The Elusive Canadian Housing Bubble

[GRG55]

Re: The Elusive Canadian Housing Bubble

So what is wrong with this picture? One of the largest sources of private mortgage funding is people tapping the equity in their homes (using a HELOC) and re-lending the money into the subprime mortgage market in a search for yield.

What could possibly go wrong...


Mortgage rule crackdown spurring move to uninsured lending, IMF warns


Tightening of CMHC rules have pushed new lending to uninsured mortgages

Ottawa's crackdown on CMHC-insured mortgages is merely pushing people to get uninsured mortgages from other lenders, the International Monetary Fund warns.

In a recent report, the global monetary group repeated its warning about a Canadian housing market it describes as "overvalued."...

...At one time not too long ago it was possible to get a 40-year mortgage with virtually no money down, until Ottawa repeatedly moved the goalposts to get the maximum amortization time down to 25 years, the minimum down payment to five per cent, and a cap of $1 million. If a first-time buyer wants to buy a house worth more than that, they have to get it insured by somebody else.

IMF economists Hamid Faruqee and Andrea Pescatori say that while those moves have had their desired effect of achieving the "soft landing" that economists have been predicting for prices — if not openly rooting for — there's a flip side to that...

...Essentially, the IMF is saying that many people who found they couldn't qualify for mortgages under the CMHC's stringent new mortgage rules, instead of deciding to not buy a home, merely sought different types of mortgages...







Is a Private Mortgage Right for You?

Not all mortgages come from Canada’s big banks and lending institutions. In fact, as a result of tighter lending rules, a growing number of Canadian home buyers are turning to private lenders to help them realize their home ownership goals.

Since 2008, the federal government has initiated a number of stricter lending rules for government-backed insured mortgages. Some of the changes include reducing the maximum amortization period for a mortgage from 40 years to 25 years. Whereas home buyers could previously purchase a home with no down payment, now they need a minimum of five percent of the purchase price.

These stricter rules have made it difficult for a growing number of Canadians hoping to get onto the property ladder. If you’re having difficulty clearing government hurdles, there’s an alternative to traditional banks.

Private lenders can provide you with a mortgage when the banks won’t...

Canadalend.com: The Private Lender Specialists
Just like the big banks, when it comes to private lenders, it’s important to shop around. The best way to find the best private mortgage is to talk to a licensed, independent agent at Canadalend.com.

At Canadalend.com, we network with a large number of private lenders who have helped our clients with private mortgages. If you’ve been turned down by one of the big banks, contact Canadalend.com today to set up a free consultation, or apply online and one of our private mortgage specialists will help you set up an appointment at your earliest convenience.

[GRG55]

Re: The Elusive Canadian Housing Bubble

So what is wrong with this picture? One of the largest sources of private mortgage funding is people tapping the equity in their homes (using a HELOC) and re-lending the money into the subprime mortgage market in a search for yield.

What could possibly go wrong...

...

Yep, this should end well!

Canadians can now pay their rent by credit card — and millennials love it

April 9, 2015 3:31 PM ET

A Vancouver-based company says it has signed up more than 5,000 Canadians to directly pay their rent or condominium fees with a credit card since launching almost two years ago...

...“It’s a two-step approach, first we get the property managers signed up, and then we work with property managers to tell [tenants] about the service,” he says, adding his company is focusing on rent for now...

...Postrehovsky says the idea of charging more to credit cards has taken hold in some segments of society and the credit card companies have embraced the concept in the United States.

“Visa and MasterCard are aggressively going after what they call the emerging segments. Rents is one, college tuition and taxes are all [included],” he says.



The vacant truth about rental condos

Condo investors who think vacancy rates are ultra-tight will be disappointed

April 9, 2015

As Toronto condos go, a cramped unit on the 52nd floor of a newly built downtown tower is as good a place as any to pick apart one of the most oft-repeated real estate stats in Canada’s largest city: the ultra-tight vacancy rate of little more than one per cent. You hear it all the time, on the lips of every condo buyer and regurgitated in real estate reports. It’s one of the reasons a growing number of developers say they’re shifting gears from building condos to building rentals. But like all statistics emanating from Canada’s clubby real estate industry, this one should be taken with a grain of salt—especially since investors are a huge source of demand driving frothy condo markets here and across the country.

