CMHC insists there will be no housing crash in Canada

The Canada Mortgage and Housing Corporation (CMHC) insists there will be no housing market crash in Canada.

CMHC has been saying for some time that it expects housing prices in most local markets will grow more slowly than they have been recently.

The Ottawa-based federal agency isn’t calling for a major decline, but its latest forecast suggests next year will be somewhat softer than estimates CMHC issued in June while 2012 may be somewhat stronger than previously expected.

(In other words, they keep getting it wrong and have to 'revise' their forecast constantly)

Mathieu Laberge, CMCH’s deputy chief economist, said:

“Balanced market conditions in most local housing markets will result in a slowing in house price growth”

Is that why they call it right now? A 'slowing in house price growth'?

(Prices never go down, you see... growth simply 'slows')

Contrast this with the normally always upbeat and optimistic Ozzie Jurock. On August 4th, Jurock pulled no punches in analyzing what is currently happening in the real estate market.  Rather than spin the numbers, he offered a very succinct (and negative) take on the drop in the average price.

The real estate market is down 12% on the average price - July over July ... but down a whopping 20% in price over May 2011!!!

July 2012 - $669,000 to July 2011 - $762,000: down 12%

July 2012 - $669,000 to May 2011 - $834,000: down 20% !!

Volume is down too. Listings are higher.

As Ozzie succinctly notes, the average is down 12% on a simply year to year comparison, but go back a couple of months more and it's down a full 20%.

So if a 20% decline in prices is a 'softening', what will they call a decline of 50%?

One thing we know for sure... they won't call it a 'crash'.

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"It's a market that will have a lot of units for sale and more coming on stream."

Over the past two months we have been talking about the exploding number of real estate listings in Vancouver, listings which have grown by more than 50% since the first business day of 2012.

On his Facebook page today, local real estate icon Ozzie Jurock made a post which contained the following observation about the real estate market in greater Vancouver:

"(It's) a market that will have a lot of units for sale and more coming on stream."

Jurock used this teaser to let followers know about his OpEd piece in yesterday's Vancouver Sun, a piece that had several nuggets of interesting info and expanded on his observations about increasing inventory:

As of Feb. 29, 2012, there were 6,000-plus condos for sale through the Vancouver Real Estate Board - up 15% compared to the previous year.

At the same time, sales of used condos were down by 18%.

Add to this the fact that - according to MPC Intelligence - there are some 8,000 pre-sale condos being launched in the first six months of this year.

Now Ozzie's piece was all about how to buy a condo in such a market, but anybody looking to sell in the environment must have felt their blood run cold when they read this.

Because you saw that correctly - a tsunami of pre-sale condos is about to descend upon the real market, a wave of product which will more than DOUBLE the current available condo inventory.

Perhaps this explains some realtor advice given to some friends recently.

Looking to sell their Coquitlam condo (which they bought brand new 5 years ago), their realtor commented on the current competitive marketplace.

His advice?

Completely renovate the condo - new floors, new paint, new appliances, etc - because this was the only way to successfully market the unit against new stock coming on the market.

At first I wasn't sure why he was adamant they take these steps. I know listings were going up, but I had no idea the amount of available condo inventory was about to more than double.

Now it all makes sense - the local real estate sales game is about to become a highly competitive sport.

And - I suspect - a very ruthless one at that.

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Are Canadian Banks preparing for a housing collapse?

With each passing day of 2012, the real estate situation grows more and more intriguing.

Yesterday it was the stunning comments of Ozzie Jurock that grabbed out attention.

Today it is the actions of the Royal Bank of Canada.

During 2011 there was no mention from Canada's largest bank that potential disaster looms on the horizon.

Yet RBC CEO Gordon Nixon let slip at an investor conference in Toronto on Tuesday that Royal Bank of Canada is not only concerned, but has taken the unusual step of conducting stress tests on its books to see how Royal would withstand a decline in housing prices by as much as 25%.

Nixon is quick to point out that the bank doesn’t figure the situation will become that dire, but he is concerned enough that he has investigated whether RBC's lending operations could withstand such a large hit if one were to occur, particularly in the Vancouver and Toronto condominium markets.

