Archive for the ‘economy’ Category

Federal audit looks at Vancouver Real Estate transactions

Thursday, August 27th, 2015

Vangrl pointed out this story in the Province:

Vancouver’s booming real estate industry is being targeted in a federal money-laundering audit that could potentially lead to massive fines and jail time for realtors.

Ottawa’s increased examination of Vancouver real estate deals has been under way for several months and has been revealed in a Province investigation that obtained rare internal data and risk-analysis reports from Canada’s financial intelligence unit, Fintrac.

Documents obtained under access to information law — and The Province’s interviews with a wide array of B.C. real estate professionals, money laundering experts and Fintrac officials — suggest dramatic under-reporting of large cash transactions and suspicious transactions that realtors and developers are responsible to make to the federal government.

“We have significantly increased our examinations in the Vancouver area,” a Fintrac official said. “Our compliance people are not happy.”

Read the full article here.

Why worry about home ownership rates?

Wednesday, August 19th, 2015

Some people have expressed concerns about Canadian home ownership rates hitting the highs that were last reached in the US before their market crashed, while others have said they’ll do what they can to increase home ownership rates in Canada.

So why would anyone worry about high ownership rates anyways?

ILoveCharts posted their take in the previous thread, and that comment is reproduced below:

Why do we need to worry about high home ownership rates?

1) Because when too many people own a home, it reduces the mobility of our workforce. Given the spotty/local nature of our economy, it’s important for our economy for people to be able to move within the country to follow the hot spots. When commodities are hot, people need to move to the west and our dollar is higher so manufacturing in the east suffers. When commodities are doing poorly the dollar drops and people need to move east to escape the barren mines, forests and oil fields of the west. Until we see major investment in diversification at the provincial level (likely will never happen,) this cycle will continue. With high home ownership rates, the teeter totter has tipped but people are nailed to the plank and they are stuck.

2) Because there is a practical maximum and a natural median. There will always be people who can’t practically buy (they are students, in poverty, etc.) When you go through a period of above-average buying, you expand the size of the housing industry (construction, realtors, etc.) in a way that is not sustainable in the long run. Once you hit the maximum, it only has one way to go to get back to the median. In the process, a lot of people lose their jobs. Seeing as 70% of people own homes, they start to run into problems with their mortgage. You can try to move the maximum point a little bit with new lending rules.. but you can only play that game for so long. Are we going to bring back the 40 year mortgage? Shocking to hear that we are going to allow $70k tax free out of the RRSP…

3) Because home ownership provides little to no value to society when it’s more expensive than renting. We want Canadians to be saving their money and investing in Canadian companies through Canadian stocks. We want those vast sums of money to deployed in our markets – creating and growing enterprises. Ownership of dirt doesn’t move our country forward.

The price of land is arbitrary. We have the second lowest population density in the world. It’s an incredible sign of weakness that we have allowed ourselves to get into a situation where we each pay so much for little pieces of it. We need to blame ourselves and our governments. We need to blame ourselves for feeling entitled to increases in the value of our property. Businesses with growing cashflows deserve to increase in value. Dirt does not – at least not at this rate. We need to blame the governments for being so willing to satisfy our demand for their short-term gain.

Now we’re hooped. The NDP wants to bring in massive social housing projects, the Conservatives want to use what is basically a nationalized bank (CMHC) to backstop ever-increasing mortgages for an ever increasing portion of the population and the Liberals just want to legalize weed.

I honestly can’t think of a way out of it.

It’s not a bubble, it’s a balloon. Lets give it more air.

Monday, August 17th, 2015

Patriotz pointed out this article over at the Globe and Mail:

Economist caution against Harpers focus on rising home-ownership rate.

Stephen Harper is putting a new focus on Canada’s rising home-ownership rate, but some economists warn that pushing to drive it higher is a “wrong-headed” approach in an overheated market.

In government, the Conservative Leader brought in policies to encourage Canadians to save for their first home. Now, on the campaign trail, Mr. Harper’s promotion of home ownership is shaping up as a key part of his party’s pitch to Canada’s younger middle-class voters as he promises a package of new measures.

In a new twist to his message, Mr. Harper recently boasted that his party’s policies have contributed to the fact that Canada’s home-ownership rate is now higher than in the United States.

