The Elusive Canadian Housing Bubble

[GRG55]

I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

Another view.





And the Toronto based "national media" belatedly pile on and suddenly "discover" how realtors play a hot market for themselves. Investigation my azz. This has been going on for decades in Canada, in every hot market we've ever had...including Toronto.

INVESTIGATION

The real estate technique fuelling Vancouver's housing market

VANCOUVER — The Globe and Mail
Saturday, Feb. 06, 2016 12:12PM EST

They had a deal.

The Rappaports’ home, on Vancouver’s West Side, would net the couple $5.2-million last year. Jo and her husband had bought the stately Craftsman home in 1987 for $362,000. They raised their sons there and loved it. But the neighbourhood had changed. Investors were razing the houses and it was time to move on.

“It used to be the prettiest block,” Ms. Rappaport said. “And it has been a construction zone for the last two years.”

The couple suspected the house would be torn down, like so many others on their lush and lucrative street, but they stood to profit nicely. There was some toing and froing over details, then a slight change of plans. For reasons the Rappaports never quite grasped, they were no longer selling their property to the foreign businessman whose offer they had accepted. Instead, they were selling to his real estate agent, Wayne Du of Amex Broadway West Realty, who told the Rappaports that he and the businessman’s wife would be purchasing instead, as co-owners.

The Rappaports weren’t thrilled, but there was nothing they could do to prevent it. Their contract, after all, contained what’s called an “assignment clause,” which gave the businessman the option to sell or transfer his interest in the property before the closing date.

Three months after the deal closed, the new broker-owner relisted the house – which he then had a stake in – and resold it for $6.2-million, a substantial if not unusual price increase that works out to roughly $11,000 a day. Mr. Du is now advertising the house for sale again for $6.58-million. It’s all perfectly legal, even if it displeases the Rappaports.

“It’s obscene,” Ms. Rappaport said. “I had no idea our house was going to be resold. We were shocked when it was flipped.”...

[jk]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

the real problem with that story is that in dealing with real estate agents, bankers, financial advisors, people think they have a fiduciary relationship [even if they don't know the word "fiduciary."] but, of course, they don't.

[vt]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

A very small minority do.

[GRG55]

Re: Cracks Becoming Clearly Visible Now

You are absolutely right, transaction volume is always the first sign that a hot property market is in danger of rolling over. Transaction volume in cities like Calgary fell off significantly early this year. The prices at the high end of the Calgary market are now under considerable pressure with some high profile luxury starter-castle blowouts already making the papers (this is an exact repeat of the pattern here in the early 1980s). Entry level housing in Calgary is just starting to get hit on price, with the overbuilt condo sector leading the way, as expected.

The family home is usually the last thing to be put up for sale in times of income stress - the vacation cottage in the B.C. interior (that market should have been a warning as it saturated, reached exhaustion, rolled over and started to die two years ago!), the winter condo in Phoenix (which was a winner on the exchange rate alone), the summer-only sports car/convertible in the garage, the Harley toy, the holiday trailer/motorhome, the snowmobiles, ATVs, dolled-up "Platinum Edition" pickup trucks and all that other stuff go first. So the process takes time. The smart money (very few) and the lucky money (those few who had to sell to move away to find work) was quick to discount and get out of their unaffordable, now depreciating homes; the dumb money will repeatedly re-list and follow the market down. Happens every time.

For a select few in Alberta and Saskatchewan these two provinces have non-recourse mortgage rules that allow some indebted owners to walk away from their mortgages. However, these rules do not apply to high ratio mortgages insured by the government - CMHC has the right to sue for any shortfall in that instance even in Alberta and Saskatchewan. House prices have not declined enough for anyone with a large downpayment to be underwater yet. But there are a lot of high ratio mortgages now and that means "homeowners" and their bankers will be doing a lot of debt rescheduling. These two effects will continue to cushion the decline and drag it out.

I am watching Vancouver transaction volumes as an indicator that market may finally be setting up for a reversal.

Calgary house prices drop 6% in October while sales plummet 33%

About 20% more homes on sale compared to last year, sitting on the market 11% longer

CBC News Posted: Nov 02, 2015 10:14 AM MT Last Updated: Nov 02, 2015 12:02 PM MT

...

