Saturday, March 31, 2012

March 2012 Real Estate Sales

March 2012 was an interesting month for our real estate bubble here on the Wet Coast.

With another go at the lowest interest rates in history, there were some expectations that the second half of March might see a resurgent rise in sales to rescue what was shaping up to dismal month.

And in some ways there was.  Sales did rise, but not enough to do anything but put lipstick on a pig of a month.

Total sales for March came in at 2,934 units sold and total listings surged in March by 1,386 and total inventory now sits at 16,298 (up from 10,671 at the start of the year).

This is a historic high Inventory level for the month of March.

The sales totals are 28% below what were recorded in March 2011. This is the second lowest total in 10 years (2009 was the worst with 2,265).

Meanwhile early updates from West Vancouver, courtesy of Larry Yatkowsky (and hat tip to Makaya), show that West Vancouver had a horrible month.

Homes in the HAM (Hot Asian Money) hotbed on the North Shore have their average price down 7.9% and the median price down 13.6%... in only one month.

March now joins January and February as horrid months for R/E sales in the Village on the Edge of the Rainforest.

Will the Spring Market be a no-show this year?


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Friday, March 30, 2012

Marine Gateway Sign Watch - Day 13

So it's been almost two weeks since the supposed complete sell out of pre-sales of all 415 condos at the Marine Gateway development.

Since our original post and then second post on the topic, we have eagerly awaited some notice being put up which announces the success of the endeavour.

But as we enter Day 13 of the "MG Sold-Out Sign Watch", we can't tell you that we have seen anything yet.

As you can see by the picture above which was taken this morning (click on image to enlarge), not only are these still no 'Sold-Out' signs, the billboards promoting the development are being dismantled completely.

Now unless the Stonehedge-style collection of posts which remain are some sort of clever abstract sign, it looks like there is still no evidence on site that the historic sell out took place.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Thursday, March 29, 2012

The Boomer Trigger

As we wait for news of the Federal Budget, an interesting scenario for you to ponder.

Tuesday's post made reference to Vancouver realtor Larry Yatkowsky and his website comment that a number of his colleagues believed that the Vancouver Real Estate market is currently in a state of  "turmoil."

All the negative reports about Real Estate in the mainstream media are combining with an absence of Asian buyers to severely dampen sales activity.

Tuesday's post also referenced early March data (unconfirmed) from Richmond suggesting that there are 1,000 houses for sale in the previous HAM hotbed with only 80 sold so far this month. This is a profound drop from the approximately 220 sold in each of March 2011 and 2010.

Yesterday Yatkowsky, in his monthly series of community snapshots, profiled Richmond and confirmed the trend of slowing sales with data available to him.

His description: March R/E sales in Richmond are best described as 'sliding into one of the communities deep ditches.'

R/E sales in Richmond have been sagging for a few months now. And for those properties that do sell, it seems that they only do so because sellers are prepared to move significantly on price.

Such is the case with this property at 6231 Gibbons Drive in Richmond.

This 3,500 square foot house sits on a huge 21,857 foot lot in the prestigious Terra Nova neighbourhood.

It's been on the market for a long time, originally listed on February 28th, 2008 for $2,388,000, the home competes for buyers with it's neighbour at 6251 Gibbons Drive (listed for $2,480,000).

Being side by side, the fact that both properties were simultaneously for sale was promoted as a selling point as you can see in this listing for 6251 Gibbons Drive (it makes note of the fact that the neighbouring 6231 is for sale too).

And why not? With almost identical asking prices, perhaps both could be picked up as a package deal, ideal for a speculator looking to develop. The massive lot size makes it a prime candidate in the high end Terra Nova area.

But the property has languished on the market for years now.  

Even at the height of all the HAM insanity, which seemed to bring other Richmond properties in line with it's high asking price, 6231 failed to sell.

Houses like 6231 represent what I like to call The Boomer Trigger.

By now faithful readers are well aware that the majority of the self-indulgent Boomer generation have failed to prepare for their senior years.

Seven out of 10 Boomers do not have enough money set aside for retirement. And since 2011 marked the beginning of the great Boomer transition into retirement, this financial planning statistic is significant.

Starting in 1946, the demographic Post-World War II baby boom began. And the Boomers at the front of this wave have benefitted most from seemingly everything.

After having been raised in the post-war affluence of the 1950s and 1960s, the first wave of boomers entered their mid 20's starting in 1971. As they settled down between 1971 and 1976, these first Boomers bought homes which sold for between $40,000 and $60,000 in suburb communities like Richmond.

