Debt Shock? Whatchyou talkin bout Mark?

The end of another week and the focus continues to zero in on negative news for Real Estate.

And, once again, the warnings are coming from Bank of Canada Governor Mark Carney.

Yesterday's Vancouver Sun announced the news:

"The Bank of Canada has renewed its warning that debt-laden Canadians could face a 'significant shock' if housing prices fall."

Whoa... whoa!

If housing prices fall?  Housing prices don't fall, what are you talking about Mark?

In a series of special reports the Bank of Canada reviewed household debt and changes in the value of Canadian's "single-most important asset" — their homes.

While there has been a steady rise in the ratio of household debt to personal disposable income, house prices have been steadily increasing since 2000, the review said.

"These facts are interrelated, since rising house prices can facilitate the accumulation of debt. Households could, therefore, experience a significant shock if house prices were to reverse."

Whoa, wha??? There he goes again.  Significant shock if house prices were to reverse???

But real estate always goes up!  And what about the Asians?... the rich Asians are going to keep prices high, right?

"The evidence indicates that a significant share of borrowed funds from home-equity extraction was used to finance consumption and home renovation in Canada from 1999 to 2010. Such indebtedness constitutes an important source of risk to household spending, since it makes households more vulnerable to a potential decline in house prices."

Mike, baby, what are you saying? That Canadians have been using their homes like ATM machines just like the Americans did?

Then there was Federal Finance Minister Jim Flaherty:

On Thursday, Flaherty said "people have to be wise . . . in how they look at things."

"Interest rates are going to go up. They have nowhere to go but up. So people need to ensure that they can afford higher mortgage interest. It isn't necessarily for everyone to have most expensive house they could possibly buy, maxing out the 10-year mortgage they can get from a financial institution."

ALRIGHT... STOP RIGHT THERE! Interest rates are going up????

NO WAY... US Federal Reserve Chairman Ben Bernanke said rates were staying low until 2014. Rates are NOT going to go up. You wouldn't do that to us... it would hurt the economy too much.

Clearly Carney and Flaherty must have been munching on magic mushrooms or something before the last press conference.  I mean, what the hell???

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New home sales on the West side of Vancouver

For the past few years we have been told that the west side of the City of Vancouver has been HAM central (Hot Asian Money) and that the influx of money from China will not only keep driving prices skyward...  but will more than support/sustain values which bears may 'claim' are out of whack with local fundamentals.

Bear blogs have noted that the influx of money into many Real Estate markets (Australia/Canada) is driven by the fact that China has pumped more stimulus into their economy per capita than have the Americans into theirs.  A lot of this money is flowing out of China and into investments like Vancouver Real Estate.

The mistake many make is to believe this money will be unending.

As we have documented on this blog, China is trying to engineer a downturn in it's very bubblicious real estate market. The spillover effect has lead to what many believe is a popping of the housing bubble in Australia. As real estate values collapse in China, as credit is reduced in China... there is less money available to funnel out of the country and into Aussie real estate.

Many have suggested (to outright ridicule) that this pattern will begin to surface here in Vancouver as well.

Since many Asians look to buy new houses when they invest their HAM money here, it is new home sales that are watched with keen interest in markets such as the west side of Vancouver.

And it is just such an analysis that VREAA focuses on in a post today.

Noting that sales of brand new homes has dropped dramatically on the west side of Vancouver, VREAA (courtesy of contributor ZRH2YVR) observes that there are currently 17 months of inventory of new builds on the market compared with a 7.5 average for the whole market.

Even more intriguing is what happens when you break up all properties for sale by price.

There is a very strong drop off in sales above the $2.8 million level.

For properties under that level, months of inventory is sitting at about 4 months. But above that value, it immediately jumps over 10 months of inventory and reaches 24 months at the 4 million level.

For your humble scribe this is of great interest for I know personally of someone who is involved in housing speculation exclusively on the west side of Vancouver.  

The modus operandi has been to buy a west side tear down for about $1.2 - $1.8 million, spend $850,000 constructing a higher end new home, and then selling that home for approximately $4 million.  

His last endeavour was his most successful and emboldened by past success (he works in partnership with three others), his group had visions of purchasing at least 3 properties this year to replicate their efforts. They have been very optimistic about how well the properties they plan on purchasing will do because the timeline will see them coming on the market in early 2013 which will coincide with the removal of the HST.

Naturally we have had numerous debates about where the market is going and the wisdom of this strategy.

As west side new home high end inventory balloons to 24 months of inventory at the $4 million level, what will the impact be on his interests.

He has already purchased at least one tear down property that I am aware of.

With over 450 west side homes for sale over $2.8 million and negligible sales, this is (as VREAA notes) a "crazy amount". 

