Scotiabank joins growing list of those issuing Real Estate bubble warnings

Well another day and it seems another senior mainstream finance wizard is shouting out warnings of impending doom in the overblown real estate market in our country.

Did all the bear bloggers somehow get outed as bank economists this month?

The latest is Scotiabank CEO Brian Porter who says the Toronto and Vancouver housing markets will have to correct at some point.

"Trees don't grow to the sky and markets will correct at some stage here,'' Porter told analysts Tuesday.

This comes on the heels of Bank of Montreal’s chief economist, Douglas Porter, stating,"Let’s drop the pretense. The Toronto housing market — and the many cities surrounding it — are in a housing bubble” and Sun Life’s Chief Investment Officer Sadiq Adatia who said,"eventually we are going to see this market kind of stop and then come off a cliff, the longer we stay in this run-up, the bigger the downturn is going to be.”

You really can't get much more specific that this for advice on where things are going.

Of course, if you want confirmation that everything's okay and you should 'buy, buy, buy' we turn to the real estate industry and Mark Renzoni, president of global commercial real estate giant CBRE.

Renzoni had just wrapped up a speech at the CBRE's annual Canadian Market Outlook attended by about 1,400 brokers, developers and landlords at the Toronto Convention Centre. Afterwards he gave an interview to the Toronto Star in which he did his Renzoni best Alfred E. Neuman impression and advised us:

Bubble. What bubble? 

Toronto's soaring home prices are in line with the reality of other world cities such as New York, Hong Kong and London, says Mark Renzoni, president of global commercial real estate giant CBRE .

"The market is fairly balanced. It's not being driven by foreign capital. It's being driven by Canadians, moving up, buying for the first time," he told the Star, following a speech at CBRE's annual market forecast event. 

"There's great jobs, there's a sense of optimism, there's confidence in the job market and interest rates are low," said Renzoni, who suggested that concerns about foreign speculation in the Toronto housing market are overblown.

So there you have it. And c'mon... let's face it. Those banking types, they're all closet wearing, tin foil hat sportin' doomers. Right?

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Will this be the next Richmond property that sells for -50% below assessed value?

Yesterday we told you about a condo in Richmond which sold for -50% below it's assessed value.

It was Unit #204-3411 Springfield Drive.

There's another court-ordered sale in the building, this time it's Unit #125. 

This one seems to be a little better looking than #204, which probably explains why it's assessed at a higher value:

#125 is assessed at $289,400.

As we mentioned with #204, there are no special assessments pending in this older building (built 1972) and amenities do include an outdoor pool.

Like #204, this one is a 3 bed, 2 bath unit.  However #125 is larger by 140 square feet (1345 vs 1205). So will #125 fair better than #204?

Assessed at $289,400, the current asking price is $195,000 - $94,400 and 33% below assessed value.

Will this unit sell for 40-50% below assessed value now that #204 has sold so low?

Meanwhile Scotiabank has declared the threat of a housing collapse over saying the Canadian housing market appears to have achieved "a soft landing"... so far.

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Scotia Bank comes out and declares Vancouver's in a full blown "Continuing Housing Market Correction"

Everything you have read from the Real Estate Industry for the past 3 months has talked about the market shifting towards becoming "balance" or that what we are experiencing is a typical summer 'slowdown' as buyer's take a 'break' during the hot summer months.

Some have even dared to suggest the market is 'softening'.

But few have dared to characterize what's going on for what it is - the start of a correction.

Well that all changed yesterday as ScotiaBank came out with a report that calls a spade a spade - that Vancouver is not only caught up in s market correction... but has been in that correction for a while and it is "continuing."

On page 5/6 of their August 17th, 2012 weekly commentary on economic and financial market developments, ScotiaBank has the following...

Vancouver’s Continuing Housing Market Correction

Strained affordability, a continuing high level of new construction and rising unsold inventory suggest there are further downside risks to the Vancouver housing market, notwithstanding the notable cooling in both sales and pricing over the past year.

The turnaround in Vancouver’s housing market performance over the past year has been dramatic. Existing home sales over the first seven months of 2012 have fallen 20% from a year ago, to their lowest level in over a decade outside of the 2008-2009 recession. Given a smaller decline in new listings relative to sales, overall market conditions have shifted modestly into buyers’ territory, in turn putting downward pressure on home prices. The benchmark resale price for both single-family homes and apartments has essentially levelled out over the past 12 months.

Growing affordability pressures are likely the main contributor to the slowdown, with the falloff in demand most pronounced at the high-end of market and/or for expensive detached homes.

Vancouver is by far Canada’s most expensive housing market, and has seen larger price increases over the past decade relative to the majority of major centres, including Toronto. Tighter mortgage rules and the eventual rise in interest rates will worsen affordability constraints over the next several years.