Rachelle Berube, a property manager who oversees several hundred rental properties in Toronto, is showing me the unit—located in a building at 12 York St. marketed as the “Ice Condos”—which she’d tried for weeks to rent out on behalf of the condo’s owner. We’d talked a few days earlier about Toronto’s rental market and how the official vacancy statistics don’t jibe with what she’s seeing. And so Berube invited me up to the unit to see things first-hand. While the view out the window was impressive, it was the scene in the hallways that truly surprised.

On the door to almost every unit on the floor in this sold-out building, and multiple floors below, notices were posted by work crews to say they’d entered the units to do repairs—notices that hadn’t been touched in days or weeks. These were empty condos. A few are up for resale, most are for rent. On Realtor.ca, the official site for real estate agent listings, there were more than 30 units in the building listed for rent the other day. On Kijiji.ca, an online classifieds site, another 40 or so were listed. Sure, there’s some overlap, but Berube has seen the same situation across the city. Empty rental units are piling up everywhere.

Berube says she has the same sense of “cognitive dissonance” when analyzing condo vacancy stats as she did early on looking at League’s financials. “There’s something seriously wrong with these numbers,” she says.

What are those numbers? According to the Canada Mortgage and Housing Corp., the federal agency that insures lenders against mortgage losses while simultaneously serving as one of the main sources of real estate data in the country, the vacancy rate for condo rentals is just 1.3 per cent—about as close to zero as you can get.

As Berube points out, several things don’t make sense. After 20 years in the business she’s seen periods of ultra-tight vacancy rates during which scores of applicants would respond to listings. Nothing like that is happening now. A tight rental market should also lead to higher rents, but CMHC’s own rental market report from the fall of 2014 noted that rent collected from condo tenants declined 1.5 per cent from the previous year. She’s seen the same trend with her own clients, with rental units regularly fetching the same or less than they did five years ago...

...There’s no question for a lot of people in Toronto looking to rent, it’s hard to find a decent place at an affordable price. And yet there’s glaring evidence of a huge stock of condo rental units sitting empty. Why the disconnect? Simple. Renters live in the real world of cash—the rent they pay is tethered to their paycheques. But condo investors who’ve been buying properties to rent exist in debt lalaland, leveraging up to buy properties at prices that in no way reflect the incomes of the people they hope to rent to...

[GRG55]

Re: The Elusive Canadian Housing Bubble

March data is in. The spring flowers are in bloom in Vancouver. And so are the realtors apparently:

[GRG55]

Re: The Elusive Canadian Housing Bubble

[Canuck to English translator for article below: "BeeMo" = Bank of Montreal, one of the Big 5 Canadian banks; "F" and "the elfin deity" = the late Jim Flaherty, former Canadian Federal Finance Minister; "the big green bank" = TD Canada Trust, another of the Big 5 Canadian bank cartel.]



To the bottom

April 10th, 2015

In the spring of 2013 the boys at BeeMo got the hots and came out with a mortgage rate of slightly less than 3%. F was not amused.

“My expectation is that banks will engage in prudent lending – not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States,” the finance minister said, with a harrumph. And by those fighting words, the elfin deity was able to back off the voracious lenders.

In the spring of 2014, BeeMo tried it again. This time the bank’s CEO called the new finance minister to tell him the race to the bottom was on once more. “I will continue to monitor the market closely,” Joe Oliver mumbled afterwards. The message was clear. The feds no longer cared about runaway consumer debt. Maybe they never did. Perhaps it was just F who felt he had an obligation to save people from themselves.

In any case, the gloves were off. Shortly afterward the opportunists at Investor’s Group shocked the media with a 1.99% mortgage – newsworthy, even though it was variable-rate and good for just a three-year term. It was the cheapest home loan ever recorded.

