Over the course of the last year the Vancouver Real Estate Market has rebounded in stunning style. As lotusland R/E values achieve breathtaking new highs, some have taken to doubting what we all know: that Vancouver R/E is in a massive bubble that will burst in spectacular fashion.
Deep down we all know what's happening.
Emergency interest rates have acted like crack cocaine to house-lusting buyers who have irrationally reinflated the housing bubble. All fueled by a federal government that has plowed $70 billion tax dollars into a ravaged Canadian financial system so that they could buy up mortgages from the big five banks through the Canadian Mortgage and Housing Corporation and hide the bad debt by taking it off the books of the banks.
Another $200 billion was then used to establish a fund to backstop the banks – money the banks could borrow if they needed it.
The Harper government called it the 'Emergency Financing Framework'.
Yet so many on the Wet Coast have ignored the obvious and rationalize that our Canadian banking system is among the soundest in the world. This fairy tale has convinced us that the R/E market resuscitation is legitimate and actually the work of the free market directing overseas investment into the prosperous and undervalued Olympic City of Vancouver.
Last week, in the Burnaby Newsleader paper, we got a taste of what has really been driving the market.
According to Angela Calla, a mortgage broker with Dominion Lending Systems and the host of CKNW’s Mortgage Show, 70% of the province’s real estate purchases last year were first-time buyers.
“The average income we were seeing last year was $45,000, either combined or from one person,” said Calla. “And a 5% down payment was the average from that same demographic.”
Given that we are the 'land-of-the-million-dollar-single-family-homes', those are chilling statistics.
Our housing market is being driven by over leveraged buyers who exist solely because the federal government now insures virtually all mortgages through CMHC.
This bit of fiscal magic is what has greased the wheels of the credit machinery in Canada and put the North America real estate collapse in abeyance here in Canada.
As Murray Dobbin noted on his blog, the Harper-lead federal government did all of this as deliberate political policy.
In an effort to prop up the real estate market in 2008, the Harper government directed the CMHC to approve as many high-risk borrowers as possible to keep credit flowing. CMHC described these risky loans as “high ratio homeowner units approved to address less-served markets and/or to serve specific government priorities.”
The approval rate for these risky loans went from 33% in 2007 to 42% in 2008. By mid-2007, average equity as a share of home value was down to 6% — from 48% in 2003.
According to CMHC numbers Canadian banks increased their total mortgage credit outstanding by only 0.01 per cent from the beginning of 2007 to January 2009.
It means the Canadian government has been almost 100% responsible for all the mortgages issued over the last three years.
And in 2009, as we have just learned from Ms. Calla, 70% of the province’s real estate purchases were from first-time buyers whose average income was only $45,000, either combined or from one person.
Canadians have been borrowing money at unprecedented levels and now owe a record $1.41 trillion, putting Canada in the No. 1 spot among OECD nations in terms of consumer debt to financial assets.
Every week I get emails from people asking me for investment advice.
Understand what is going on around you and position yourself to take advantage of it.
Real Estate is about to implode massively, hundreds of thousands of Canadians are going to be financially ruined and the Canadian government will be on the hook so badly we will make the Greeks look like fiscal conservatives.
Read the writing on the wall... a once-in-a-multi-generational opportunity is about to present itself.
Get out of debt, get liquid and invest in that which will explode in in value in this environment.
You can't prevent what's coming nor can you help those who are going to be wiped out. But since you can see what lies ahead, get ready to take advantage of it.
What more do you need to know?
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