However, there appear additional factors behind the decline in sales, including reduced population inflows. Net interprovincial migration to the province has been negative for the past five consecutive quarters, reversing an almost decade-long trend of steady population inflows from other parts of the country. Meanwhile, international immigration, the primary source of the province’s population growth, too has slowed sharply. While ‘hard’ data on investor and/or foreign purchases are limited, weakening sales may also be indicative of reduced interest from offshore buyers, including from China.

Despite softening resale market conditions, new homebuilding has yet to show any discernible sign of slowing. Housing starts have accelerated over the past year, led by new high-rise projects, and are currently tracking over 19,000 annualized units. This compares to an estimated underlying annual demographic requirement of around 16,000-17,000. Completions remain relatively low at just over 15,000 annualized units in the first half of 2012, but will climb higher over the coming year based on the level of units under construction.

The Vancouver new home market is not significantly oversupplied. Over the 2006-2011 period, annual housing starts and completions averaged about 16,500 units, consistent with annual household formation trends. The total number of completed and unoccupied units has moved above its long-term average, but remains well below prior peaks of the mid- to late-1990s (chart 5). The increase is primarily in multi-unit developments, while the unsold inventory of single- and semi-detached homes remains low.

The current level of unsold inventory appears manageable. Relative affordability will continue to support demand for condominiums over single-family homes. Vancouver’s rental market, which absorbs a large share of new condominium units, remains tight: the apartment vacancy rate was 2.6% in April 2012, down from 2.8% April 2011. The vacancy rate for rented condos was just 0.9% (as of October 2011). Just over 25% of condominium units in the Vancouver CMA are rented, among the highest share in Canada. However, the risk of a more difficult adjustment will increase if builders do not soon begin to slow the pace of new construction.

If you read the whole article it tries to paint a pretty balanced picture, but you can't escape the headline.

It's almost as if Scotia, in the pit of their stomach, knows the looming risk of a "more difficult adjustment" is far greater than they are willing to publicly acknowledge at this point.

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The COMEX supply of Silver continues to decline, Scotia loses 60% of it's Silver

Faithful readers may recall that back on April 28th we made a post about the COMEX losing 20% of available Silver to 'reclassification'.

Part of that 'loss' came when Canada's own Scotia Bank, our nation's largest bullion depository, reclassified a whopping 5.2 million ounces of silver from Registered to Eligible status.

Scotia Bank precious metals division (Scotia Mocatta) transferred 25% of the silver it possessed from the "registered" category (or deliverable physical) to the "eligible" category (or "undefined").

And when Scotia Bank moved 25% of it's silver from 'registered' to 'eligible', it took that silver out of the COMEX pool that was available to be delivered.  This move dropped the vault's true holdings from 11.8 million ounces to 6.5 million. And the 5.3 million ounces that ScotiaMocatta moved represented 5% of the  COMEX supply (at the time) of 44 million ounces.

This 'reclassification' was dismissed as a routine move that happens from time to time and that it was only a temporary condition that would soon correct. 

Curiously this was followed by reclassification's from two other depositories, HSBC and the Delaware Depository.

When all was said and done the 'reclassified' silver reserves dropped the total "physical" silver at the COMEX by almost 20%, or from 41 million ounces to 33 million ounces.

And the 33 million ounces is down from over 100 million ounces just over a year ago.

Now... there are those who that the COMEX does not even have that 33 million ounces.  They way that what is stored 'on the record' is actually an accounting sleight-of-hand and that the silver has been leased out or spoken for in some other fashion in the giant fractional reserve silver game being played by the big bullion banks.

This, critics allege, is why the COMEX has been having so much difficulty providing delivery of physical silver on futures contracts in a delivery month.  Records of silver deliveries in and out of the COMEX vaults don't match the contracts being settled leading critics to charge the COMEX is settling contracts, not with physical silver, but with cash payouts plus a sizable cash premium.

The problem with this, of course, is that cash settlements prevent the COMEX from functioning as a true discovery vehicle for the price of silver.  If the COMEX is unable to deliver physical silver at these prices, then the price of the metal would rise to seek the level at which physical silver becomes available (i.e. the level at which those who hold it are prepared to part with it).

Thus the levels of Silver on hand at the COMEX is of keen interest to those who invest in Silver.

Are the 'reclassifications' really temporary or are they indicative of a problem with the silver supply?

Well the latest COMEX warehouse data appears to indicate the problem may not be as 'temporary' as those at the COMEX would like you to believe.

For the first time ever total registered silver has dropped below 30 million ounces.

This comes after yet another 1,456,488 ounce "adjustment" of warehoused silver from Registered To Eligible at Scotia Mocatta.

As of June 1st, total Scotia physical silver was now 4,740,447 ounces, a 24% drop overnight, and a massive 60% drop from the total which we profiled on April 28th.