What impact is this going to have on his group (and other speculators doing the same thing)?

With capital tied up in these projects (much of it borrowed money), new tear down's (under the $2.4 million mark) cannot be purchased.

As months of inventory grows in the under - $2.4 million category and as inventory fails to move in the over - $2.4 million category, how long before the pressures of the market start to have their impact?

How long before other speculators have to bail and sell 'below market value' to minimize losses being accused on interest payments on the borrowed money?

And what of those boomers, for whom retirement is based on capitalizing on housing bubble prices, start bailing at 20% or 30% below current market value just to ensure they 'get what they can' from a collapsing market?

We will watch sales (and actual prices achieved on those sales) with keen interest. 

I can't help recall how we saw similar scenario's play out in the early 1980's.

Of course... it's different this time, right?

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Anyone spare a job?

If you follow this job you know how we have profiled real estate on the periphery of Greater Vancouver has been sucking wind for the last year and more.

The Okanagan and Vancouver Island have been suffering particularly bad.

In what may come as a sign of the times, should we be surprised realtor's are now jumping ship?

Above is a screen shot of Victoria Realtor Jeremy Eade's former listings.

I say former because it appears Jeremy may have had enough of the real estate business.  It seems Jeremy has packed his bags (or is planning to pack his bags) and wants to head back to Calgary.

Will he be selling real estate?

Check out his Kijiji ad and decide for yourself (click to enlarge):

A sign of things to come?

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The Age of Ron Paul: The Thomas Jefferson of our day

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Mass Exodus of World Bankers... what's going on?

Rumours and conspiracy theories are flying all over the blogosphere tonight as it is becoming increasingly evident that there is a mass exodus amongst the ranks of the world's leading bankers.

1) Feb. 6, 2012 / Bank of India CEO Chaturvedi resigns

2) Feb. 10, 2012 / Tamilnad Mercantile Bank CEO resigns

3) Feb. 13, 2012 / Kuwait Central Bank CEO resigns

4) Feb. 15, 2012 / World Bank CEO Zoellick resigns

5) Feb. 15, 2012 / Anz Bank CFO Australia resigns

6) Feb. 15, 2012 / Nicaraqua Central Bank Pres Rosales resigns

7) Feb. 15, 2012 / Royal Bank of Scotland Australian CEO Stephen Williams resigns

8) Feb. 15, 2012 / Nova Kreditna Banka Maribo CEO resigns

9) Feb. 15, 2012 / Nova Ljubljanska Banka CEO resigns

10) Feb. 17, 2012 / Credit Suisse Chief Joseph Tan resigns

11) Feb. 18, 2012 / German President Christian Ruff resigns

All of it comes as a stunning speech is made by Sir James of Blackheath in the British House of Lords with allegations involving the stunning amount of $15 Trillion. Sir James described a set of mysterious transactions where over $15 trillion dollars was transferred via HSBC to RBS a few years back by one individual, who then proceeded to lose that money when RBS was taken over.

There are also rumours Goldman Sachs CEO Blankenfein was asked to resign but refused.

Is it all connected?  It's worth keeping tabs on.

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All you need to know about money printing

A few days ago there was another significant round of currency debasement.  Quantitative Easing (QE) is  taking place on a massive scale despite the fact you are not hearing about it in the mainstream press.

If the basic definition of quantitative easing (QE) is a significant increase in a central bank's balance sheet via increasing banking reserves, then all eight of these central banks [the others include the Bank of England, the Swiss National Bank, the Banque de France and Germany's Bundesbank] are engaged in QE (see graph above -click to enlarge).

What's particularly shocking about the data is that while every major central bank is busily printing money like it's going out of fashion – which it is – one of the biggest culprits is the one most widely associated with sound monetary policy, namely the Bundesbank, which has been one of the biggest inflationists of all:

The combined size of the Big 8 central banks' balance sheets has almost tripled over the last six years, from $5.4 trillion to more than $15 trillion and still rising. That $15 trillion compares with the capitalisation of world stock markets which stands at $48 trillion. The Big 8 central banks now account for the equivalent of one third of world stock market capitalisation.

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Sat Post #2: Canadian Bank sues JP Morgan (and others) over interest rate swap suppression

Interesting little development in the world of high finance today.

Bloomberg has announced that an unnamed Canadian bank has filed suit against at least seven firms including JP Morgan over conspiracy to manipulate the price of interest rate swap derivatives for more than three years.

The lawsuit is contains a trove of documents that are shedding light on the manipulations going on. The issue is significant because Interest rate swaps artificially support the bond market by creating massive demand for bond trades that are embedded into these swaps.

From Bloomberg:

JPMorgan Chase, Deutsche Bank AG (DBK) and HSBC Holdings Plc (HSBA) are among at least seven firms accused by another bank of participating in a conspiracy to manipulate the price of derivatives worldwide for more than three years.