Now, as these Boomers head into retirement without adequate funding to carry them through their golden years, the vast majority have a very simple retirement plan: sell their bubble inflated asset of a house, downsize and live off the proceeds.

A average house on a large lot bought in 1971-1976 in Richmond for between $40,000 - $60,000 is now 'worth' between $1.5 - $2.5 million dollars.

Thus the Boomer Trigger... trigger the sale of the one significant asset they have to fund their retirement. At the same time, if the market slows, Boomers can use their original purchase price advantage to under cut other sellers in a collapsing market - a maneuver which has the potential to crash the market if done by a large number of Boomers at the same time.

6231 Gibbons Drive represents the perfect example of this... and why the Boomer Trigger could burst the massive Greater Vancouver housing bubble.

The red hot real estate market in the Lower Mainland has started to turn. Richmond has stagnated. Down 10% month over month. 

Concern is mounting among the Boomers:
  • Media reports have covered the stagnating markets on Vancouver Island.
  • Kelowna's mounting foreclosure situation is on the radar.
  • Whistler hotel condos are off 50% from their peak.
  • The Governor of the Bank of Canada has been sounding warnings for over a year now.
  • Widespread media reports are now predicting the housing bubble is about to burst.
  • Expectations are that Finance Minister Flaherty will introduce a bubble busting budget to trigger a soft landing in real estate.
  • The banking regulator in Canada has proposed highly restrictive loan regulations.
And with MOI treding up, inventory trending up, banks withdrawing capital from mortgage lending, Asian money disappearing as China engineers it's own soft landing in real estate and CMHC tightening up thanks to OSFI; it’s all there.

A perfect storm.

Enter the Boomer Trigger. Home owners, like the one at 6231, probably see the writing on the wall. It's time to act and strike a deal before it is too late.

I am told 6231 Gibbons Drive sold this week.  

After lowering the asking price to $1,888,000, the property sold for $1,428,000. That's $960,000 off the original asking price or 40% lower.

It's still a windfall for the owner.  Sure... it's not the $2.4 million he originally insisted upon. But unlike the condo at the Four Seasons Whistler hotel which sold for 50% off the original $1.1 million purchase price, this house was probably bought for only $60,000. 

With that perspective, $1.4 million is a massive appreciation over the original purchase price. 

And coming down almost a cool $1 million off the asking price to make the sale isn't all that hard to do once the psychological barrier of what the property is 'worth' is overcome.

It's the Boomer advantage.

Look for more and more Boomers to pull that Trigger if conditions continue to stagnate as the year moves along.

And if they do, market 'turmoil' will quickly become market 'panic'.

In fact 'panic' doesn't even come close to describing what could evolve.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Wednesday, March 28, 2012

The Noose tightens... Whistler is down 50%

It's fascinating when you talk to people about real estate in Vancouver. No one can conceive of a 25% drop in prices, let alone 50% or greater.

If you are one of them, faithful reader, take a moment and cast your eye up the Sea-to-Sky highway to Whistler.

You remember Whistler.

Co-host site of the 2010 Olympic Games, best ski mountain in North America. Was it only 6 years ago the real estate furvor started taking off there?

Sites like Whistler real estate hailed the 'can't-miss' money making opportunities that abounded.
"Real estate Whistler is very popular and in demand and will continue to provide all types of buyers, sellers, and investors with opportunities... Get involved with Whistler properties before the 2010 Winter Olympics.

Have you seen real estate Whistler recently?... There are many different types of properties available today on the market for real estate Whistler. The price ranges vary from as low as $100,000 to over $10 million. Don’t let real estate Whistler values keep you away though as there continues to be a lot of interest in the area. Real estate Whistler will boom through the 2010 Winter Olympics and astute investors will see their profits soar."
Here's a screen shot of that site for the archives incase it disappears (click on image to enlarge):

So let's check in on Whistler. How are those "astute investors" making out with those "soaring profits"?

Not so good apparently.

Headlines in the local news on March 1st tell us real estate is crashing hard: 'Hotel condominium units hit hard by current economy - Some units selling for half of original value.'

Condos selling at 50% of their original value? Say it isn't so.

Quoting from the article:
Those who own a condo unit in a Whistler hotel are sitting on great potential, but at the moment the units are not showing great value.

Real estate consultant Denise Brown with Re/Max Sea to Sky Real Estate reported that a unit that originally sold in the Four Seasons Whistler for about $1.1 million was recently resold for only $520,000.

