Category Archives: economy

Canadian Banks could absorb losses in US-style housing crash

Good news for your monday morning!

If Canada saw a ‘US-style housing crisis‘ the big 6 banks could generate enough capital in a few quarters to cover losses.

If Canada were to experience a U.S.-style housing crisis, with house prices falling by up to 35 per cent, mortgage lenders including the country’s big six banks could lose nearly $12 billion, according to a new report from Moody’s Investors Service.

CMHC would also take a hit of about $6 billion if they challenge and reject claims, but if they decided not to they would take about half the loss as it would be more evenly split between the banks and CMHC.

You probably don’t have to worry about a US-style nationwide housing crash, because we have a different mortgage market that is explicitly backed by the government. The main concern would be rate increases and job losses as Canadian debt loads continue to increase:

There was almost $1.6 trillion in mortgage debt outstanding at the end of March, including home equity lines of credit, more than double the amount outstanding 10 years ago.

Read the full article over at the Financial Post.

Pity the detached home-owner

There’s a lot of angry young people in Vancouver, people who think they deserve to be able to afford a home in this specific city.  A few of the angrier ones would like to make the issue all about race, but I guess if you’re of a certain kind of mindset EVERYTHING can be about race.

It wasn’t always like this.  Vancouver used to be a nice small town where the average income would be able to to stretch and afford a local detached home.  Wouldn’t it be great to have gotten in at that time?

Maybe not.  After all, It’s not these owners fault that property prices have gone up and up and property taxes have nudged up a bit as well.

Fortunately if you’re in this group the mayor of North Vancouver has got your back.

Mr. Mussatto said this week that he would like the province to look into separating single-family houses from condominiums and multiple-unit dwellings so owners of single-family houses could be charged a lower tax rate.

The mayor argues that while the value of single-family houses has skyrocketed in recent years, the value of condos has remained relatively stable. “If you’re a condo owner, your taxes may indeed be going down this year, because condos didn’t go up much or they didn’t go up at all compared to single-family homes,” he told me in an interview. “The bottom line is that there are some people who are getting hurt pretty significantly and I want to make sure that we’re fair with the tax system so everybody pays their fair share.”

Read the full article over at the Globe and Mail, and then if you’re so inclined go back to your racist rantings. That’s sure to be an effective way to change the way things are and get everybody on your side.

Gentleman says “It’s not if, but when bubble bursts.”

CCEC Credit Union is a vancouver-based lender.

Their CEO has the delightful name of “Ross Gentleman” and is interviewed over at BNN where he says that the Vancouver housing market is in a bubble and it’s not if, but when it bursts:

He says they are seeing a number of people ‘trolling’ lenders looking for financing on speculative purchases.

He calls the upper end of the market potentially more volatile and says that CCEC is committed to more conservative lending and tends to focus mainly on primary residences.

Mayor explains why Vancouver is so expensive

Lots of young people like to complain about high housing costs here, but do you know why Vancouver is so expensive?

The Mayor explains:

“…Our cultural scene punches above its weight and routinely draws international attention to our theatre, music, comedy, and visual arts. In its first year, we had Canada’s largest public New Year’s Eve celebration. Hundreds of thousands of people year over year come out to watch one of the largest Pride parades in North America.

Patios stay open later, our craft breweries are exploding in popularity, and our food trucks are globally revered. Car-Free Day on Commercial Drive and Khatsahlano Fest on West 4th pack thousands of families on our streets every summer. The PuSh Festival, viff and the Folk Fest get capacity crowds and have lineups onto the street.”

We are pretty much just like London, New York and San Francisco. Read the full write up by the Gregor Robertson over at the Walrus.

18-34 year olds more likely to live with mom and dad

It used to be that most parents would provide their kids with food and shelter until they left high school. Some would stick around home while attending higher education, but most would move out on their own and start taking responsibility for themselves.

Then a funny thing happened in the economy.  Stuff changed. Incomes declined while the cost of living went up.

For the first time in modern history 18-34 year olds in the US are more likely living with their parents than on their own, with roommates or with a romantic partner.

A big reason is a decline in economic opportunities. As the cost of living has escalated and wages have stagnated, young people face mounting student debt and daunting barriers to renting or owning a home, creating obstacles to cohabitation and marriage.

The trend is led by young men, whose fortunes have been declining since the 1960s. While they have always lived with their parents in greater numbers than young women, this setup became the dominant living arrangement for them in 2009. In 2014 35 percent of young men lived with parents, while only 28 percent lived with a spouse or partner (for young women, the percentages are flipped: 29 and 35, respectively).

read the full article here.

Vancouver market now a national problem

Most people in Canada don’t care about the Vancouver housing market, but that doesn’t mean they would be unaffected by a bursting housing bubble here.