The bank’s exposure to the Canadian condo development market is about $2-billion, Mr. Nixon said.

No matter how you spin it, this is a stunning development.

Yesterday perennial R/E cheerleader Ozzie Jurock astonished local observers by telling followers to ignore that fact that Vancouver prices are the same this December over last December and to focus on the fact that:

• the December average price of $ 691,000 is a whopping $141,000 or a full 17% lower than the May 2011 average price (which clocked in at $834,000).
• that overall sales decreased 13% over last December and were a "WHOPPING" 34.1% lower than in December 2009. 
• and that sales of detached properties decreased 18.1% from the sales recorded in December 2010, and were a "WHOPPING" 30.2% lower than in December 2009.

Over on the blog, Vancouver Condo Info, the conversation focused on the dramatic numbers coming out in local real estate.

Noting that it’s normal this time of year for listing to outnumber buyers as people who haven’t managed to sell relist their property, the observers at VCI are taken aback at just how significant the ratios are.

Leading the pack were the numbers for the westside of Vancouver with 96 new listings, 10 price changes and an astonishingly paltry 5 sales.

The author of the post says, "Yes, that’s right. 96 new listings on the west side of Vancouver on one day and only 5 sales. Any idea whats going on here? Were there so many listings that all the sales didn’t get entered, or did we really just have crazy sales/ list ratio day?"

As we noted yesterday, Ozzie Jurock may have provided the answer when he suggests to all who will listen that, "if you are a seller - list now! If you are a buyer, take your time, the market will not run away from you."

And with Canada's largest bank testing the waters to see how they would withstand a housing collapse of up to 25%, one can only imagine that those list/sell ratios will intensify dramatically.

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Everyone's a bear now - even Ozzie Jurock?

As mentioned several times over the last week, everyone seems to be coming to the realization that the Real Estate market is in for a correction.

Douglas Porter, deputy chief economist with the Bank of Montreal says, “while the timing of said slowdown remains up in the air (and it’s no foregone conclusion it will start this year), it is highly unlikely that Canada’s housing market can continue its recent winning ways.”

Porter’s colleague at BMO, senior economist Sal Guatieri, doesn’t expect the “nastier” turn, saying in a separate report that the market is losing steam, and that valuations remain a worry, but that there will still be “modest gains” in overall sales this year, along with steady prices.  "If you listen closely you can hear the sound of air seeping out of Canada's housing balloon," Guatieri said.

Jacques Marcil, senior economist of Toronto-Dominion Bank, believes housing markets will weigh on the economies of British Columbia and Ontario and he projected a “significant correction” this year, noting that the hot Vancouver market probably peaked in 2011.

Even the Real Estate Board of Greater Vancouver reported this week that sales last year climbed 5.9% from 2010, but slowed at the end of the year. Sales in December fell 12.7% from the same month a year earlier. And while prices were still up by 7.6%, the REBGV tells us they were 1.5% below their peak of June, 2011.

But perhaps most astonishing is to see even Ozzie Jurock cast disparaging words on the ever inflating real estate market.

Jurock headlines that Vancouver prices are the same this December over last December but then goes on to give you some very bearish analysis which includes some very uncharacteristic negative comparisons:

"Well, YES (Vancouver prices are the same this December over last December) ... BUT the December average price of $ 691,000 is a whopping $141,000 or a full 17% lower than the May 2011 average price, which clocked in at $834,000. In fact overall sales decreased 13% over last December but a WHOPPING 34.1% decrease over the 2,515 residential sales in December 2009. Sales of detached properties a decrease of 18.1% from the 769 detached sales recorded in December 2010, and a WHOPPING 30.2% decrease from the 902 units sold in December 2009."

Jurock even goes on to offer you some very bearish advice.  "If you are a seller - list now! Prices usually rise January to May as do sales... and fall after that. If you are a buyer... take your time... the market will not run away from you."

Imagine if everyone were to follow Ozzie's advice, i.e. a rush of listings while buyers patiently wait and stay away?

It could make for a very interesting spring.

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"Residential property prices are in freefall in China" - Forbes

On Saturday we talked about how the Real Estate in China appears to be starting the process of bursting.

