Six Canadian Banks Downgraded by ratings service Moody's

Flip over (on the internet, of course) to the Financial Post website and you will find this article: Six Canadian banks downgraded by Moody’s

Most of Canada’s biggest banks have been downgraded by Moody’s Investor Services, one of the world’s major credit rating agencies.

Moody’s says it took the step because of concerns over the banks’ exposure to heavily indebted consumers and elevated housing prices.

As mortgage lenders, Canada’s banks have benefited over the past few years from lending to home buyers.

The six financial institutions — five banks and a Quebec-based credit union — are being downgraded by one notch to either double-A one, two or three.

The ratings affect Toronto-Dominion Bank (TSX:TD), Scotiabank (TSX:BNS), Bank of Montreal (TSX:BMO), Canadian Imperial Bank of Commerce, (TSX:CM), National Bank (TSX:NA) and the Desjardins caisse populaire.

A downgrade by a credit rating agency usually means investors will demand a higher interest rate when a company goes to raise cash by issuing bonds or other debt.

Last October, Moody’s warned it was placing the long-term ratings of those six banks under review for a possible downgrade.

Royal Bank was not included on the list.

This follows Friday's Financial Post article where Theresa Tedesco wrote: Canada’s banking giants headed for earnings iceberg.

If you want to read it from Moody's yourself, you can see their press release here.

But this is information on 'the internet.' And you will recall from yesterday's post that the internet is where Alphabet Arnie says:

the entire negative internet world (has) their collective tails between their legs crying about the market "BUBBLING" which just proves that some whine, and some act and that we can sit around here and pontificate about market direction.

Well it seems that the folks at Moody's (with their own collection of ivory tower letters after their names) just whined, acted and pontificated on the internet... all at the same time.

Imagine that.

(hat tip Canadian Watchdog)

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A Festivus for the Restuvus

Happy Festivus everyone!

Wanted to take a moment an hilight a post made yesterday over on VREAA.

This is 5575 Elm Street on Vancouver's west side:

This 5 bedroom, 6 full bathroom, 1 half bathroom, 5,101 sq ft single family home sits on an 8,114 sq ft lot and is described as such:

The perfect "10" Kerrisdale custom-built home by Loukas Designs with over 5000 sq ft luxury home. Large 50' x 162' lot. East-facing front to greet the morning sun. 10' to 11' ceiling all over, gourmet kitchen with carrera marble countertops, Sub-Zero fridges, Miele D/W, Thermador stainless steel stove, French doors open to huge west-facing gas-heated covered patio w/ built-in BBQ overlooks the blue swimming pool & hot tub. Total of 5 bedrooms, 6 baths, a media room & exercise room. Bsmt offers suite potential for nanny or the in-laws. H/W floors throughout, radiant heat, built-in surround music system and 3 car garage. The fenced backyard is a kid's heaven. Priced to sell.

On July 27th, 2012 it was listed for $4,880,000.

On December 9th, 2012 it's asking price was reduced to $3,990,000 and advertised as 'priced to sell.'

Priced to sell?  Hardly. It's assessed value is $3,545,000.

As VREAA notes, at 20% off it's original asking price it is still overpriced - particularly in a market where single family homes are now selling at below assessed value.

But it gives you an example of how much further our market has to go.

The first signpost along the path of reckoning in 2013 will be Chinese New Year.  This has sort-of become the orgy period of excessive property over-bidding in our market - until last year.

There will be many holding out with expectations that HAM (Hot Asian Money) will be returning in 2013 (we will discuss this more in a future post).

It it doesn't, the sellers will seriously re-evaluate things.

According to a contributor at VREAA (hat tip Canadian Watchdog), this home sold on May 31, 2010 for $3,079,000.  It is an example of our speculative frenzy that this purchaser could turn around and ask for $4,880,000 a mere 2.5 years later (an increase of 58%).

I would love to know what this home sold for in 2006 when it was originally built (if anyone knows, please advise and this post will be updated).

I sincerely believe even those with a bearish view of the market will be shocked to see how far values fall to eyes accustomed to 2011/2012 prices.

2013 will be the year many begin to accept that the values established over the past year are not coming back and that to sell, homes will have to be listed below assessed value.  As Global TV noted, the price increases of the last decade are long gone.

We will keep our eyes on this property as the New Year moves along.

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Mon Post #2: BC residents most heavily indebted - and number is growing

We didn't get a chance to mention this yesterday, but in case you missed it the Vancouver Province had a noteworthy frontpage story on Sunday trumpeting that B.C. has the most heavily indebted population in the country — and the number is growing.

A growing number of B.C. residents are running the emotional debt gauntlet. Beset by stagnant incomes and rising prices, B.C. posted a 42 per cent increase in people going bust over the past four years - far higher than the 11-per-cent national increase.

B.C. has the most heavily indebted population in the country. The average B.C. consumer has $37,879 in consumer (nonmortgage) debt. That's 40 per cent higher than the national average.

Meanwhile there's more evidence that as the new OSFI regulations for Nov 1 kick in, more and more borrowers are heading to alternate lenders.

Mortgage Broker News has this story about one broker cautioning colleagues on private lenders, which are gaining popularity among borrowers shut out from banks by the new mortgage rules.

“In the last two months we have seen a sudden increase of clients interested in private and syndicate lenders,” said James Loewen, broker at Loewen Group in Burlington, Ont. “Sometimes there’s a sense of urgency or rush, but brokers need to be careful in picking a reputable private lender in order to protect their clients.” 

“A colleague reported doing eight to nine private lending deals in the last week and said they we’re likely doubling down on such transactions in the next few weeks,” said Loewen. “But he’s also being careful because private lenders do not go under the same scrutiny and guidelines as banks.”

The big five Canadian banks are now rejecting some of the very risky loans they used to grant because of CMHC insurance.

Canada DOES have a burgeoning subprime loan problem that we have rationalized does not exist.  And when you consider this tidbit (click on image to enlarge)...

... it becomes harder and harder to ignore that the perfect storm is brewing.

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