In the spring of 2015, the big green bank dropped its five-year, fixed-rate mortgage to just 2.74%. The other guys piled on. Mortgage brokerages, like Vancouver-based Spin, came out with even more aggressive deals, like the 2.44% fiver for those with 20% to put down. Finally, this week, the ultimate – the largest credit union in Ontario, Meridian, hit the bottom with an 18-month fixed rate of 1.49%.

Said Rob McLister, a broker and owner of the industry’s leading web site: “This is interest rate insanity.”

While the buck-forty-nine loan is only available to Meridian’s 250,000 members (you can join by paying a $25 fee), it nonetheless marks a memorable moment in the descent of Canadian borrowers. As Capital Economist egghead and housing bear David Madani said in response: “They are feeding part of the problem. They are feeding the bidding wars for these outrageously valued homes. We are painting ourselves into a corner because when rates go up, and they will, then you’re in trouble.”

Meridian, by the way, is the forth-biggest CU in the country, outside of Quebec. The largest is Vancity, already well-known to readers of this blog as one of the biggest house-pumping financial institutions in the land which gives out money to people who want to live in garages, don’t have down payments or buy a house with the swingles next door. It’s worth noting these guys are not part of the Canada Deposit Insurance Corporation, so you might want to think twice before parking your money in places that are happily turning into subprime lenders with massive exposure to a bloated property market...

...Well, Madani’s right. But as you can see for yourself by reading this pathetic blog’s pulsating comments section, nobody believes him. The musty, blinking basement dwellers, house pimps, moist Millennials, panting virgins, omnivorous realtors and house-lusty Boomers just refuse to believe rates can go up again. Ever. The argument is simple: we’ve all borrowed so frigging much that more interest would destroy us, therefore the government will not allow this to happen.

Isn’t that cute? People actually believe the government cares about them. You know, the same bunch of people who deliberately dropped rates so low that citizens would pig out on debt, indenture their families and the next few decades of their lives, all to provide the economic stimulus Ottawa didn’t want to. After all, why go more into deficit creating jobs with infrastructure programs or assists to manufacturing when you can turn out 108,000 real estate agents, take household debt to epic levels and push average houses in the GTA and YVR past $1 million? What could possibly go wrong with that?...

[lektrode]

Re: The Elusive Canadian Housing Bubble

[Canuck to English translator for article below: ....
...
Isn’t that cute? People actually believe the government cares about them. You know, the same bunch of people who deliberately dropped rates so low that citizens would pig out on debt, indenture their families and the next few decades of their lives, all to provide the economic stimulus Ottawa didn’t want to. After all, why go more into deficit creating jobs with infrastructure programs or assists to manufacturing when you can turn out 108,000 real estate agents, take household debt to epic levels and push average houses in the GTA and YVR past $1 million? What could possibly go wrong with that?...

i'll take 'known knowns no one knows' for 500, alex:

does anybody really know what time it is?

[Fiat Currency]

Re: The Elusive Canadian Housing Bubble

[Canuck to English translator for article below: "BeeMo" = Bank of Montreal, one of the Big 5 Canadian banks; "F" and "the elfin deity" = the late Jim Flaherty, former Canadian Federal Finance Minister; "the big green bank" = TD Canada Trust, another of the Big 5 Canadian bank cartel.]

Firstly, thanks for posting that one GRG55 - I'm actually going to make my wife read it, as timely evidence of a recent discussion

i'll take 'known knowns no one knows' for 500, alex:

And kudos to lek for making me laugh out loud

[santafe2]

Re: The Elusive Canadian Housing Bubble

Just out today, a new book by Hilliard MacBeth, "When the Bubble Bursts", Surviving the Canadian Housing Bubble.

I received my copy of his book and I wanted to post a couple of his ideas and my observations given his evidence.