Coverage of this issue has been growing since early summertime.

In mid June the UK newspaper the Daily Mail ran a story titled 'China's ghost towns: New satellite pictures show massive skyscraper cities which are STILL completely empty'.

Recently we had this TV news story reporting the fact that property values in Shanghai are crashing:

And, as Forbes reported yesterday, the problem is not just limited to Shanghai but is spreading throughout China:

"Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market."

Forbes is reporting that China's largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing.

In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. 

Property Consultant Alan ChiangSheung-lai told the South China Morning Post that:

“The price war has begun.”

What started slowly at the end of summer has now turned into a rout. The middle of October is normally a good time for sales, but Shanghai developers started to slash asking prices instead.

Analysts expected falling property values to move China's Premier, Wen Jiabao, to relax tightening measures intended to cool the market. China has increased mortgage rates and put prohibitions on second-home purchases.

So far Wen Jiabao is unmoved.

After a State Council meeting on October 29, 2011 Mr. Wen affirmed the policy, stating that local authorities should continue to:

“strictly implement the central government’s real estate policies in the coming months to let citizens see the results of the curbs.”

The announcement turned an escalating drop in prices in mid-October into an earnest spree of panic selling over the past 15 days as desperate developers begin competing among themselves to unload inventory.

Over the past week and a half stunning price cuts are turning up everywhere. One builder — Excellence Group — even said it would sell flats in Huizhou at its development cost.

Citi’s Oscar Choi believes prices will decline another 10% next year, but that’s a conservative estimate. State-funded experts are far more pessimistic. For example, Cao Jianhai of the prestigious Chinese Academy of Social Sciences sees price cuts of 50% on homes if the government continues its cooling measures.

If China's 'approved' analysts are saying prices could halve in a few months; you can be rest assured they believe the eventual sell-off will be worse.

Legendary investor Jim Chanos has long been bearish on the China Real Estate market and has said that China will be “Dubai times 1,000—or worse”. He has said that what will play out is the unwinding of “the biggest housing bubble ever created”.

Anyone who thinks this will not be felt in North America is simply deluding themselves. As Time has noted:

"if the bubble pops, it will have serious consequences in the U.S. America sold $92 billion in goods and services to China last year. If China succeeds in moving away from its model of cheap land and cheap capital and makes a smooth transition to an economy based more on domestic demand, hallelujah. But if Chinese land prices plummet, there will be less demand for raw materials and a steep decline in world commodity markets and global trade in general."

And as this blog wrote on Saturday - when China's Real Estate values collapse, many of China's investors will have serious credit problems. As those credit problems mount, assets will have to be liquidated to pay debts. Given the choice between liquidating assets at home and liquidating assets abroad... assets abroad will most often be liquidated first.

Does anyone seriously believe that Vancouver won't be significantly affected by a rash of Asian owned property liquidations in our city?

Anyone, besides Ozzie Jurock, that is.

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A Different Perspective

Faithful readers know this blog is very bearish on Real Estate.

Juiced by easy credit it seems obvious why the Real Estate bubble has blown so big and even more obvious that it's implosion will be massive.

But not ever one shares that viewpoint. And today we bring you that alternative take on where we are and what lies ahead.

Local Real Estate Guru Ozzie Jurock in the perma-bull of Vancouver R/E and last week shared his thoughts in the Vancouver Sun.

• “In 1960 your home sold for an average price of $13,105. Yes! By 1970 we reached $24,000, by 1980 we clocked in at $100,000, by 1990 $230,000 and by 2000 $296,000. In the last 11 years we rocketed from there to where we now are at $1.1 million (average used home sale price between Lions Bay and Mission).
  
  
  We have had massive inflation in housing prices, driven by excess, cheap easily available money and today we are doing more – much more – of the same.
  
  
  Real estate remains cyclical. I have told my subscribers to expect a downturn in the Interior and Vancouver Island over a year ago and a slowdown in Vancouver, too. But, I remain convinced that the naysayers will be wrong again. Yes, the numbers are bigger, the zeros larger and yet each time – after climbing a wall of worry – we muddle through with the result that hard assets will be even higher five to 10 years later.

