Category Archives: USA

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.

Who wants a 50 cent dollar?

With rumors of another rate cut, Rob Carrick points out 8 reasons he thinks that’s a bad idea. The very first reason? The Looney will fall even further against the US dollar.

For eight years, the Bank of Canada has been trying to encourage economic growth by lowering interest rates. It’s so not working.

In fact, lower rates are hurting a lot of people more than they’re helping. We have to at least acknowledge this as speculation of yet another rate cut grows. It could come as soon as Wednesday, which is the date of the next rate announcement from the Bank of Canada.

The central bank considers the entire economy when it sets rates. Now, let’s look at things from the point of view of everyday people. Here are eight reasons why the Bank of Canada shouldn’t cut rates any lower.

1. The dollar will fall even more: The most disruptive force in personal finance right now is the falling dollar. That’s because it’s hitting us all in a vulnerable spot – our grocery bill. Helpful for exporters, a weak loonie is a tax on families and snowbirds who must change Canadian dollars into U.S. currency. Last week, the dollar fell below 70 cents (U.S.) for the first time since 2003. A lower dollar adds downward momentum.

Read the full list over at the Globe and Mail, although a number of them are directly connected to a dropping looney.

The one group that a dropping looney should help are exporters as their products get cheaper for foreign buyers, but Jayson Myers, the head of the countries largest exporters association says don’t bother.

“Interest rates are low already. A little bit of dollar stability would be better.”

As an interesting aside, in 2002 when the CAD was hitting record lows Treasury Board President Scott Brison said it was

“a pay cut to every Canadian, a drop in our standard of living and a reflection of the fact that Canadians are getting poorer as Americans are getting richer under the watch of the government,”

Scott Brison is now a key cabinet minister and top economic aide to Trudeau.

 A hat-tip to southseacompany for the links.

3.5% Fed rate in 2017?

Here’s a prediction:

“US interest rates will rise – and hit 3.5pc by the end of 2017”, The Telegraph UK

“A momentous change looms large in the US. It seems highly likely that the US Federal Reserve will raise interest rates this week.”

“What makes the probable rise in interest rates so significant is not the size of the increase. The rate rise is likely to be a mere 0.25pc. But this would represent the first rate increase for nearly 10 years. Moreover, we all know that once rates have begun to rise, usually the process does not stop after only one increase.”

Does anyone believe we’ll see a rate increase by the Fed from 0.25% to 3.5% in the next two years?

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

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.

Should you walk away from your Alberta mortgage?

southseacompany pointed out this article in the Financial Post:

You can walk away from your mortgage (if you live in Alberta) but should you?

“Francis, a 34-year-old welder from the mining town of Grande Cache, Alberta, says he wishes he could get out of the townhouse he bought four years ago.”

“He bought the home for $175,000 with a five per cent downpayment but still owes $150,000 on his mortgage. He says the market for his home has collapsed in his town and a realtor just told him the best price he could expect is $75,000.”

“Since the loan is “under water,” his bank would be left with a shortfall that CMHC would have to cover. The Crown corporation would likely sue him for any losses it has to cover, so if he has any assets, CMHC will go after him.”

“Handing over the keys to the house and walking away from your mortgage, called “jingle mail,” was a defining act of the American housing crisis and helped send the market south of the border into a deeper tailspin.”

Interesting theory, but as we actually saw in the US states with recourse loans (i.e. Nevada, Florida) saw just as much of a collapse as non-recourse states.

Hot American Money?

If you’re looking for someone to blame for high house prices (anyone but locals!) you’ve got a new scapegoat: Americans.

The Province has an article saying the falling CAD means that US buyers are responsible for the biggest surge in the local market over the last year.

Asian buyers make up about 60 per cent of foreign buyers of Metro Vancouver real estate, according to a story published by the Financial Times on Good Friday.

But buyers from the U.S. accounted for the biggest surge in the Vancouver market in the past year, the story said.

The article also said the Vancouver market is unique because record prices seem to have little impact on buyers’ enthusiasm.

Read the full article here.

US claims stolen Chinese money washed in Van RE.

Anyone who’s read this site for a while has probably noticed a couple of things:

1. A number of regular reader and commenters here blame wealthy Chinese ‘investor immigrants’ for the high cost of real estate in Vancouver.

2. The administration of this site disagrees and thinks that over-stretched house-horny locals and government insured lending on real estate are primarily to blame for high prices.

Yet we must admit this story has us thinking perhaps the truth is a blend of those two viewpoints:

U.S. alleges Metro Vancouver homes were part of scheme to launder money embezzled in China

Authorities allege that in the summer of 2011, shortly after they qualified for U.S. green cards, Qiao and Zhao began surreptitiously using accomplices to transfer millions of dollars into bank accounts in Wenzhou city, Hong Kong and Canada. At least two Canadian banks were used, HSBC Canada and the Royal Bank of Canada.

Zhao recently put the White Rock property up for sale for $689,000. Paulo Leung, a real estate agent with Regent Park Realty, said he had also sold the property to her in 2012 as an investment. He declined to say more. Both properties are being managed by Vancouver-based Chartell Properties. A receptionist there said they knew Zhao.

A search of property and title records conducted by The Vancouver Sun show that Zhao’s numbered company bought the properties outright. However, a few months later, it took out mortgages on both, totalling $1.1 million, that represented almost their entire market value. According to the U.S. indictment, a few weeks later Zhao and Qiao took money from their Canadian RBC account to pay for a Bellevue home.

Officials for the RCMP and Citizenship and Immigration Canada said they did not know if their departments assisted U.S. and Chinese investigators, and could not comment if they did.

Read the full article over in the Vancouver Sun.

CBC discovers the fun of ‘Compare and Despair’

We’ve played this game before.

When you compare what you get in Vancouver for your housing dollar vs. some other locations you get some interesting comparisons.

The CBC has an article looking at the cheapest houses in Vancouver and how they compare to some US locations.

A new CMHC report says Canadian home prices are moderately overvalued in some cities, but Vancouver is labelled as low risk by the Crown corporation in its latest housing market assessment.

One measure used by economists is the amount of income earned by the average family compared to house prices. By those standards, prices in Vancouver are some of the most expensive in the world.

See their gallery here.

An offer you can’t refuse?

The house of Vito Corleone from the film “The Godfather” is for sale on Staten Island, New York.

Every so often it’s interesting to see what sort of premium you pay for being within walking distance of 14 different coffee shops and a handful of grow ops here in Vancouver.

We’re not sure how many grow ops are within walking distance on Staten Island, but we know there aren’t 14 different coffee shops nearby, so the asking price is ‘only’ $2.9 million.

For that much here on the west coast you’d probably still get the ‘man cave’, gym and maybe even the ‘english pub’, but probably not the saltwater pool.

Any film history fans thinking of moving to the east coast?

Global RE frothy again

After housing markets slumped around the globe governments and central banks did what they could to reinflate them, driving down the cost of debt.

Well it worked.

The US market is down a bit from their precrash highs, but Canada is sailing high.  What’s the endgame?

With global monetary conditions so loose, governments are using regulatory tools to cool overheated housing markets. In Canada, for example, the maximum term of the riskiest mortgages has been lowered from 40 to 25 years. Regulators in both Hong Kong and Singapore have repeatedly raised stamp duties and tightened lending restrictions. The measures seem finally to be working, especially in Singapore, where prices are now falling.

So as potential home buyer on planet earth, what’s your next move? Do you go with low interest rates forever as a way to keep prices up, or do you stand back and wait for a price correction?

As an aside its interesting to note one nation whose market isn’t doing so well is Japan, where they’ve had rock bottom interest rates for a really long time.