The unnamed bank, seeking immunity, told Canada’s Competition Bureau that traders and cash brokers conspired to influence the Yen London interbank offered rate from 2007 to 2010 to profit on interest-rate derivative positions linked to the benchmark. The bureau spelled out the probe in documents it filed with the Ontario Superior Court in May.

The documents, shown yesterday to Bloomberg News by court clerks, offer one of the most detailed accounts yet as watchdogs in Europe, Asia and the U.S. look into concerns that firms conspired to manipulate interest rates serving as benchmarks for trillions of dollars of financial products. Canada also is investigating Citigroup Inc. (C), Royal Bank of Scotland Group Plc (RBS), ICAP Plc (IAP) and RP Martin Holdings Ltd., the court documents show.

It is important you understand the volume and value in this market.

Current figures aren't available but as of 2007, JP Morgan held $61.53 trillion in total OTC swap derivatives. BOA held $23 Trillion, Citibank $19.9 Trillion, HSBC $2.1 Trillion and Wachovia held $3.1 Trillion in OTC swaps, which are probably now on Wells Fargo's books. Combined, the top 5 US banks held $110 Trillion in OTC swaps as of 2007.

These figures has likely increased significantly in size over the past 5 years as the financial system teeters on the verge of collapse.

Compare this $110 Trillion with the next next top 20 banks (they held a mere $1 Trillion in OTC swaps combined!)

Of this total $111 Trillion, an astonishing 65% of these books are Interest Rate (IR) Swaps.

This massive trading of OTC Interest rate swap derivatives creates massive artificial demand (no end user is purchasing the bond...this is merely trading for trading's sake), which results in an artificially high price for said bonds. This suppresses interest rates and keeps them at severely and artificially low levels.

As the blog Silver Doctors outlines, this is how you can see 3.5% 30 year rates when actual inflation is running 8-10% annually. Massive artificial demand is created for bonds due to an unimaginable volume of Interest rate swaps tradei back and forth among the US Treasury's proxies of JPM, Citi, HSBC, etc.

JPMorgan's interest rate swap book alone requires $41.4 BILLION in bond purchases PER DAY in order to properly hedge the growth in these swap books, plus an additional $30.3 BILLION in bond purchases PER DAY to hedge maturing interest rate swaps that need to be rolled-over and replaced. All just to keep a static book.

It has been documented that just during Q4 of 2007, JPMorgan alone required $71 Billion worth of bonds daily just to hedge its interest rate swap book.

According to the US Treasury, during Q3 of 2007 the Treasury required a total of $105 Billion in debt borrowings. Assuming the treasury sold 100% of its Q3 2007 offerings to JPMorgan, $105 Billion would satisfy about a day and a half of hedging requirements for JPM's swap book. Clearly it is physically impossible for JPM to be hedging this type of volume and is one of the reasons critics say it is clear that JP Morgan is actually an arm of the US Federal Reserve. 

Critics also say that this is why gold and silver are so stridently suppressed, as they would otherwise blow the whistle on this whole ponzi game of finance.

It is also why the developments in Europe with Greece, Portugal, et al is so important.  If default takes place, not only would there be a serious mainstream move into gold and silver (and the metals would significantly rise to their unmanipulated, free-market values) but at this point JPM's OTC derivatives would kick in JP Morgan would have to pay out on their $61.53 Trillion derivative position.

This would without question take down the entire financial system.

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Sat Post #1: Bloomberg - Canadian Housing Market heads for severe correction

On Thursday we ruminated on the impact the plethora of mainstream media articles about the Canadian Housing Bubble and pondered what effect it was going to have on the real estate market.

How long before all the negative press convinces buyers (local and internationally) that now is NOT the time to buy?

Yesterday we noted that  TD Bank may have upped the "do not buy" ante with a note to clients in which TD economists said that a "housing correction will take hold in 2013."

Well... the negative press parade continues. Joining TD Bank's claims that the Canadian market is going to correct is Bloomberg, who headlines, "Canada Housing Heads For Severe Correction". 

As headlines go, you can't get much more specific or dire than telling your readers that the Canadian housing market is headed for a 'severe' correction.

Bloomberg interviewed George Athanassakos, professor of finance at the Richard Ivey School of Business. In the article, Bloomberg charted Canada’s housing investment as a percentage of gross domestic product, and the declines in inflation-adjusted house prices that follow when this ratio tops 7%.

According to Athanassakos, “eventually, everything boils down to demand and supply. Whenever this ratio (housing investment as a percentage of gross domestic product) goes over 7%, it signifies overinvestment in housing and two or three years later, we have a severe correction.”