Curiously the total silver totals at the Scotia Mocatta vaults has barely budged. The only thing that has changed is the shift from real silver to "Eligible", or that which has no warehouse receipt issued against it. This Silver has been described as "a private arrangement" which has nothing to with the Comex.

But the fact of the matter is that Scotia Mocatta has lost 60% of its physical Silver in one month to 'reclassification' and the total available deliverable Silver at the COMEX is now below 30 million ounces.

That means that if 6,000 contracts stood for delivery (each contract represents 5,000 ounces), the COMEX doesn't have enough physical Silver to fulfill the delivery.

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"Are Canadians getting in over their heads?"

You know our answer to that question.

But this week it was Scotiabank economists Derek Holt and Karen Cordes who were doing the asking.

In a research note released last week they noted that "lenders have been scrambling to get enough product to put into the federal government’s Insured Mortgage Purchase Program over the months, and that may have translated into excessively generous financing terms"

Excessively generous financing terms?

That's econo-talk, their way of saying the banks have been giving money to people they shouldn't be.

Ouch.

Sounds like Derek and Karen are biting the hand that feeds them (or in the vernacular of another local company we know... they're not 'team players').

But you gotta hand it to them. They're telling it like it is.

The report goes on to note that low mortgage rates are the dominant factor in the pent-up sales demand of the last few months. "I think that's having the effect of putting people into homes at an earlier stage than would have otherwise been the case," Mr. Holt said.

Ouch, again.

Holt goes on to question whether mortgages will remain this affordable in the long term.

"I do worry, longer term, not even that far out - two or three years from now - once short and long interest rates are probably higher ... whether a lot of those mortgages will be as easy to carry as they are right now," Mr. Holt said.

And in a blaze of insight, the Globe and Mail, in reporting the story, wonders "whether a spate of good deals on mortgage rates could mean Canadians are getting in over their heads."

Ya think?

"La, la, la, la, la..."

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TD said 'buy now', Scotiabank says 'prices still to fall further'

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Yesterday we read TD Canada Trust's sales promotion disguised as a real estate market assessment.

Today Scotiabank offered a bit of a different take on the R/E Market.

The Vancouver Sun reported the story in an article titled "B.C. housing prices still under pressure to fall, Scotia Economics says".

While acknowledging that BC real estate sales have lifted from last fall's dismal lows, Scotiabank stressed that "market oversupply and deteriorating economic conditions will still pressure prices downward."

March and April saw "pretty strong sales volumes" across the country, said Adrienne Warren, a senior economist with Scotia Economics, the Bank of Nova Scotia's economic-research division. However, "prices are not really firming up [in B.C.] as we've seen in some other parts of the country. There is still a bit of correction going on in a lot of western markets: Vancouver, Calgary and Edmonton, where they are still working through some overshooting of prices and excess supply."

That, she added, will mean "a little more downward pressure on prices."

Warren still offers a few optomistic assesments for a market turnaround, which is fine. That is the sort of honest assessment that the public needs from the banks 'economic advisors'.

Not the TD-style sales marketing spewed out on behalf of the mortgage department.

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Scotiabank Issues Brutally Pessimistic Report on Real Estate

Adrienne Warren is a Senior Economist and Manager at Scotiabank, holds a PhD in Economics from York University and specializes in forecasting the Canadian and U.S. economies for Scotiabank.

On February 25th, two days after the Urban Development Institute held a confab with local real estate ‘industry leaders’ to tell everyone that we really do not have a housing recession in BC and Canada; Warren has issued a damning report titled the "Deepening Downturn in North American Real Estate Activity".

Her scathing analysis confirms that we, in Vancouver, are still in for some serious downhill declines in real estate values.

From the reports “Residential Outlook — Canada” section:

1. There was a double-digit decline in single-family homes, with most of falloff in B.C. and Alberta.
2. There was rising unsold inventory, falling new home prices, greater resale competition and reduced credit availability. All of whichl contributed to the slowdown.
3. Housing starts have tumbled to an eight-year low and resale activity has cooled even more forcefully, and MLS sales volumes fell 17% last year. When combined with a rise in new listings, the Real Estate market was saturated with product.

The outlook for 2009 was just as bleak.

1. Housing starts are forecast to fall below longer-term replacement demand with declines across all provinces and in both multi- and single-family segments.
2. There will be another 15-20% decline in the volume of resales and a further 10% drop in average prices.
3. Centres with the largest supply-demand imbalance, including Vancouver, Sudbury and Calgary, have relatively greater downside price risk.

All in all it was a bleak assessment of the market from a sector who normally produces positive outlooks to drive business.

Two days earlier the speakers at the Urban Development Institute tried to convince anyone who would listen that the problem with the Vancouver Real Estate Market downturn had to do with "a serious loss of consumer confidence”.

They are right.

Is there any consumer who has still has confidence in the malarky Rennie, Muir et al are spouting?

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