There was an article in the Globe and Mail stating the obvious...that local incomes can in no way support our prices. In the comments section people have stated the second obvious point, that Mainland Chinese money coming here has distorted things. Of course they could have also mentioned the two pillars of our under-ground, untaxed economy....drugs and construction. Others have reacted to this anti-outside-investor mood and even arranged a talk tomorrow to address this. Here's my two cents: IT IS NOT ABOUT RACE. Canadian is not a Race. It is a collection of races. The first people on this land were brown-skinned, then came whites and then yellows and then more brown, and they are all co-existing and mixing very nicely (after some early hiccups!) To be Canadian is not have blue eyes or to be able to speak Salish, it is to have a commitment to this country. That means an understanding that your responsibilities and obligations to this society should be at least as much as your expectations and entitlements. Many who have been born here forget that. However when we allow someone to bring big wads of un-taxed money here to buy an investment or financial sanctuary, we are doing several things: 1) We are helping force the locals, who are working and paying taxes, and running this society into either a precarious housing situation or a precarious financial situation to obtain secure housing. The truth is that taxed money can never compete with untaxed and often corruptly obtain money. That money can come from anywhere. It has no racial ties. It can come from South America, China, the Middle East , Russia or India. ie it can accompany any race. All it does is cause a temporary rise in Realtors and Mercedes car salespeople commissions and bring in a chunk of property transfer tax, which is why Governments can never say 'enough'. 2) The result is that the local, taxed population who may be of Chinese or Indian or European extraction are putting themselves in deeper debt to compete with this hot money. This leads to increased risk for lenders, which in Canada the banking cartel has nicely downloaded onto the CMHC. The denouement of this could be very painful. As you can see it not racial at all. IMVHO Conrad Black, who turned his back on Canada and is a convicted criminal, should never have been allowed back into Canada. Why this government decided they had to, remains a mystery to most of us. 3) Also by allowing huge chunks of capital to escape China, for example, and come here we are not only doing ourselves a dis-service, but the 1 Billion Chinese who still live on about a dollar a day. We are not playing on a level field, we have properties left empty for investment purposes, we have the CMHC pushed to the edge by the bubble, and yet I doubt if there is anything that anyone will do about it. By the time our politicians hear the clamour over the calls of the special interest groups, it will be too late. I want to end this post by saying once again, this off-shore buying is just ONE of the reasons for our bubble. Thank Flaherty for the CMHC monster. Thank Carney for 1% interest rates. It needed all three of these components to have the lunacy we have now. There is much blame to go around.
Stats Package here Well into their correction. Here are some of the salient numbers. All quotes:
1,379 sales in May, a decrease of 15 per cent compared to the 1,616 sales in May of last year
the volume of active properties to 10,651 the highest it’s been this year and 2 per cent lower than those available in May 2012.
Sales are about 20 per cent lower than normal for this time of year, while the number of new listings coming on stream is right on average.
YOY price changes:
detached -0.7 % townhouse +1.1% apartment -1.1%
detached +4.2% townhouse +1.1% apartment +2.6%
detached +0.3% townhouse 1.1% apartment -1.1%
HPI for apartments peaked in 2008 and never really recovered from the financial crisis. It is now about 9-10% lower. HPI for detached and attached is about 3-4% lower than the peak of 2008.
A real investment in the Fraser Valley would not have done well for the last 5 years.
Vancouver would have seen a similar correction had it not been for the lunatic shenanigans of the CMHC and banks, which have helped drive housing well out of the reach of ordinary Canadians. All I can say to the out-going CEO, is good riddance.
Thanks REBGV for the HPI numbers. YOY - HPI price drops...yes that's drops. Detached 5.2% Attached 3.7% Apartments 3.2% Over-all = 4.3% Sales down significantly from last year. Lets see if the media pick up on this. Anyone who bought property for investment (lets say with 100% cash) will be down 4% from May 2012 plus expenses 1% or so, and missed income on the investment 1-2%. Add in any rental income - which runs 3% or so now. So they are down 4% on their money. No one is going to bail with that sort of drop, but if and when it gets to a 10% people will be starting to look at getting out. Especially if the investment was not 100% cash, but leveraged up with a mortgage.
Adios to a rainy, chilly May. Larry has the numbers first as usual. All three categories showed a very small average price increase. The average prices are basically flat or down from May 11. Average detached AND apartment prices are down 4% over that two year period. I have no doubt that if the real estate board's HPI continues to show the real numbers, they will show a drop for MAY. Final MOI for May : Detached: 6.4 Attached: 5 Apartment : 6 Clearly there was a little more strength in May than the preceding few months. The question is whether this will continue or if that is the end of the peak buying season.