Athanassakos noted that Canada’s housing market is booming as historically-low interest rates fuel purchases, driving up home prices and adding to record household debt. Canada’s ratio of housing investment to GDP has averaged 5.8 percent over the last 50 years but has recently jumped to about 7%, based on Statistics Canada figures as of the third quarter of 2011.

Hence Athanassakos' conclusion that Canada is poised for a 'severe' correction and TD Bank is joined in it's prediction that Canada's housing market is about to face a significant correction.

Will it have an impact? All those Asians with extreme gobs of money won't hesitate to snap up pricey Vancouver real estate because they 'want' to live here and the prospect of seeing their investments "severely" drop isn't an issue... right?

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Fri Post #2: Gold in 1980 vs Today - Is Gold at the top of a bubble?

Last year when Gold was hitting it's all time highs in the $1,900 per ounce range, pundits consistently made comparisons to the way Gold exploded in 1980 and subsequently crashed.

But even a simplistic analysis indicates that while in the 1980s gold was a hedge to runaway inflation, in the current deflationary regime, it is a hedge to central planner fiat money printing as a response to runaway deflation.

In other words this time around it is a hedge to the trillions in central bank reserves currently being printed (at last check approaching 30% of world GDP).

For those who are only now contemplating the topic of gold for the first time, the following brief summary from futuremoneytrends.com captures the salient points.

Hat tip to Zero Hedge for bringing this to us.

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Fri Post #1: Do not ask for whom the bell tolls...

Yesterday we ruminated on the impact the plethora of mainstream media articles about the Canadian Housing Bubble was going to have on the real estate market.

How long before all the negative press convinces buyers (local and internationally) that now is NOT the time to buy?

Yesterday morning TD Bank may have just upped the "do not buy" ante.

In a note to clients, economists at TD said that a "housing correction will take hold in 2013." Prices are already down from their highs in May of 2011 and TD sees 2012 being a weak year... but the real 'correction' will start in 2013.

Ummm... okay.

So let me ask you a question.  If you are looking to buy, prices have been dropping lately, everyone and their dog is talking about housing bubble, listings are booming, sales are dropping... and TD Bank comes out and says the real 'correction' won't ramp up until 2013 - would you buy this year?

More importantly, if you are one of those 70% of Boomers who don't have adequate funds set aside for retirement and whose entire plan for your golden years is selling your bubble inflated real estate and downsizing in the next 5 years... do you hit the panic button yet?

Thirty-five years ago you bought that Richmond, Burnaby or even Vancouver house for $65,000.  It currently is valued at anywhere from $700,000 to $2,000,000... if local prices start to slide much more, do you undercut the market and still get out with a succulent profit (thereby creating even more downward pressure on prices) or do you stubbornly hold on because the house was valued at 15% more last May and it's "worth" at least that now?

2012 is shaping up to be a very interesting year.

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Thurs Post #2: Myths in Silver

David Morgan, at the California Resource Investment Conference, and his full presentation: "Myths and Misinformation in the Silver Market."

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Thurs Post #1: Mudslinging

Bubble, bubble, everywhere it seems everyone is talking about the Canadian housing bubble.

Even the international magazine, 'The Economist', is taking a poll of it's readers asking if they think Canadian housing prices are about to burst.

The Canadian Housing Bubble (with its two star children Vancouver and Toronto) is going viral in the international and American press. You have to believe, at some point, all this 'bubble chatter' is going to have an effect.

Everyone says Vancouver, especially the west side, is dependant on HAM (Hot Asian Money) to sustain values that local wages simply cannot afford.

So what happens to all that money as Asians (who contrary to local myth can read) begin to realize the Village on the Edge of the Rainforest isn't such a great place to park their funds?

And it's only going to get worse.

The pack mentality of the mainstream media seems to have kicked into overdrive and the thirst for bubble stories seems insatiable.

On Monday we talked about Kelowna and how a local realtor characterized the exploding foreclosure situation there. Yesterday the CBC picked up on the story and headlined 'Home Foreclosures Skyrocket in Kelowna'. 

The CBC article interviews Elton Ash, the vice-president of Remax Realty in Western Canada. He says most of the foreclosed properties are from people who were trying to flip homes during the hot market a few years back.

"People weren't able to achieve their goals in doing this and so they quit making payments."

Okanagan real estate agent Kent Jorgenson is asked about the situation by the CBC and says:

"The market in the Okanagan has really come to a standstill on that speculative investment front, and that is really what has been a major portion of the court-ordered sale thing that has increased so dramatically."

Ash goes on to say many Canadians are now buying vacation homes in the U.S., where prices are astonishingly low compared to British Columbia.

Everyone seems to think the Asian money tap will never end. But as the negative press compounds, will Hot Asian Money turn Vancouver into Kelowna?