Canadian Business argues that what we need is a national regulator to deal with risks in the financial system:

In 2013, the International Monetary Fund called on Canada to create a federal entity with a clear mandate to monitor threats to the financial system. The IMF earlier this month scolded Ottawa for so far ignoring its advice.

The Vancouver house-price surge is exactly the sort of thing the independent agency should handle. It is a national issue: everyone knows who will be called on to clean up the mess if it bursts. The banks would feel it and likely would curb lending. CMHC would feel it because it has insured most of the mortgages Vancouverites have used to buy their inflated assets.

Unfortunately as a politician anything you could do about the housing market would most likely be political suicide. Owners are voters and nobody wants to see the value of their home drop.  Read the full article here.

Burnaby Breakfast on Housing Affordability for 1st time buyers

A while back NDP MLA David Eby held an ‘emergency meeting‘ on the Vancouver housing crisis.  (Presumably called a ‘crisis’ because the 25-44 age group is leaving Vancouver faster than they are arriving.)

But you should not be under the impression that the BC Liberals are sitting back and doing nothing about the housing situation here.

Not only have they announced new real estate rules to address many of your concerns, the minister responsible for housing will be attending a Burnaby North Breakfast on Friday May 20th about housing affordability for young first time buyers.

Tickets are only $20 and all proceeds go to support the Burnaby North Riding Association. If you are unable to make it, there is a convenient link to make a direct donation on the bottom of that page and there’s nothing that says donations are limited to developers only.

Vancouver real estate a ‘currency exchange ponzi scheme’?

Polozi Scheme posted this link to a post at Ross McKay real estate consultants with the theory that the Vancouver real estate is a ‘currency exchange ponzi scheme’.

A investor seeking to remove Chinese Yuan from China and have it converted into a foreign currency purchases a home in Vancouver. The investor once having the currency exchange authorized and completed for the purchase to take place then offers the same opportunity to another investor who is willing to offset any costs the original investor incurred through paying a high enough price for the same home that then allows the previous investor to “break-even”. This pattern is continued over and over again causing the selling price to raise higher and higher at no risk to the investor, while at the same time offering higher and higher amounts of currency to be exchanged on the rising home price being paid.

At no time is the price paid reflective of fundamental value of the real estate being traded but is being established for ulterior purposes that are not related to normal house price growth.
At some point in time the scheme ends as the last investor is converting so much currency that the benefits exceed even the need to “break even” and the home can be sold at a net loss. When that moment is reached the appearance of sustained house price growth ends and the scheme ends moving the scheme somewhere else.

Read the full posting here.

BC announces new real estate rules

The BC government has announced new rules that require purchasers to reveal citizenship details:

The new requirements, aimed at answering whether foreign ownership is driving up housing prices, go beyond the data that are supposed to be collected for Canada’s anti-money-laundering agency whenever someone is involved in a real estate transaction. Records show there is significant non-compliance among Vancouver-area real estate firms, which are required to collect the information for the Financial Transactions and Reports Analysis Centre (FinTRAC).

B.C. Finance Minister Mike de Jong said he is confident provincial auditors will be more successful. “The objective here is to get beyond the theory, get beyond the conjecture and the speculation and actually have hard data,” he told reporters on Tuesday.

They also announced new requirements to deal with bare trusts:

The new disclosure rules will also create new data on the use of bare trusts, after an investigative report in The Globe showed how such trusts may be used to transfer property ownership without paying the property transfer tax. Mr. de Jong said the data, which must be provided on the new property transfer tax return form, will be shared with Revenue Canada.

Such data are supposed to be collected under Canadian law, but a federal audit of paperwork in Vancouver realty offices found many instances where required filings were significantly lacking.

And of course the dreaded ‘shadow flipping‘:

The new regulation – which applies only to licensed realtors – will not ban contract assignment but seeks to ensure that the seller consents to such an arrangement and is the one who profits if the property is resold before the deal is closed.

So presumably the best way to continue shadow flipping is to avoid being a licensed realtor. Read the full article over at the Globe and Mail.

Government complicit in fueling housing crisis

A recent report out of SFUs school of public policy is generating headlines that are rather extreme:

Foreign buyers crushing Vancouver home dreams as governments do little.

“People recognize what’s going on, and they’re willing to call a spade a spade,” he said, stressing that such views are based on reality, not racism.

His report compiles a number of other studies, including data on home-buying trends, population density, the cancelled immigrant investor program, and American research on the same issue.

Gordon said his report blames Vancouver’s housing crisis on foreign buyers, particularly from China, because “this is where the evidence points, not because of some anti-Chinese animus.”

Chinese investors have also spiked home prices in the Toronto region, but Vancouver has seen the highest rise in real estate due to the influx of foreign money reaching an unprecedented level in the last year, he said.

Gordon noted that other countries, including Australia and Singapore, have created policies for foreign homebuyers to protect their own citizens but that hasn’t happened in Canada.

Read the full article over at the CBC.