"We've seen the prices come down significantly," she said.
The article is a great read for those interested in what happens to speculative dreams that turn to a nightmare.

We hear from Pat Kelly, of the Whistler Real Estate Company, who tells us that when condo hotel units first became available in Whistler expectations were high.
"The economic climate in Whistler and around the world was much different and the number of destination visitors to Whistler was larger. People were buying on vision. Revenue has not met expectations in the last few years."
According to Kelly, the lower than expected revenues produced through hotel condo units have combined with exchange rates, high strata fees, high property taxes and fixed overhead costs to drive prices down.

That last sentence of Kelly's summarizes the whole speculative mania:
"People were buying on vision. Revenue has not met expectations in the last few years."
Meanwhile RE/Max's Denise Brown observed that the people who were relying on the hotel condo units to produce high returns beyond covering all the costs associated with owning this type of property are getting out of their investments. And they're clearly willing to take a 50% loss to get out of those investments now before it gets worse. There simply aren't the buyers today who are willing to make the same mistakes those earlier 'astute' investors made.

Said Kelly:
"People aren't willing to spend as much in Whistler as they were a decade ago. It's not anything wrong with Whistler or that Whistler is worth less. It is just that people are prepared to spend less."
The collapse we are seeing on Vancouver Island and in the Okanagan has now crept to within a mere 90 minute drive up the Sea-to-Sky highway from Vancouver.

How much longer until we start to see these same comments about real estate here?


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Tuesday, March 27, 2012

Tues Post #2: On the Price of Gold


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Tues Post#1: Turmoil?

Anyone who is old enough to remember the 1970s and 1980s will remember the rise of Japan as an economic force in the world.

And as the rising sun exerted it's economic power, wealthy Japanese were buying real estate everywhere. As improbable as it seems today, people were confident the Japanese financial taps would never be closed.

How quaint to recall this today as the Japanese miracle is in tatters and China is the economic force from the far east.

But now the China miracle is in doubt.  And as the Chinese government attempts to engineer their own 'soft landing' in real estate, HAM is evaporating before our eyes.

Which brings us to an interesting tidbit over on Realtor Larry Yatkowsky's site yesterday. Yatkowsky was moved to note that:
"Current informal coffee chats with some of my fellow Vancouver Realtors suggest a market in turmoil."
By 'turmoil', I presume Yatkowsky means 'no sales'.

Early March data from Richmond suggests there are 1,000 houses for sale in the previous HAM hotbed of Richmond with only 80 sold so far this month. This is a profound drop from the approximately 220 sold in each of March 2011 and 2010.

Presumably the other HAM hotbed of Vancouver is suffering just as severely.

Webster's defines 'turmoil' as "a state or condition of extreme confusion, agitation, or commotion." No offense, but that's how I would have described the market from 2003-2011.

Personally I think events this month suggest that this is a market withering in the throes of rationality.

It's all about perspective, I guess.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Monday, March 26, 2012

Poster Child - Updated 2

Last Saturday I posted aboutt the tsunami of condo pre-sales that are due to come onto the Greater Vancouver Real Estate market in the coming months.

Ozzie Jurock made reference to it on his Face Book page and described the spring/summer condo market as:
"a market that will have a lot of units for sale and more coming on stream."
In an OpEd piece in the Vancouver Sun, Jurock noted:
As of Feb. 29, 2012, there were 6,000-plus condos for sale through the Vancouver Real Estate Board - up 15% compared to the previous year.

At the same time, sales of used condos were down by 18%.

Add to this the fact that - according to MPC Intelligence - there are some 8,000 pre-sale condos being launched in the first six months of this year.
The battle for condo market sales is about to become very intense. And with 8,000 pre-sales coming on the market, a battle within a battle is sure to emerge.

Clearly the first shot was fired by condo king Bob Rennie with the launch of Marine Gateway last Saturday.

As we noted in Thursday's post, Rennie marketed the development around a whole new theme shifting the mantra of "location, location, location" to one of "transportation, transportation, transportation".

In the months ahead, he will be expanding on this theme as he goes to market with 3 more developments along the rapid transit system:
  • A pre-sale of 300 units he will launch next month at another Canada Line Station - Brighouse Station in Richmond,
  • a pre-sale of 230 units he will launch in September at Coquitlam Centre on the new Evergreen Line line .
  • And a month after that 1,100 units, two towers, will go to market along the original Skytrain line in Vancouver at Joyce Road.
The transportation theme is going to be part of a major marketing strategy weaved among a number of initiatives which attempt to put Rennie's clients at the forefront of the coming tsunami wave of product.

