could overheat? What brand of rear-view mirror are they using? Maybe if you didn’t use taxpayer money to ensure that they make money from mortgage business but take not risk of loss thanks to the CMHC that would help cool the market a smidge?

Mr. Flaherty and Bank of Canada Governor Mark Carney have waged an all-out war against the massive build-up in consumer debt to record levels. Along with Mr. Flaherty’s restrictions – which reduced the maximum amortization on mortgages last year to 25 years, down from 30 – the central bank went so far as to warn it could raise interest rates to tame the borrowing binge.

All out war?!? This gets better and better! They reduced amorts to 25 years but who jacked them up to 30 in the first place? And warning that rates could go up? Boy, that’s tough!

Battling a housing bubble by undoing the things you did to fuel it is a bit like thinking that getting rid of your slingshot should be enough to un-break all those windows you shot out.

“I encourage responsible lending,” Mr. Flaherty said Friday. “I think that the financial institutions of course are major players in the residential mortgage market and it forms a major part of their asset portfolios and the Government of Canada has a lot to say about it, not only because we’re concerned about the economic fiscal health of the country, but also we have CMHC [the federal mortgage insurer] and many of those mortgages held by the private sector financial institutions are insured with Canada Mortgage and Housing Corp.”

Maybe via the CMHC you’re encouraging too much lending, responsible and not.

And here’s the punchline:

Mr. Flaherty’s praise of BMO’s rivals may be somewhat off target, though, since most of the lending sector is quietly offering the same rates as BMO, mortgage professionals say

Phew. Is that enough stupid for your monday morning?

Over at Bing Thom architects there’s an interesting post looking at the line that divides the city when it comes to single family homes over the $1 million mark.

One thing they point out, more than half of Vancouvers land mass is zoned for ‘single family homes’ (which currently actually can mean ’3 family homes when you count suites and laneway homes).

As a legacy of planning from the 1920s, these areas have some of the most abundant levels of family supportive infrastructure in the entire city. For example, 90 (80 percent) out of the 113 Vancouver public schools are in these areas. From elementary and secondary schools to parks to playgrounds to community centers, there is a considerable amount of public investment found in these sections of Vancouver. This rich infrastructure has helped generations of Vancouverites raise children and set roots in the City. At the same time, this infrastructure was developed when the average household income in the City of Vancouver could readily afford to live in these areas. For the sake of reference, the average household income in the City of Vancouver is about $68,000 a year with a median income of $47,000 according to the 2006 census (latest numbers available) or $78,000 and $54,000 respectively in 2013 dollars. What is the future of these pieces of infrastructure (and neighbourhoods) in an era when the majority of the single family homes in the City of Vancouver are now worth over $1 million?

We recently discussed the $519k line, which is where the lower end of SFH prices are currently. It will be interesting to watch the movement of this million dollar line in the future as well.

As GreaterfoolVancouver points out, CMHC will no longer insure property over the $1 million line, so it looks like Quebec street is the border line for 20% down payments.

What’s your prediction for the 2014 edition of this map – more red or more blue?

The CMHC tends to have some pretty rosy forecasts for the future of Canadas housing market.

But if all is well, why are they now trying to get real estate agents to hide foreclosure status from potential buyers?

After recent stories about deceptive marketing practices, it’s heartening to hear that a group of Realtors in Quebec have raised issues of an ethical breech after the CMHC asked them to conceal foreclosure status on properties for sale.

The Quebec Federation of Real Estate Boards, which oversees the 12 real estate boards in the province, says it challenged CMHC about the change requiring them not to report on a detail sheet that properties for sale were part of a foreclosure, despite the fact that information is considered mandatory when loaded by brokers onto the selling system of local boards.

“Because the repossession field is currently a mandatory field in the brokerage system you have no choice by to indicate ‘no’, which goes against ethical rules stipulating that real estate brokers are obliged to publish information that is truthful and verified,” the group said in a statement to members.

The two sides resolved the issue by making it no longer mandatory to reflect the foreclosure status of a home, based on the seller’s instructions.

So why does the CMHC not want you to know about foreclosure status? Because then you might be tempted to bid on cold logic rather than emotion.

“Look at what is going on right now in financial institutions and everybody is ratcheting up their loan-loss provisions,” said Ben Rabidoux, a Canadian analyst for California-based Hanson Advisors, a market research firm whose clients are institutional investors. “Everybody expects loan losses to rise. I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books.”

By limiting the information on whether a property is part of foreclosure, the Crown corporation would potentially avoid a situation in which a buyer knows it has to sell. In the United States, foreclosed properties have sold at huge discounts.

Read the full article here.

Think home prices are a touch high in Canada?

Concerned about falling house prices and the spin-off effects on the larger economy?

If you’re looking for an outline of the way the federally run Canadian Mortgage and Housing Corporation (CMHC) took part in a reckless race to bottom against US competition and put the Canadian economy at risk you could do a lot worse than this Globe and Mail article .

Created in 1946 to help returning Second World War veterans find homes, CMHC had morphed over the years into a multibillion-dollar goliath that fuels bank lending and housing demand by insuring riskier mortgages, especially those in which the buyer has only a small down payment. Without that insurance, many more people would be shut out of the real estate market, unable to get a mortgage from a chartered bank.

It has also been a lucrative venture for the government. But that business was now being eroded as a result of the arrival of aggressive U.S. insurers into Canada.

The American companies were willing to do things CMHC had never done. Some were even backing “zero-down” mortgages in which the buyer borrowed every dollar needed to pay for the home.

Fortunately as fiscally responsible Canadians, we didn’t follow the US example and start backing ‘zero-down’ mortgages.. Oh wait, actually we did.  In fact the CMHC was a little late in its turn around, only starting to pull back the changes after it was obvious the US economy was tanking due to the bursting of a housing bubble.

So how much did the CMHC influence the rise of Canadian house prices?  That’s the source of much debate, but as the G&M puts it:

What is beyond dispute is that CMHC’s rules have enabled a change in behaviour among home buyers like Ashleigh Egerton. When she and her boyfriend bought a townhouse in Brampton, Ont., in May, 2008, they could have made a 5 per cent down payment – but opted to put nothing down instead.

“Instead of putting that money into the house, we felt like we’d be off to a better start if we had some money to furnish the house,” Ms. Egerton says. “I wasn’t under the impression that I would be paying this house off. This wasn’t the house that we would be staying in forever, it was just about getting into the market, getting a place.”

But the zero-down mortgages created a new problem in the housing market: Buyers who weren’t building any equity in their properties, since the payments were primarily covering the interest in the early stages of the loan. When Ms. Egerton moved out about two years later after splitting up with her boyfriend, the pair still didn’t have any equity in the home.

I’m going to stop myself now, because I could just keep quoting from this article.  If you have any questions about the role the CMHC has played in the Canadian housing bubble do yourself a favour and read the full article.