We’re number one! We’re number one!

Canada’s home-ownership rate is not often cited by Mr. Harper. It is a statistical achievement that did not turn out well for the U.S. when it reached a similar level more than a decade ago.

Oh. Read the full article here.

Mayor: city is at a ‘breaking point’

Wednesday, July 29th, 2015

When it comes to housing affordability Mayor Robertson says that Vancouver is at a breaking point:

 “The conditions and the context keep getting tougher and tougher in Vancouver as the city gets more and more expensive and more desirable to people all over the world to invest in and move into. We’re basically at a breaking point where we need interventions in the market to ensure that people who live and work and grow up here in Vancouver have the opportunity to stay in the city and to keep being part of it and contributing.”

You may recall the Mayor wrote a letter to the BC Premier supporting the idea of speculation tax. The response from the Premier was based around the fact that such a tax would risk driving down house prices.

The Mayor responds to that idea in this interview at the Tyee:

“I think it’s completely wrong. It’s a totally different subject. What we’re talking about is taking some of the profit out of flipping and speculation, which doesn’t have to do necessarily with foreign ownership or homeownership or the value of homes. This is a business activity that’s taking place every day here in Vancouver where there’s a lot of profit, and it’s an option to transfer some of that profit so people can afford to live in the city. They went off on a completely different tangent in their response at the provincial level, and that’s unfortunate. The premier has said that affordable housing in Vancouver is a problem. Well, we need some action to deal with that.”

The problem with low debt levels

Tuesday, July 28th, 2015

We’ve seen lots of warnings about dangerously high consumer debt levels in Canada for years now, but here’s something new: Millennials lack of debt may be a sign of trouble.

Insolvency filings by consumers have started to edge higher after a long decline that began after the last recession. As has already been widely noted, the share of insolvencies accounted for by seniors is growing faster than any age group. What has not had much attention is the fact that the young-adult share is falling. Could this be a rare bit of good news for a cohort of the population that has been struggling financially?

Falling insolvencies among young adults definitely sounds good, but every silver lining must have a cloud right?  What’s the chicken-little take on this situation?

Hoyes Michalos recently produced an analysis called Joe Debtor that looked at people who make insolvency filings. The firm says 86 per cent of debtors ages 18 to 29 are working, but their average income is the lowest of all groups at $1,996 on a net basis per month. The average unsecured debt for the group is $32,229, also lowest of all age groups.

Personal loans are the biggest debt component at $11,841 for young adults making insolvency filings, followed by credit cards at $9,858. Almost 30 per cent have student debt, with the average amount owed averaging $3,716.

Their problems in today’s economy may have kept millennials from worse debt problems, Mr. Hoyes suggests. “If you haven’t been able to get a decent job, then it’s a lot more difficult to get into a huge pile of debt.”

In today’s debt-hungry world a lack of bankruptcies is indicative of a low income, how’s that for a bummer?

Protect the housing bubble!

Wednesday, July 22nd, 2015

It seem natural that most readers of this site would appreciate an MLA standing up for more data on real estate transactions in BC.

It came after Weaver had introduced a private member’s bill to amend the Land Title Act. If it is approved by a majority of MLAs, it would enable the B.C. government to determine foreign-investment flows in the real-estate market, as well as the extent of corporate buying of property.

Unfortunately in a province where everything seems to revolve around real estate and sensitivities around that topic what you end up with is wishy-washy comments that are nonsensical.

Southseacompany points out that Green MLA Andrew Weaver has asked the finance minister what is being done to prevent a Vancouver housing bubble from bursting.  Unfortunately there appears to be some logical inconsistencies in the MLAs statements:

I especially can’t figure that first sentence on Weaver’s blog;

“Today in the legislature I rose to question the Minister of Finance as to what steps, if any, government is taking to ensure that Metro Vancouver’s potential housing bubble doesn’t burst and that housing remains affordable in the region.”

Remains affordable? And that if this bubble burst and prices fell, then… it won’t be affordable??

This man’s nonsense is a waste of time.

 

It’s a bad time to have Canadian dollars

Wednesday, July 15th, 2015

The Bank of Canada took another strike at driving down the Canadian dollar and cut the key interest rate by .25% to a slender .50%.