Jingle mail rears its ugly head in Alberta again

Federal government worried about Albertans making strategic defaults on their mortgages

Feb 08, 2016 7:00 AM MT

One of the big bads from the 1980s is starting to emerge again in Alberta.

Jingle mail — the act of walking away from an underwater mortgage by mailing your keys back to the bank — is a peculiarity of the Alberta residential market and an act of desperation. However, a combination of high debt and lost jobs make it an option in a province going through a significant economic reckoning.

It's enough of a concern that the federal government is watching the Alberta market closely...

..."We're slowly starting to see it in Grand Prairie and Fort Mac," said Don Campbell, senior analyst with the Real Estate Investment Network.

"People saying that we can't make a go of it and mail the keys to the bank. In the big cities, not so much because the average sale prices haven't really dropped much, we haven't seen the pain yet. But Calgary is getting pretty tight."...

...Alberta's housing market is also being watched closely by the federal government. In the spring and fall of 2015, the Department of Finance commissioned two reports on the state of the housing market in Alberta. CBC News obtained those reports through an access to information request.

The analysis of the housing market showed that between 2001 and 2011, there was overbuilding in Alberta, resulting in too much housing stock on the market. However, as people continued to move to Alberta from other provinces, much of the excess supply was bought up.

That movement of people into Alberta slowed by more than 50 per cent last year. There is the risk that Alberta's population could start to fall if the oil downturn persists.

In the mid-eighties, around a half million people left Alberta to find work in other parts of the country and were able to walk away from their mortgages with virtually no personal consequences, not even to their credit rating.

That's the scenario that the Finance Department is worried about now...

...So far, it is a problem in parts of Alberta where prices have dropped 20 per cent or more. Fort McMurray and the luxury housing market in Calgary have both seen prices drop that much from the highs of 2014.

Joel Semmons, a realtor in Calgary with Re/Max, said that while the average home price in Calgary is only down by a few per cent, homes worth more than $1 million have seen their value drop by much more.

"In the million-dollar plus markets, I was quite active in January," said Semmons. "I had four higher end sales last month, all four transactions, the values were off 20 per cent to get a buyer to the table, in order to get a deal to stick."

"If you took out your mortgage say the summer of 2014, just before everything started to come unglued, you would have purchased right at the peak," said Alger.

He uses the example of a home bought for $1.8 million, with 20 per cent down and a roughly $1.4-million mortgage.

"There are lots of houses in that price range in the newer, higher end suburbs and the appraisals have been coming in at less than the $1.4 million on the mortgage."

There are also many luxury homes sitting vacant, available for rent, carrying mortgages in excess of $2 million...



Canada housing starts deteriorate as Alberta hits 5-Year Low

BLOOMBERG NEWS

February 6, 2016 6:00 AM MST

Canadian housing starts fell for the third time in four months in January with construction in Alberta tumbling to its lowest level in almost five years.

The pace of work starting on new homes nationwide fell 4.1 per cent from December to 165,861 at a seasonally adjusted annual pace, Canada Mortgage and Housing Corp. said Friday.

Alberta’s unadjusted starts fell to 1,466 in January, the lowest since March 2011 and a 50 per cent decline from a year earlier. The decline coincides with a jump in the province’s unemployment rate, CMHC chief economist Bob Dugan said in the report.

The commodity collapse is increasing a drag on the national housing market, weakness that was masked over much of last year by surging demand in Toronto and Vancouver. There was evidence Friday of fresh job-market weakness that could temper housing further — Statistics Canada reported Alberta’s unemployment rate rose to the highest since 1996 at 7.4 per cent in January.

[lakedaemonian]

Re: Cracks Becoming Clearly Visible Now

Jeez......I did not know Canadians could play jungle mail.

That "could be a problem" when it over corrects to the downside.

[Fiat Currency]

Re: Cracks Becoming Clearly Visible Now

Jeez......I did not know Canadians could play jungle mail.

That "could be a problem" when it over corrects to the downside.

from the extended article ...

