Wednesday, January 11, 2012

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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  1. 96/5 looks like there are 5 idiots out there somewhere.


    I suppose this is why RBC is forecasting a 50% drop in the price of homes in Vancouver...