Canada’s central banker isn’t using the R-word – recession — but Stephen Poloz is cutting the Bank of Canada’s key interest rate by 25 basis points to 0.5 percent as he forecasts two back-to-back quarters of economic decline amid the crash in crude prices.

With Canadians carrying record-high debt loads and cheap money fuelling hot housing markets in Toronto and Vancouver, the 25 basis point rate cut will be seen as a risky play in some quarters, adding more fuel to the debt fire.

Read the full article over at BNN.

Investigative Journalism is alive and well

Wednesday, July 8th, 2015

Channel 4 in London has done an experiment on estate agent reactions to potential buyers using obviously ill-gotten gains. The results were predictable:

In a documentary called From Russia With Cash, to be broadcast on Wednesday, two undercover reporters pose as an unscrupulous Russian government official called “Boris” and his mistress “Nastya” whom he wants to purchase an upmarket property in London for.

The couple – Russian anti-corruption campaigner Roman Borisovich and Ukrainian investigative reporter Natalia Sedletska – view five properties ranging in price from £3m to £15m, on the market with five different west London agents, in Kensington, Chelsea and Notting Hill.

Despite being made aware they are dealing with ill-gotten gains, the estate agents agree to continue with a potential purchase. In several instances the estate agents recommend law firms to help a buyer hide his identity.

One estate agent names a “very, very good lawyer … the last person I put them was another minister of a previous Soviet state” in a deal worth £10m.

The estate agents suggest that in the capital secretive purchases of multimillion pound houses are common. One claims that 80% or more of his transactions are with international, overseas-based buyers and “50 or 60%” of them are conducted in “various stages of anonymity … whether it be through a company or an offshore trust”.

Read the full article here.

Realtors hungry no more!

Monday, July 6th, 2015

Home buyers may be eating a lot of Kraft Dinner but Realtors are doing fine.  From RFM over at Vancouver Peak:

The VANCOUVER REALTOR HUNGER INDEX is the percent of realtors who earned no commission income for the stated month. For June 2015 the VRHI was 34%. How does this compare? The 18-year average for June is 39%. At 34%, the 2015 June VRHI was higher than 8 years and lower than 9 years since 1998.

The lowest June inventory in nine (9) years and strong demand forced already high prices higher, especially in single family homes, where the HPI reached a stratospheric $1,123,900. Fueled by continuing historically low interest rates, a flood of foreign investment money and panic buying by uninformed and delusional buyers, the June sales rate is extraordinary! And unsustainable. And prices are unsupportable. For a complete analysis of the market dynamics of this firestorm, consult the DSM-5! (The Diagnostic and Statistical Manual of Mental Disorders (DSM-5), published by the American Psychiatric Association, offers a common language and standard criteria for the classification of mental disorders.)

Details and comparison data for 18 years at: http://vancouverpeak.com/showthread.php?tid=64

Party like it’s 1981

Wednesday, July 1st, 2015

Remember the 80’s?

Big hair, jelly bracelets and 20% interest rates.

Homebuyers back then had a tough time, they had to save up for a big down payment and the cost of holding a mortgage was high.  All that hard work and sacrifice was well rewarded though as Rob Carrick points out in the Globe and Mail:

The high interest rates of the early 1980s must have felt unbearable for all Canadians buying homes and arranging mortgages (it was heaven for savers, but never mind). The reward for perseverance was a 30-year run in which resale house prices on a national basis surged by an average annual 5 per cent and were up in 28 of 34 years.

This rally was fed by falling interest rates. After the visit to high-rate hell in the early 1980s, home owners benefited from a long decline in rates that continued into 2015. House prices haven’t gone up because homes are a great investment, because of immigration, because of foreign money or because home ownership is awesome. It’s because we’ve had a 30-year sale on the cost of financing a home purchase, with ever-increasing deep discounts.

That sale may be ending. There’s a growing sense that the U.S. economy is on the upswing, and interest rates in the bond market have already started to creep higher. Mortgage rates take their cue from rates in the bond market, so we could see lenders increase fixed-rate mortgage costs at some point this year or next.

For the historical perspective read the full article here.

The thing that may surprise you is that despite a housing market that has provided magical returns for older buyers and cheaper and cheaper debt seniors are still going bankrupt in record numbers.

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