Or, as this Global TV news story tells us, will Vancouver remain the most expensive housing market in North America?

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Stop children, what's that sound?... everyone look what's going down.

Back in June of 2011 I posted about the fact that the rush out of US Treasury's was intensifying with confirmation that Russia was dumping Treasury's.  This had come on the heels of a previous post in May 2011 which outlined how China was proposing to dump $2 Trillion of US Treasury's.

Last month we asked if a US dollar dump was underway. 

The thrust of that January post was that observers of the Federal Reserve's Custodial Treasury account had noted that there has been a continued, weekly selloff of US Treasury's going on.

The start of the New Year had brought six consecutive weeks in which foreigners had sold off government bonds, a sequential time period of selloffs which has been greater than ever before... meaning that someone, somewhere was very displeased with US paper.

Today the blog Zero Hedge follows up on this issue by noting that the latest Federal Reserve Custodial Treasury Report is out and the sell off continues.

Russia is now in it's 14th consecutive month of Treasury dumping as it's total US Treasury holdings declined to a fresh multi-year low of $88.4 billion. This is half of the $176 billion they held in October 2010.

Meanwhile the dumping of US paper by China also continues. China sold $32 billion in US bonds in December, bringing its total to a new post 2010 low of $1100.7 billion. 

The vastness of US dollar debt issued in Treasury's tends to dwarf the significance of all this. In December the grand total of US Treasury holding by foreigners declined from $4.75 Trillion to $4.732 Trillion. But don't be fooled... it is a significant amount and the clear pattern of the gradual selloff is now unmistakeable.

More importantly, as Zero Hedge notes, ask yourself the crucial question: "just what are China and Russia buying (ahem stockpiling) with all the dollars that are not recycled back into Treasurys?"

Does it take a rocket scientist to see what is going on? (Non-rocket scientist's can click here, here and here).

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Where's the pony?

It's somewhat breathtaking to tune into the mainstream media these days when it comes to the topic of a real estate bubble in Canada.

For years the topic has been the private peruse of the blogosphere, but now it seems everyone is bending over backwards to discuss the topic.

Yesterday we had Bloomberg talking about how the Toronto Condo Bubble Risk is Topping New York. The focus of the article centred on the fact Toronto has more skyscrapers and high-rises under construction than any North American city - with almost three times as many as New York.

Then Macleans magazine has followed up on their story about the Canadian Housing Bubble (and the fact it is about to pop) with a specific article about Vancouver. Titled 'The Real Problem with Vancouver's Outrageous House Prices', the magazine observes:

The international media have finally clued in to the wackiness on Canada’s west coast, otherwise known as the Vancouver real estate market. Last month Bloomberg noted that when compared to median household incomes Vancouver homes are more expensive than even New York. The story linked soaring prices to the influx of wealthy buyers from mainland China. Today the Wall Street Journal retraces the exact same material. The warning in both pieces is clear: Vancouver’s housing market has become disconnected from reality and is primed to crash.

You'd almost think the Whisperer, Fish, Jesse or VHB was writing for Macleans with lines like the Vancouver housing market has become "disconnected from reality and is primed to crash."

Over at Money Week magazine, readers are told about the Canadian housing bubble and are advised to "Cash in as yet another housing bubble bursts."

House price mania has been a major feature of the global economy over the last ten to 15 years. Canadians joined the party several years later than their counterparts in other Western countries. The early-1990s recession was still taking its toll on the country’s dole queues, and also on its domestic property market, right through to the middle of the decade.

But as interest rates tumbled, Canada caught the bug just like everywhere else. And how. The ‘real’, ie inflation-adjusted, price of the country’s homes has increased by an average of 85% since 1998.

Sure, house values stagnated at the height of the financial crisis in 2008. But by 2009, property prices were back on a roll, rising by almost 20%. Canada’s current housing boom has now become one of the longest lasting in the world, says the Bank of Nova Scotia.

Indeed, Vancouver is the second-least affordable city anywhere on the planet, according to the annual report from the Demographia International Housing Affordability Survey 2012.

Like every other housing bubble, it’s been inflated by loose credit. Canadian household debt hit a new high last year. The average borrowing burden of Canadian families now stands at 153% of disposable incomes, according to Statistics Canada. To put that in context, that’s almost as much debt as US households had taken on at the peak of their own housing bubble.

In other words, the warning signs are everywhere. Canada’s housing market is plagued by “overvaluation, speculation and over supply.”

But in case you think it's all gloom and doom enter CMHC.  The enabler of our housing boom wants you to know that they predict "A Stable Canadian Housing Market."

Canada's housing market will remain stable for at least two more years, Canada Mortgage and Housing Corp. predicted Monday, with the expected slow growth in the economy keeping house prices in check. CMHC, the Crown corporation that insures Canadian mortgages, expects little change during 2012 in prices and sales of existing homes.