Why Alberta is different

Alberta is the only Canadian province to broadly offer non-recourse residential mortgages. Those are loans with at least a 20 per cent down payment and thus are not insured by the Canada Mortgage and Housing Corporation (CMHC). If you walk away, you lose your home, but otherwise have no personal liability. Elsewhere in Canada, your lender can take you to court and seize other assets, such as RRSPs, vehicles, and even garnishee your wages. Jingle mail was an enormous problem in Alberta in the 1980s, when mortgage rates were hovering around 20 per cent and people began leaving the province to find work elsewhere. It made a rough housing market even worse when banks were forced to sell off abandoned homes at a discount. It also played a role in the U.S. housing crash.

[santafe2]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

They had a deal.

The Rappaports’ home, on Vancouver’s West Side, would net the couple $5.2-million last year. Jo and her husband had bought the stately Craftsman home in 1987 for $362,000. They raised their sons there and loved it. But the neighbourhood had changed. Investors were razing the houses and it was time to move on.

“It used to be the prettiest block,” Ms. Rappaport said. “And it has been a construction zone for the last two years.”

The couple suspected the house would be torn down, like so many others on their lush and lucrative street, but they stood to profit nicely.

Three months after the deal closed, the new broker-owner relisted the house – which he then had a stake in – and resold it for $6.2-million, a substantial if not unusual price increase.

“It’s obscene,” Ms. Rappaport said. “I had no idea our house was going to be resold. We were shocked when it was flipped.”...

The Rappaport's should quit their bitching and be thankful Mr. Du has associates and connections in China. What did they do other than hit the Vancouver lottery? No one put a gun to their head and made them sell when they did. No one is putting their face in the local newspaper and making suggestions that they sold out Canada when selling to Chinese investors. Mr. Du is going to flip that property as many times as possible until the last idiot is willing to write a check. If Mr. Du is an idiot, he'll have a 100% stake by then and get crushed. If he's smart, someone else will be holding the debt.

When the hell did whining lottery winners become a story? Oh right, your media watches our worthless media. You should really stop that.

[jk]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

real estate agents are not fiduciaries. studies have shown that they sell customers' homes faster and at somewhat lower prices to make a quick commission, compared to selling their own homes. after all, if they get an extra $100k for a home, they only get $6k or maybe only $3k is there's a broker on the other side of the transaction. better to take the commission in hand and move on to the next sale than spend time trying to get the last dollar. otoh, if it's their own house, if they get an extra $100k, they get an extra $100k.

[santafe2]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

real estate agents are not fiduciaries. studies have shown that they sell customers' homes faster and at somewhat lower prices to make a quick commission, compared to selling their own homes. after all, if they get an extra $100k for a home, they only get $6k or maybe only $3k is there's a broker on the other side of the transaction. better to take the commission in hand and move on to the next sale than spend time trying to get the last dollar. otoh, if it's their own house, if they get an extra $100k, they get an extra $100k.

Makes sense, it's just good business. Getting $100k more for your own home is like selling 50 homes for the average sell side realtor in the US and I understand it's even a lower percentage on high end homes in Vancouver. This is the reason Mr. Du partnered up with the buyer to take a swim in the rising sea. He'll make more than double on his share of the $1MM profit than he made on the first sale, even if he collected the entire fee. In the US smart realtors always have enough set aside to buy any home that's obviously a great deal. But cash investing is happening less and less these days.

Investors are paying cash for homes about 1/2 as often as they did three years ago.

[jk]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

re the canadian sub-bubble in phoenix, from mark hanson's blog:

Case in point, in greater Phoenix Canadians who bought 4-years ago and have enjoyed 60% price, plus 30% currency appreciation on SFR houses are literally lining up outside Realtor’s offices to sell. They get a double bang now that their currency has plunged relative to the USD.
But, in Phoenix, the insti investors who turned houses into a high-yield bond replacement trade are no longer buying like they have in the past. Nor, are the private buy to rent/flip speculators due to the record cost of houses and rehab materials and labor. This leaves the heavy lifting up to the fundamental, end-user, mortgage-needing shelter-buyer, who has not shown up in any meaningful way since 2006. Again, this is a key observation because after 5-years of nuclear stimulus, substantially increased end-user demand is the only thing that can support prices going forward. If not, house prices will “reset” to what the average end-user can buy on a monthly payment basis, which in greater Phoenix could be as much as 40% below where house prices are today.

