Vancouver Condo Info

You’ve probably heard of the Economist.

That magazine is the latest voice of doom when it comes to our housing market:

The magazine’s dire prediction comes as Canada’s mortgage brokers’ association is warning that the recent slowdown in home sales will continue and lead to large-scale job losses – though some parts of the country will continue to see growth in housing and related employment.

“A large bubble now looks set to burst,” The Economist predicts in its property markets report.

The U.K.-based business periodical found house prices in Canada are overvalued by 73 per cent when compared to rental prices, and 32 per cent overvalued when compared to household incomes.

Read the full Huffington Post article here and the original Economist article here.

The economist Dave Madani is at it again.

He’s got nothing good to say about the Canadian real estate market.

According to Dave it’s a bit early to claim there will be a ‘soft landing‘.

Finance Minister Jim Flaherty has acted four times in the past five years to make mortgage-lending rules more restrictive amid concern that the Vancouver and Toronto markets were overheating. Flaherty has said he welcomes a slowdown of condominium construction in the two cities and has warned consumers, who have a record debt-to-disposable-income ratio of 165 percent, not to become overextended.

Madani, a former senior economist at the Bank of Canada, was the only person surveyed by Bloomberg News during the past two years who consistently predicted the central bank wouldn’t raise borrowing costs. Madani previously forecast home prices in the country would fall by 25 percent in the next few years.

Read the full article over at Bloomberg.

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.

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.

Frances Bula has a good summary of the current state of debt on the Olympic Village.

The City of Vancouver hasn’t made it terribly easy to find out where we are in terms of paying for that mess, but with a little sleuthing it would appear we’re actually making good progress to pay off the $750 million construction loan the city took out.

Just $300 million left to pay on that debt.

Both Mr. Meggs and city manager Penny Ballem say it’s impossible to predict whether the remaining 181 condos (as of Dec. 31, 2012) and transferred Millennium properties will do more than cover the last $300-million of the outstanding debt (that figure was $462-million at the end of 2011).

If so, the remaining $171-million the city expected to get from Millennium for the land will never materialize.

So the city may never see any money for the land the Olympic Village was constructed on but hey, look at that beaver!

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.