In light of all the media stories flying around, it reminds me of the eternal optimist.  Standing neck deep in manure the eternal optimist says, "Gee... there must be a pony around here."

Maybe it could be a sales gimmick. Buy a new condo at the Olympic Village, get a free CMHC pony?

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The Real Estate Market in Kelowna

Came across an interesting commentary on the real estate market in Kelowna (hat tip to 'Best place on meth' in the comments section of Vancouver Condo Info).

According to a local real estate agent in the Okanagan city, 5% of Kelowna listings right now are foreclosures.

Some comments from R/E agent Jason Neumann:

The Central Okanagan foreclosure inventory levels continue to show steady increases from month to month as 2012 is now well under way. Buyers ask me all the time if I foresee a large influx of future court ordered sales coming to the Kelowna real estate market? Having watched the foreclosure inventory rise from 10-12 average listings per month in 2006 versus the over 170 listings already in early 2012 obviously I would have to say yes I do!

There are currently 171 active foreclosures (as of February 10,2012) amongst the entire listing inventory (3,934 properties) for the Central Okanagan. There are currently 82 active foreclosures (as of February 10,2012) amongst the entire listing inventory (1,792 properties) for the North Okanagan.

Areas outside the Lower Mainland of greater Vancouver continue to languish and it appears the foreclosure rate is ramping up significantly.

According to this agent there were an average of 10-12 foreclosure listings per month in Kelowna during 2006. Currently foreclosure listings are running at about 28 per week. And given the long time it takes for the foreclosure process to play out, what we are seeing today isn't close to being a reflection the past 12 months. Hence the realtor's strong assertion that he foresee's a "large influx of future court ordered sales in the Kelowna area."

Downward pressures are clearly only going to intensify.

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Macleans Magazine: "Yes we're in a bubble and it will probably pop soon"

Oh my!

Yesterday we read about how a number of 'experts' were telling us that the Vancouver market wasn't going to crash and along comes Macleans Magazine with a slightly different message.

In an article titled 'What happens when Canada's housing bubble pops', the esteemed national magazine pulls no punches and declares:

"Yes we're in a bubble and it will probably pop soon."

Presumably they didn't speak to the same 'experts' as the Vancouver Sun. And Macleans take is very specific:

The signs of a bubble are unequivocal. At 13 years and counting, Canada’s current housing boom is one of the longest-lasting in the world... The real price of Canadian homes has increased by 85 per cent on average since 1998. Prices stagnated in 2008, at the height of the financial crisis, but they were back on the rise again as soon as 2009, when they grew by nearly 20 per cent, according to the Canadian Real Estate Association.

Meanwhile, Canadian household debt set a new record last year. On average, the debt burden of Canadian families stands at 153 per cent of their disposable income, according to Statistics Canada. That’s almost as much debt as American households had at the peak of their bubble.

The ratio of home prices to rents reflects returns that people can expect from homeownership–in terms of either rents earned by landlords or saved by owner-occupiers. Based on this measure, The Economist figures the Canadian market is overvalued by over 70 per cent. Last month, Merrill Lynch wrote in a report that our housing market is afflicted by “overvaluation, speculation and over supply.” No wonder a recent international survey of housing affordability found Vancouver to be the second-least affordable city in the world!

The scary part is that, by most accounts, 2012 is going to be the year when housing prices start heading south. The housing market is already showing signs of weakness... Meantime, the economy is slowing, unemployment has been on the rise since September and it will probably continue to climb as Ottawa reins in public spending. CIBC noted this week that job creation hasvirtually stalled in the second half of 2011, and a growing number of Canadians are resorting to self-employment, where they’re likely to earn 10-15 per cent less than full-time employees.

Macleans then makes observes exactly why continuing record low interest rates won't help:

The reason this is frightening is that, even if uncertainty about the global economy forces the Bank of Canada to keep rates at current lows, Canadian households have no room to take on additional debt. Many will probably struggle to keep up with what they already owe.

Exactly.

The article goes on the make some assessments about why the market won't go "KABOOM" nationwide (some of which are wrong - but we'll save that for another post), but the magazine makes it clear Vancouver is close to "bursting."

I wonder if it's time for the Vancouver Sun to reconsult with 'their experts'?

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Good news... the Vancouver market isn't going to crash!

Hey Gang, good news.

According to the Vancouver Sun, "Vancouver's housing market is unlikely to face significant price correction" because 'experts' say so.

Of course these are the same 'experts' who have been telling us that there isn't a bubble to begin with so it comes as no surprise they can't envision a correction.

