Greece could trigger a 'severe recession' in Canada - TD

In case you think our focus on the situation in Europe is somewhat disconnected from the real estate situation in Vancouver... think again.

Toronto Dominion Bank has come out with an economics paper today that outlines what a Greek exit from the Euro could mean for the Canadian economy.

And it isn't pretty.

The hilights from TD:

• Our most recent Canadian QEF builds in mild recession in Europe and continued financial market volatility due to European sovereign debt concerns. However, in recent weeks, risks of a disorderly Greek exit from the Euro zone have increased. In this report, we highlight what the worst case sce- nario would look like for the Canadian economy.

• Canada has little direct exposure to Europe and the real economy would be hit more significantly through indirect channels. The event would lead to financial market turmoil and commodity prices would tumble.

• High household debt and an overvaluation in the existing home market leave the economy more vulnerable to a negative external shock than it has been in the past. 

• In a worse case scenario, where there is a systemic crisis in Europe, Canada’s economy would endure a severe recession, with the decline being substantially worse than that experienced during the 2008/2009 recession.

TD focuses on a theme all to familiar to those following the housing bubble and concludes by saying:

What separates Canada from other major advanced economies, however, is its high and rising vulnerability to domestic financial excesses that have formed in recent years. While corporate balance sheets remain strong, household debt has become excessive and the housing market is in our view 10-15% overvalued, leaving households more vulnerable to a negative economic event. A global financial crisis could be a major catalyst for a sharp housing market correction and household deleveraging – albeit to a lesser extent than was evident in the U.S. during the past recession. Moreover, Canadian governments would have less room to stimulate compared to the first crisis in 2008-2009... In a worse case scenario, the Canadian economy would likely endure a severe recession, with the decline being substantially worse than that experienced during the recent recession as both exports and domestic spending contract heavily.

Now if you were a Chinese investor who had parked money in some Canadian real estate... do you consider bailing right about now to protect your financial assets?

Hmmm.

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Only 24% of BC Boomers own their home mortgage free

How's this for a looming disaster on the horizon?

According to a news release by TD Canada Trust, only 24% of BC Boomers own their home mortgage free (hat tip to pipewrench in yesterday's comments section).

In addition to that chilling statistic, TD Canada Trust found that only 40% of BC Boomers are likely to live in their current home during retirement.

This is consistent with an new Ipsos-Reid poll that says 64% of BC homeowners plan to sell their homes within the next 10 years.

Can you see the recipe for disaster here?

We already know that 70% of all Boomers don't have funds set aside for retirement. Any retirement funds they hope to have will come from the sale of their home.

These two studies all but confirm that Boomer's plans are to down-size, pay off their mortgages, move to a smaller home and use the left over funds as their retirement income.

And to make that work more effectively, TD Canada Trust has found that almost half of boomers in B.C. will consider buying a property south of the border where real estate has completely crashed in the United States.

The chilling statistic here is that since over 75% of BC Boomers have an outstanding mortgage to pay off, it leaves them in a potential retirement pickle.

Once they pay off the mortgage, and then buy a smaller, cheaper house free and clear... there's only so much room left over for a retirement fund.

When you consider that this is the first year that Boomers are hitting retirement age, and that right now they are selling into a stagnating market, how long before we see the significant price reductions start?

And when the downward slide begins, how long before those other Boomers - a couple of years out from retirement - start to panic?

How long before they see the margins on their bubble inflated homes begin to shrink to the point where they fear prices dropping below a level they need to cash out and still have a retirement fund?

Bank of Canada Governor Mark Carney has suggested there is a possibility of "an abrupt drop in the housing market". What sort of mad dash will there be to slash prices and 'get out' if there is a perception the market has started that 'abrupt drop'?

If there is a 15% market drop, without a rebound like we saw in 2009, you will see a lot of Boomers panicking.

And panicking Boomers who fear their retirement is at stake will slash prices to move their property ASAP.

There is far too much at stake not to.

It all strengthens my belief that Vancouver is shaping up to experience the mother of all housing collapses.

I can easily see a 50% price correction and firmly believe it will be closer to 70% as the Boomer wave moves into retirement.

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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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Sound Advice... Or Sales Propogranda?

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One of the biggest criticisms observers have of the real estate market is when sales hucksterism is dressed up as sound advice.

As posted here on March 28, 2009, the CMHC Housing Analysis that had been released that week showed the number of completed (yet unsold) condo units in the Vancouver market has shot up to 2,391. The year before, in March 2008, the total was a lowly 1,384. More importantly it noted that there are 25,907 units under construction and due to come onto the market as the year moves along.

Granted, a large number of those units will have been 'pre-sold'. But it is clear that there will be a huge glut of inventory flooding the market this year. The real-estate-without-land market is massively overbuilt.

Logically that will continue to push prices down, won't it?

Not if you shill mortgages for a living.

On Monday TD Canada Trust released it's most recent "analysis" on the state of the market. Reading the hilights, it is hard to equate the word 'analysis' with what looks more like condo-hype advertising copy.

In a press release trumpeting the 2009 TD Canada Trust Condo Poll, TD gushes that "the perceptions of the condo market have improved significantly over 2008 with 44% of urban Canadians believing the current conditions have improved for buying a condo as an investment (versus 21% in 2008). Why? Respondents say it is a buyer's market and condo prices are declining. If they can't afford to buy one on their own, 43% are willing to consider a joint purchase with a friend or relative to make the condo purchase possible."

I wonder how they came to these conclusions?

It was exactly one year ago that the market was at it's absolute peak. Since then values have been steadily dropping.

Question: Do you think conditions have improved for buying a condo today, as an investment, as opposed to last year?

Kind of a no brainer answer, isn't it. Of course they have improved! Would you or I buy a condo today? Not a freaking chance.

You or I wouldn't buy because an already over-saturated market is about to be flooded with a massive amount of additional inventory. Perhaps that's why the TD Canada Trust poll only went from 21% in 2008 to 44% today. Even with such a jury-rigged question, only 44% of respondents would answer 'yes' to that loaded question.

The 'official' press release is filled with additional gems like, "while 44% of survey respondents believe the current conditions for buying an investment condo are better than a year ago, versus just 21% agreeing with that statement in 2008, the amount Canadians are willing to spend has remained consistent."

These kinds of weak surveys allow the mortgage division of Banks to leverage the 'good news' to shill their products under the guise of a news story.

After presenting a ream of similar contrived nuggets, Joan Dal Bianco - TD Canada Trust's vice-president of real estate secured lending - then gives the classic real estate sales pitch hook. "This is a good time to explore a condo purchase given that mortgage rates are very attractive right now and many condos have dropped significantly in price."

Uh-huh.

As a sales pamphlet, it is great advertising.

Dressed up a news and investment advice, it comes across as attempting to manipulate the herd mentality that created the housing bubble in the first place.

And that's what rankles.

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