Macbeth attributes the Canadian housing bubble to three major forces: Exposure to the commodities super cycle which began in 1998 and the economic benefits associated with a doubling of commodity prices, proximity to the US consumer market and continued foreign investment. Commodities have grown from 17% of Canadian exports in 1998 to 40% of all exports in 2012.

Given the current level of prices, MacBeth writes that the Canadian housing bubble must “crash” but he also points out that while housing bubbles always burst, they do not always crash dramatically. Germany suffered a housing bubble that peaked in 1980 and did not bottom until 2008. The Japanese housing bubble which famously peaked in 1989 has still not reached a bottom but neither of these over-valued housing markets crashed dramatically like the American market.

Macbeth's idea that the Canadian housing market must crash dramatically may be conflating the magnitude of the bubble with issues of proximity in time and geography to the US. It is possible the Canadian housing market will experience a long, slow, soft landing. In absolute monetary terms the magnitude of the Canadian housing bubble is higher than the US but compared to income ratios, (affordability), in Germany, Japan and the US, the Canadian bubble is quite similar. In fact, when compared to income, Germany’s bubble was the largest of the four.

I don't think any sane person would disagree that housing prices compared to income in Canada are not sustainable but the rapidity of the retreat from current levels is IMO not knowable.

I'll post more if I come across ideas not already covered in this thread.

[GRG55]

Re: The Elusive Canadian Housing Bubble

did it pop?

...

Apparently not.

Housing Bubble? What housing bubble??


[For those iTulipers not yet familiar with the geography up here, Surrey is inland, up the valley and on the opposite side of the Fraser River from Vancouver. It has traditionally been a popular suburb with working class immigrants because of its cheap housing. Surrey is more than 700 miles and a 12 hours drive over the Continental Divide from Edmonton].

Edit added: The building still has to be constructed, the sales are "off plan". And it occurred to me that the single car garage in which Mrs. GRG55 parks her pickup is bigger than these micro condo-minimums.

Cheap condos cause frenzy

by Jon Manchester | Story: 137364 - Apr 11, 2015 / 10:45 pm

Brand-new condos for less than $100,000 caused a buying frenzy in Surrey, Saturday.

The micro-suites in the 35-storey Evolve tower at 133rd Street and 103A Avenue attracted a lineup of hundreds of eager investors. [Investors?? ]

Three hundred homes worth about $70 million were sold in an hour-and-a-half-long rush that resulted in a few arguments and heated exchanges among the crowd.

“You don’t see that under $100,000 every day,” said Curtis Honey, who drove from Edmonton with his brother to pick up a 316-square-foot micro-suite.

“It is pretty small, but I think there’s ways to work around it and maximize the space," he told CTV.

Young buyers are interested in trading space for financial freedom, according to Platinum Project Marketing.

“If your payments were $600 a month with all of your maintenance and everything inside and included, then you’d be able to have more money for life,” said spokesman Bill Morrison. ”We’re finding, especially with a younger group of buyers, they don’t seem to collect as many things as older buyers do.”

Out of 406 homes, about 80 were microsuites – most were gone by the end of the day. The cheapest was listed for $93,900.

The tower is going up in Surrey’s West Village, which is expected to become a major hub for the city in coming years. More than 2,800 homes are forecast to be built there over the next seven years.

[don]

Re: The Elusive Canadian Housing Bubble

“You don’t see that under $100,000 every day,” said Curtis Honey, who drove from Edmonton with his brother to pick up a 316-square-foot micro-suite.

“It is pretty small, but I think there’s ways to work around it and maximize the space," he told CTV.

Childhood bunkbed brothers?

[lektrode]

Re: The Elusive Canadian Housing Bubble

“You don’t see that under $100,000 every day,” said Curtis Honey, who drove from Edmonton with his brother to pick up a 316-square-foot micro-suite.

“It is pretty small, but I think there’s ways to work around it and maximize the space," he told CTV.