Buried in the article, however, was this very salient quote about what's really been happening in the Vancouver market over the last few months:

“Since October, it was like someone turned off the tap. It became absolutely dead,” said longtime realtor Pam Allen. At the same time, Chinese investors, who have long helped to underpin the city’s red-hot market, are holding back because property market curbs back home means they have less cash available.

Hands up anyone out there who have seen ANYTHING in the local media before this which has told us that the Vancouver Real Estate market has been 'absolutely dead' the last few months?

Or that the declining real estate market in China has been having a spillover effect on HAM here?

The reality of the pressures building around our bubble can no longer be ignored.

But rather than acknowledge these downward pressures, the 'experts' wish to tell you that the unavoidable upcoming tightening of lending standards won't hurt prices here at all. Instead the changes will avoid a U.S.-style housing correction by addressing the concerns that "household debt numbers are coming up to U.S. levels."

Say wha???

First of all, household debt numbers are already ABOVE what U.S. levels were.

Secondly... the money has already been lent. These moves are merely closing the barn door after the horse has already left.

These changes won't prevent the reckoning being faced by all those who are already balls deep in debt.

These so-called 'experts' who want to insist there will be no crash.... are they reassuring us? Or are they trying to reassure themselves?

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Mortgage rate reversal as 2.99% rate disappears

So the big news this week was Royal Bank announcing on Tuesday that the dirt-cheap mortgages being offered had been shut down sooner than expected.

Other banks quickly followed suit as the historical low rate of 2.99%, which was supposed to be available until the end of the month, was abruptly ended.

RBC and TD were both offering four-year fixed-rate mortgages with a 30-year-amortization at 2.99 per cent, and had announced plans to keep those rates in place until the end of the month.The offers were in response to Bank of Montreal offering five-year fixed-rate mortgages over 25 years at 2.99 per cent. BMO’s move was a two-week offer that was eventually halted, but it led RBC and TD to match with extended offers to avoid losing market share.

The official reason offered was that a slight increase in bond yields this month had forced RBC and TD to pull the mortgage offers weeks ahead of schedule.

“The rates coming down were in response to a very aggressive move by a competitor and a need for us to defend our client base, and to defend our business. We didn’t lead it there, but we felt compelled to follow,” said David McKay, group head of Canadian banking at RBC. “When that market attacker corrected and raised their rates, it enabled us to say funding costs are going up, we’re not making enough spread at this rate ... and we need to raise pricing because the cost of funds is going up.”

Err... it 'enabled' us to say funding costs are going up?

Interestingly the Globe and Mail noted that 'sources' indicated that officials in Ottawa were not happy with the price war the banks were waging on mortgages, since it potentially encouraged people to borrow more money.

More interestingly Frank Techar, head of personal and commercial banking in Canada for BMO. said BMO began offering the 2.99-per-cent rate as a way to promote its 25-year mortgages, rather than 30-year amortizations. 

“We went to 2.99 per cent to draw attention to the benefits of having a mortgage with a maximum amortization of 25 years."

Sounds to me like the public is getting primed for the drop from 30 year amortizations to 25 year amortizations.

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Trumpeting the obvious

Our friends over at VREAA picked up on an article which is simply too good not to share with those faithful readers of this blog who may not visit that site.

For years I have ruminated with a couple of colleagues how, years from now, we will look back in amazement at how Canadians could watch the housing bubble implode in America, repeat the exact same mistakes as Americans, and then watch our country experience a similar collapse (albeit with a distinct Canadian bend to the story).

And while the collapse has not happened here yet, Americans are watching dumbfounded that we could so wilfully move forward into the same trap they fell into.

One of the best articles capturing this sentiment has been published in a magazine put out by - of all places - the Philadelphia Church of God.

In the latest issue of "The Trumpet", a magazine the religious group publishes 10 times a year, an article headlines 'Canada's Housing Bubble is Stretched to the Limit'. And it's a great synopsis of the Canadian situation.

The magazine starts off by zeroing on the key metric that demonstrates our real estate market is way, way out of balance.  Noting that Canadian incomes have not been growing during the inflating of our housing bubble they say:

(Canadian) house prices have inflated virtually non-stop for more than a decade (but there has been no) income growth. Consequently, it is virtually impossible for the typical person to purchase a home without bankrupting himself in the process. For many families, even with two incomes, buying a house is stretching beyond the breaking point...

Before the massive run-up in house prices in 1999, the price of a home was 3.2 times the average person’s salary. It averaged that for decades. By 2010, the average house in Canada cost 5.9 times the average yearly salary, according to the Globe and Mail.

The article then outlines the average Canadian worker's income and costs out how much is being eaten up trying to service a mortgage and observes:

Talk about being a slave to your house. The average Canadian is forced to spend almost 100 percent of their income just on “ownership” costs! How do people feed themselves?Of course that is why single-income families rarely buy houses in Canada anymore. To buy a house, both spouses need to work. One full salary goes toward paying for the house. The other salary goes toward feeding the family, paying for vehicles, paying other debt, and life.