To Ozzie the never-ending spiral of price appreciation may stall but it will never end. 

Who can blame him?

An entire generation has grown up and has never know any other pattern.  How could the future possibly be any different?

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Greed is back.

I ran across a former co-worker today.

'Bill' (not his real name) and I hadn't seen each other in about five years and we caught up on things over lunch.

Back in 2002, Bill and another colleague ('Steve') had invited me to join them in a 'can't miss' venture.

Yaletown was just starting it's transformation and under construction was a new condo development at the corner of Seymour and Davie. Known as Tower 1, the Brava development was about to become available for pre-sale.

Offered at a 'bargain' $306 per square foot, Bill and Steve were planning on snapping up four of the two bedroom condos (two each). At 880 square feet, each two bedroom unit was selling for about $270,000.

Now, I didn't have $540,000 to spare and neither did they. But that didn't deter Bill. "All you need is $20,000," he said. "$10,000 per unit as a down payment."

The objective wasn't to actually complete the purchase. The plan was to sign an agreement to purchase (an 'assignment') and then in six or eight months, sell the assignment for a profit.

It was my first introduction to condo flipping.

Bill was a very convincing. He had done this before and was ecstatic about the possibilities. Recognizing the early stages of a real estate bubble blowing up before our very eyes, Bill could see the easy money... and he made a convincing argument.

"Just get one," he urged, "and get your feet wet."

It was the lure of easy money... but I passed.

Was it a mistake?

Bill and Steve sold their four assignments for over $360,000 per unit just 8 months later. After fees, they each netted over $120,000 each for their efforts.

Not a bad return for their $20,000 investment over eight months.

Bill came back to me with another project the next year, this one in Tinseltown. Your humble scribe declined on that one as well.

It was an attractive gamble, I said, but what happens if the market collapses?

Bill would have nothing of it. It was a "license to print money". After that, we lost touch.

As we know, the real estate market exploded upward for the next few years. Hundreds of others followed Bill's idea and condo developments sold out everywhere within hours of opening their pre-sales centre. Long lineups were the norm and each new development sold out faster than the last; each one an 'event' profiled on the local evening news.

And then the real estate market crashed.

My friend Bill?

With each passing year, he took his profits and leveraged more and more pre-sale purchases. Things were so good, he quit his job and turned to real estate flipping full time.

When the market crashed he had 34 assignments on the go.

Worse, Revenue Canada began tracking down assignment sales and he was audited... apparently the government expected that these profits should be declared as income at some point.

In July, Bill declared personal bankruptcy.

After a messy divorce, he's currently trying to rebuild his life.

Does he regret his choices?

Yes and no. He certainly wishes he had moderated his greed and managed his affairs better.

Coincidently a faithful reader has sent along a copy of an email offer he received from Ozzie Jurock today.

Greed, in real estate, is apparently back in vogue.

From the email:

• THE REAL ESTATE MARKET IS BACK.
  LEARN HOW TO GET INTO THE MARKET AND GET READY FOR 2010.
  LAST COURSE OF THE YEAR.
  
  Real Estate Action Weekend Special 2 for 1!
  
  Stop procrastinating - Take Action!
  Be recession proof - Take Action!
  Learn how to do it! - Take Action!
  Real Estate Action!
  
  Learn how to flip Real Estate
  Learn how to invest in Real Estate
  Learn how to maintain and grow your existing Real Estate
  Be the creator of your OWN financial independence
  
  Start dreaming and achieving BIG!
  
  Join the Real Estate Action Weekend
  
  Real Estate Action Weekend Special 2 for 1!

If you choose to sign up, good luck. You know my thoughts on what's coming.

And remember Bill...

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Not just bears... but... Angry Bears!

In the last post we hilighted Ozzie Jurock's take on the coming year: 2009.

Deried by Lower Mainland Bears as pollyanish, it really is not surprising. Ozzie is, after all, a salesman. And as as the past president of Royal LePage (Res.) in charge of over 7000 salespeople... Ozzie is simply unable to disasociate himself from what comes naturally; being a sales force motivator.