Childhood bunkbed brothers?

not bad, only 93k for a 'micro-suite' eh? (some motel6's i've stayed in are bigger...)

but dats cheeeep, brah - take a look at what a Real(tm) frenzy looks like - try 253k (and UP) for 381sqft 'studio'
or hey - got more stuff - like a bed to sleep on? - 500sqft 1br's for 'only' 500k (2013 prices)



and they all sold out... to them that 'won the lottery!'
went so fast that they putting up a 2nd tower, where units will run 350k and up ?

"affordable workforce housing..." ?

[Milton Kuo]

Re: The Elusive Canadian Housing Bubble

not bad, only 93k for a 'micro-suite' eh? (some motel6's i've stayed in are bigger...)

but dats cheeeep, brah - take a look at what a Real(tm) frenzy looks like - try 253k (and UP) for 381sqft 'studio'
or hey - got more stuff - like a bed to sleep on? - 500sqft 1br's for 'only' 500k (2013 prices)

and they all sold out... to them that 'won the lottery!'
went so fast that they putting up a 2nd tower, where units will run 350k and up ?

"affordable workforce housing..." ?

Holy cow. Before I clicked through the links, I thought you were pointing out condominiums in San Francisco. The housing prices in Hawaii are even more insane than when I looked in the late 1990s. But then I remembered the real horror of what I remembered about SF: a year or two ago, someone was proposing to sell 100 sqft or 200 sqft apartments for hundreds of thousands of dollars, which make these Hawaiian doll houses look like a real bargain.

This is a greater fool game and I can't see how it'll end well. People are buying these practically unlivable boxes to get on the property ladder and hope to sell at a profit to someone beneath them on the ladder. It'll end badly when they find out it's not a ladder at all but a Sisyphean hill and the boulder is going to ruin a lot of people when it starts rolling downhill.

[don]

Re: The Elusive Canadian Housing Bubble

Holy cow. Before I clicked through the links, I thought you were pointing out condominiums in San Francisco. The housing prices in Hawaii are even more insane than when I looked in the late 1990s. But then I remembered the real horror of what I remembered about SF: a year or two ago, someone was proposing to sell 100 sqft or 200 sqft apartments for hundreds of thousands of dollars, which make these Hawaiian doll houses look like a real bargain.

This is a greater fool game and I can't see how it'll end well. People are buying these practically unlivable boxes to get on the property ladder and hope to sell at a profit to someone beneath them on the ladder. It'll end badly when they find out it's not a ladder at all but a Sisyphean hill and the boulder is going to ruin a lot of people when it starts rolling downhill.

I like to think of it as RE Chutes and Ladders

Wheee!

[GRG55]

Re: The Elusive Canadian Housing Bubble

not bad, only 93k for a 'micro-suite' eh? (some motel6's i've stayed in are bigger...)

but dats cheeeep, brah - take a look at what a Real(tm) frenzy looks like - try 253k (and UP) for 381sqft 'studio'
or hey - got more stuff - like a bed to sleep on? - 500sqft 1br's for 'only' 500k (2013 prices)



and they all sold out... to them that 'won the lottery!'
went so fast that they putting up a 2nd tower, where units will run 350k and up ?

"affordable workforce housing..." ?

Surrey, British Columbia ain't Hawaii. Believe me, it ain't!

[Polish_Silver]

Re: The Elusive Canadian Housing Bubble

Surrey, British Columbia ain't Hawaii. Believe me, it ain't!

Hawaii and San Francisco have tied for most expensive housing for decades. In both places, you could make the
argument that "God is done making land". (Not done making steel reinforced high rise housing along earth quake faults, however)

[santafe2]

Re: The Elusive Canadian Housing Bubble

Hawaii and San Francisco have tied for most expensive housing for decades. In both places, you could make the
argument that "God is done making land". (Not done making steel reinforced high rise housing along earth quake faults, however)

PS, San Francisco is a city and Hawaii is a state with several islands. Compare Honolulu to San Francisco. There are many places to live in Hawaii at very reasonable prices. And, not to create a religious debate here but as we speak, "God" is creating more land on the Big Island.