IMVHO, we have had 4 major factors feeding into our RE bubble: 1) The lowest interest rates since WW2 leading to a speculative bonanza 2) The actions of the CMHC. The irresponsible doubling of the CMHC lending capacity and allowing lower DP, longer amortizations and allowing insurance coverage for investments, helicopter buyers, and second homes. The mandate of helping Canadians AFFORD a home was expanded to help everyone get a mortgage, regardless of the future ability to pay. 3) Aggressive lending by banks. Not too far off from the actions of their US brethren. Cheap money and tax-payer insurance are the troughs. How can you expect to take a piggy to the trough and expect them not to have a feeding frenzy?? By asking them nicely Like Carney and Flaherty and hoping they will forgo the huge pay running into 8 figures a year, every year, and be responsible? 4) Off-shore buying in certain markets, like Vancouver and Toronto, mainly from Mainland China. But not in other markets like Victoria and the OK which have already dropped a good chunk. What has changed. We have had a blip up in interest rates, but I don't read much into this yet. One day rates will explode up, I don't think we are there yet. We will probably meander around the 2.8-3.3% best five year rate for some time. Off-shore buying waxes and wanes and despite occasional noise about taxing empty homes, or a surtax for non-resident owners, it is not going to happen. The banks have stuffed just about as much debt down the throats of Canadians as they possible could with their gimmicky low interest mortgages, their ads of people pulling money out of their homes to buy toys or go on exotic holidays, or not-so-subliminal messages of 'How rich they are!' Left to their own devices they will keep lending until no one can sustain their debt with their anemic income growth, just like they did in the US. But just as all good things come to an end, so do bad, and the growth of consumer debt is slowing of it's own weight. However we have one big piece on our side to try and re-estbalish sanity. The ultimate pig, which has put nearly $600 Billion of liabilities on the back of tax-payers is finally being reined in. Not only have the senior management been shaken up, with departures announced every few weeks. Now the CEO says she is leaving:
OTTAWA, Ont. (CP) — Canada Mortgage and Housing Corp. president and CEO Karen Kinsley is stepping down after a quarter century with the provider of mortgage loan insurance.
Kinsley announced the move in what she described as her 10th and final message for CMHC’s annual report and at a time that Ottawa has been moving to reduce taxpayer exposure to housing market debt.
“CMHC has been my home away from home for 25 years and I cannot adequately express how proud I am of our achievements,” Kinsley wrote.
Well Ms Kinsley, I hope you are right, but it is a little early to write your own 'proud' legacy, when we are all time highs in RE and all times highs in tax-payer insured $$. Lets review this in a year or two and see how great the achievements are. I am willing to write a mea culpa if in two years the CMHC is NOT looking at significant losses and agree with you.
Finally it looks like this pig is finally being yanked away from the trough (but can anyone please tell me why they insure multi-residential and retirement homes? These are investments, why not let the private sector insure them?)
Tara Perkins, The Globe and Mail
10:36 AM, E.T. | May 30, 2013 Real Estate
Canada Mortgage and Housing Corp. (CMHC) is continuing to shrink its business, as the government seeks to reduce its exposure to the housing market.
The amount of insurance that the Crown corporation had in force ticked down by $3.5 billion, to $562.6 billion, during the first three months of the year. The figure falls as consumers pay down insured mortgages and rises when CMHC sells new insurance. CMHC wrote only $8.2 billion worth of insurance during the first quarter, compared to nearly $19 billion in the same period a year ago. The number of units of housing that it insured fell 54 percent, from 114,045 in the first quarter of 2012 to 52,078 in this latest quarter. The decline comes as the government has forced the Crown corporation to dramatically reduce the amount of bulk, or portfolio, insurance it was selling to banks. Banks can buy bulk insurance to cover large swaths, or portfolios, of mortgages with low loan-to-value ratios (high downpayments) that weren't previously insured. Mortgage insurance is mandatory when a consumer has a down payment of less than 20 percent, and sales of that core product have also fallen since Finance Minister Jim Flaherty tightened the mortgage insurance rules last July. The changes that he made, which included cutting the maximum length of an insured mortgage to 25 years from 30, were designed to take some steam out of what he feared might have been an overheating housing market. His changes also effectively eliminated the ability of consumers to refinance high loan-to-value mortgages. CMHC said that insurance volumes to cover new mortgages fell by about 23 percent, while refinance volumes were down by 69 percent. Bulk or portfolio volumes sunk by about 98 percent. Meanwhile, the volume of insurance that CMHC sells to cover multi-unit residential buildings (including nursing homes, retirement homes and apartments) rose 5 percent.
The last Bank of Canada rate decision of the Carney regime comes out this morning. Expect no change at all. The punishment of savers and encouragement of wanton borrowing, aided and abetted by the banks (You are Richer than You think!) has led to this (thanks Ben Rabidoux)
This graph is up to 2011. The divergence has just got larger since then. It sure looks like a large edifice of debt sitting on small and wobbly legs of income. The problem is that when it starts contracting, it is self-perpetuating. The domestic 'boom' has been built on debt and when the debt hits it's inevitable ceiling and consumers pull back, there will be weakness and job losses and more debt reduction and so on... This is the legacy of Mr Carney. Not that I am out to demean the guy, he did what he thought was right at the time. 'reduce rates and jaw-bone consumers'. Unfortunately it didn't work, we are at the edge of the precipice IMO. I wish him well in the UK , though I am not sure how our situation resolves gently without a huge up-lift in exports.