And while his message is as simple as it is timeless: take lemons and make lemonaide. The eternal mantra of all salesmen has taken on a very dark side these past few years.

Within the R/E Bear community there is more than just a backlash to the salesman's mantra.

There are bears... but then there are the Angry Bears.

Angry Bears are furious with what has happened within the Real Estate Community and this mantra of positism. And that anger is palpatable.

So why are some Bears so angry?

'Positism' is fine for your frontline salesman. But some Bears feel that there is certain level of the Industry... and of government and media... who have abrogated their duty and responsibility to society.

Dangerous conditions developed over the last eight years with nary of word of warning from those who should have been guarding the best interests of Vancouverites (and Canadians). It is this abrogation of responsibility that infuriates so many Angry Bears.

One of the leading Canadian Angry Bears is former Member of Parliament Garth Turner. Garth has been beating the real estate warning drum for some time on his website http://www.greaterfool.ca/

A recent post best sumarizes this anger. In 'the gospel of Phil', Garth profiles Phil Soper, President & CEO Royal LePage Real Estate Services Ltd.

Garth notes that exactly one year ago, when the US housing market was in distress, and warning signs were popping up everywhere that serious Real Estate problems were on the horizon for Canadians, the intrepid Phil Sopher was issuing his assessment of the coming storm.

Did Sopher warn young Canadian couples across the Dominion to take heed and caution?

Did he caution them against moving into houses with no downpayment, caution against buying Vancouver condos that were the price of whole blocks in other Canadian cities, caution them against assuming 40-year mortgages that several times the average family income to buy a house?

Did he caution them to tread carefully before committing to such a precarious financial position with an unprecedented modern storm brewing south of the 49th parallel?

Nope.

As Garth notes, twelve months ago the guy in charge of the real estate mega-marketer Royal LePage issued a 2008 forecast which said:

“After experiencing an exceptional year characterized by strong average house price appreciation and record breaking unit sales, the momentum from 2007 is anticipated to carry over and position Canada’s real estate market for steady, yet moderate growth in 2008, according to the Royal LePage 2008 Market Survey Forecast released today.

“Canada’s housing market in 2008 should continue to thrive on a balanced diet of strong economic fundamentals, including high levels of employment, resilient consumer confidence, modest levels of inflation and the relatively low cost of borrowing money,” said Phil Soper, president and chief executive of Royal LePage Real Estate Services. “Canada is currently enjoying one of the longest housing market expansions in history; however, as we move into 2008 it is anticipated that slowly eroding affordability will cause demand to ease, allowing the market to move toward balanced conditions, with lower levels of price appreciation, and fewer homes trading hands.”

The Angry Bears are furious that those Canadians looking for “expert” opinion were spoon-fed 'positism' masquerading as expert, guiding advice. How many Canadians were duped by the rhetoric exhorting them to 'get into the market' before they would be left behind?

How many read reports like Phil's and then went and bought a home? How many are now trapped with zero-down, 40-year mortgages? How many became, as Garth says, "the last sucker into a market which should have been condemned"?

Garth Turner goes on to note, "Of course in the intervening months, real estate sales have collapsed by up to 70% in some cities, and prices have fallen precipitously in the country’s largest markets. Listings have ballooned, multiple offers are a memory, houses are sitting without offers month after month and the economy has deteriorated in a way that has the prime minister musing about a possible depression. Our major trading partner and the world’s biggest economy is in tatters even after trillions have been spent, interest rates are on the way to zero and Chinese leaders are freaked out about layoffs and deflation.

So, what does Phil Soper say now? That he’s sorry? That he regrets pumping the market when he was supposed to be a leader?"

The answer, of course, is no.

In this year's report Soper - like Ozzie Jurock - continues the mantra of positism and dismisses impending economic turmoil as two looming bad financial quarters, and then it’s back to eternally rising housing prices by the beginning of April.

In a nutshell this is what so infuriates so many of the Bears. They decry this abrogation of reponsibility by the Real Estate Pollyana's to safeguard the best interests of Canadians... all in the name of protecting a massive Real Estate Ponzi game.

And that's why they are so Angry.