The next comment struck a chord with me and is bang on in it's assessment. It is what this, and virtually every single bear blog, has been saying:

Canadians rarely seem to consider the fact that their biggest investment might (read: will probably) go down in value. Falling house prices is an idea that many Canadians laugh at. Americans laughed too before America’s bubble burst. Now, many Americans are locked into paying mortgages on houses that are becoming worth less and less each year.

Does this sound like the basis for a healthy economy? Indentured servitude for three decades just to see every dollar, dime and penny earned go toward paying for a depreciating asset! If you buy a house today, or if you bought a house over the past five to ten years, that is what you are risking.

If Canadians do default on their mortgages, banks can not only take the house, but have full recourse to go after all their other assets and income.

Yet Canadians seem more than willing to take the risk. Why? The same reason Americans did. When house prices are going up, it makes everyone rich! A 5 percent yearly gain on $300,000 is a cool $15,000—money that can be tapped through equity lines of credit.

Next they zero in on the cause - low interest rates:

Offering interest rates yielding only fractions of a percent, the Bank of Canada is practically driving people into real estate.

And how effective has this been to drive people into real estate?

In Vancouver, so many people are buying houses, second houses and investment houses, that the ratio of home prices to incomes is the highest in the English-speaking world, according to consultancy firm Demographia. The survey labeled it the second-least affordable city in the world! An average house there costs over 10.6 times the average pre-tax income.

In Toronto, the real-estate bubble is so out of hand that the city has 173 skyscrapers under construction. New York, which boasts a population almost four times larger, is only building 96.

Since America’s housing bubble popped in 2007, Canada’s house prices have risen an astounding 22 percent. That has to be the definition of insanity—piling into the very investment that made your neighbor and most important economic partner virtually collapse.

But perhaps the biggest sign of a Canadian housing bubble is debt! Rising debt is the gas that fuels all bubbles. The average debt burden of Canadian families stands at a remarkable 153 percent of disposable income—and growing. It was only 150 percent three months ago. Canadians are now one of the most indebted people in the developed world, and just about as indebted as Americans before their bubble burst.

Based on this measure, the Economist figures the Canadian market is overvalued by over 70 percent. Even U.S. bubble epicenter Los Vegas has only seen house prices fall by 60 percent.

Last month, Merrill Lynch called Canada’s housing market overvalued, oversupplied and driven by speculation.

And in a report released last week, CIBC argued that the people least likely to be able to afford new mortgages are the ones taking on new debt. One third of debtors hold about 75 percent of all personal debt. And who is this one third? According to cibc, it is boomers nearing retirement and those already burdened by high debt.

The Trumpet, as it is with most Americans who take the time to look northward, shake their heads and conclude what bloggers in Canada have been saying for the last few years:

Canada’s bubble is getting close to bursting, and when it does, expect a massive economic implosion. Unemployment will soar, banks will fail or ask for bailouts, and the dollar will plunge in value. Millions of Canadians will be left paying a fixed mortgage on a rapidly depreciating asset that will destroy their financial lives. Five years following the popping of America’s housing bubble, Canadians may be about to wish they had learned a lesson. Get your ear plugs ready.

It truly is sad the everyone outside of Canada can see all of this so clearly, yet we remain purposely blind to our predicament.

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Remember leaky condos?

Now I have never been a fan of the box in the sky approach to home ownership, but it has it's place, I guess.  And unless you are really new to the Village on the Edge of the Rainforest, you are well acquainted with the whole 'leaky condo' saga of the last 15 years.

During the whole leaky condo affair, I recall some analysts saying that it wasn't just wood frame condos that would be having issues; concrete buildings would be experiencing their own share of 'envelope' problems. They just wouldn't surface as readily as the wood frame structures.  Concrete problems wouldn't appear until about 10 years into the life of the building.

Well... the issue has sort of died off and we haven't really heard much about it for the last few years.

But I was reminded of it today as I strolled past 438 Seymour Street (northeast corner of Seymour and West Pender Streets).

Outwardly this is a very upscale building.

It still looks clean and newish.  It has a conceige/security guard at the front entrance.  But I happened to glance up and I noticed something odd about the first balcony above the entrance. Click on these images of the balcony (to enlarge them) and look at the bottom of the balcony under the green flashing.

Yikes!

The concrete bottom of the balcony is collapsing and sagging with a very visible bend.

I passed it on to the concierge (who came out to see it for herself and promptly called the maintenance manager). I wonder how many other concrete condo's are starting to exhibit signs of water damage?

Balcony seat, anyone?

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