[jk]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

duplicate post

[santafe2]

Re: I am Shocked, Shocked to Find House Flipping is Going on in Vancouver

The average in Vancouver is only $1.8MM but you could have had this beauty for $2.5MM. Mr. Du's cousin may be flipping it today for $3.5MM.



More at zerohedge:

http://www.zerohedge.com/news/2016-0...door-vancouver

[touchring]

Re: Va Va Voom Vancouver...

Some Vancouverites don't seem to much care about space. "Beehive" indeed...
(Davie is a street in the downtown west end)

Space used to be very important. Today, you only need a couch and enough space to put up a 40 inch LED TV and an iPad.

We call it Mickey mouse condos.

Is short term leasing legal in Vancouver?

[GRG55]

Re: Canadian and B.C. Government Sponsored 0% Down - Unbelievable

This was too good not to post. Port Moody is a suburb of Vancouver at the end of the Burrard Inlet, east of downtown Van.

Governments at all levels are in cahoots with the financial sector to put Canadians into debt servitude in a one asset strategy at the top of the market; I don't know what greater evidence is needed this is true than the website link below. Have a look at page two "Affordability at a Glance" example. Yep, let's blame it all on the offshore Chinese buyers.



Click on the "Learn How" button on this website link, and then scroll down. Recommend a good single malt at hand for iTulipers to fully enjoy the experience.

http://www.townline.ca/en/strand?des...w-homes/strand


THE STRAND'S HISTORIC
AFFORDABILITY & 0%
DOWN PAYMENT PROGRAM*


With the ever increasing financial challenges for the average British Columbian to access home ownership in a central, amenity rich, transit oriented, and family safe neighbourhood; Townline Homes has innovatively partnered with BC Housing, Canada Mortgage and Housing Corporation and TL Housing Solutions to offer a first of its kind AFFORDABLE HOME OWNERSHIP and 0% DOWN PAYMENT program.

Unlike other programs previously offered, this program provides qualified purchasers the unique opportunity to purchase at below current appraised market value with 0% DOWN PAYMENT.

How it works:

• - Market value is determined by current market conditions and an independent 3rd party appraisal
• - Your purchase price is a minimum of 8% below the established appraised market value
• - The 8% is recognized by CMHC as your down payment
• - A bank, with CMHC approval, will then finance 100% of the below market purchase price – NO SECOND MORTGAGE or VENDOR TAKE BACK MORTGAGE is required to be paid back

No matter how many multi-million $ houses on the West side of Vancouver are purchased by Asian foreigners the Vancouver housing bubble is approaching its "best before" date. This is an "extraordinary popular delusion and the madness of crowds" layered on top of the most phenomenal credit expansion in the nation's history.

Canada's Credit Cycle Has Never Been This Desynchronized From the United States

A rapid private debt binge is nearly over, Macquarie says.

February 19, 2016 — 12:54 PM MST

Canada has entered the very late innings of its super-charged private sector credit cycle, one that has completely decoupled from that of its largest trading partner, according to Macquarie Analyst David Doyle.

"Canada’s private sector nonfinancial debt to GDP ratio (includes household debt and non-financial business debt) has skyrocketed since 2005, rising by over 60 percentage points," he wrote. "This is a greater magnitude of increase than occurred for the forty years prior (1965 to 2005)."

As a result of this prolonged binge, Canada's private sector non-financial debt-to-GDP exceeds the comparable U.S. ratio by its highest level on record:

Macquarie

In the wake of the credit crisis through 2015, the U.S. economy experienced a painful deleveraging, with the ratio of private sector debt-to-GDP falling by an average of 2 percentage points per year. Meanwhile, Canada's credit cycle kicked into overdrive, with private sector debt-to-GDP rising nearly 5 percentage points each year...

[santafe2]

Re: Canadian and B.C. Government Sponsored 0% Down - Unbelievable

Canadian housing up 17% YOY, Newfoundland down 10%. They just can't catch a break.