It's going to be a very,very tough market.

Compounding the challenge is all the negativity that has been prominent in the mainstream press recently.

  • There have been countless 'housing bubble' stories in the press.
  • Both the Bank of Canada and the Finance Minster continue to make bearish statements on debt, the real estate bubble and interest rates.
  • The nation's biggest banks are openly calling on the Federal Government for tighter mortgage regulations.

And all this has contributed to several months of rapidly declining real estate sales.  Let's face it, who wants to catch a falling knife?  Especially when everyone seems to be saying that very sharp knife is going to fall.

That's why we cast a suspicious eye on the sell out of Marine Gateway in four hours on Saturday.

Witness who were there have commented on other blogs that there were only about 110-130 people lined up for pre-sales (Global TV covered the sale saying it was less than 150). Yet all 415 units sold out?

Given the shenanigans we have seen from the real estate industry over the past year, things like:
  • realtors snapping up pre-sales to market later,
  • development marketers hiring people to stand in line, creating a 'buzz' for a pre-sale,
  • staged helicopter tours supposedly flying wealthy Asian buyers around new projects,
  • and realtors bringing in 'surprise' competing parties just before a couple is about to make an offer on a house (thereby pressuring them to act right away) - just to name a few.
... it makes you wonder about the legitimacy of the supposed 'sell out' of pre-sale contracts at Marine Gateway.

Not to suggest there's anything illegal happening here.  No doubt all the units are contractually spoken for.  

But how many went to realtors whom had inside connections and how many were sold to actual buyers/speculators? How many units were going to go unsold on Saturday but were suddenly "spoken" for?

Perhaps those 415 presales (options to purchase) weren't all actually available for sale.

It's my understanding that most lenders will ask that 40 to 60% of the condominiums in a development have an option to purchase before the bank will fund the project. I am told it is common practice to strike a deal with realtors that, if they want to be an exclusive agent to sell in the complex, they have to pick up 5 to 10% of those options each. Once the complex is finished and all the developers suites are sold, then you can sell yours. It means that these  exclusive agents could buy half of the pre-sales at an offering themselves.

In this way if 130 people show up to buy, you could have a sell out because half of the pre-sales are sold to the exclusive agents. It's a sell out, but it's just pure theatre.

The stakes here were simply too high for anything but a sell out.

The huge marketing effect to be leveraged on the Rennie developments coming up later this year that would be bolstered by a record breaking sellout at Marine Gateway cannot be underestimated.

There hasn't been a sell-out of pre-sale condo unit offerings in Vancouver in over six years. You have to go back to the Woodward's presale in 2006 - before the collapse of the world financial markets - to match an opening day pre-sale sellout of a condo development.

With a 'the sell-out is back' tagline, what an opportunity to market the next three projects.

Marine Gateway can be held up to potential buyers of the next three rapid transit line projects and they can be told 'buy now before you are priced out forever'.

When you consider this, how many of you out there (if you have your own real estate development company) wouldn't snap up all 415 pre-sale contracts (and sell them over the next 3 years as Marine Gateway is constructed) as a spring board to launch 3 other developments in this type of intense competitive market?

Personally I think the events at Marine Gateway were just that... pure theatre.

Either way, one thing is certain.

Those speculators (and exclusive realtor agents) who snapped up these units will either profit immensely or founder badly on this effort. A huge gamble is being taken here.

As Ozzie Jurock noted on the weekend in the Vancouver Sun,
"many made a lot of money by 'flipping' pre-sale contracts in the past, but the rules and risks are much different now."
Ozzie's right.  The rules and risks have indeed changed. And if the restrictive mortgage regulations proposed by the OSFI are implimented, the game will change even more dramatically.

If that happens Marine Gateway could well become the Lower Mainland's speculative Waterloo.

Time will tell.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Saturday, March 24, 2012

Real Estate correction predicted by MSM

Global TV's newscast today did an piece on a looming real estate correction and started off:
"The Bank of Montreal is putting a scare into anyone heavily invested in Real Estate or heavily in debt."
Predictions of a correction in Vancouver Real Estate have now gone mainstream.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Thursday, March 22, 2012

What's wrong with this picture?

Let me ask you... what's wrong with the picture above?  

Click on it to enlarge and take a look at it for a minute.  

The picture was taken this morning and captures the corner of Cambie and Marine in Vancouver - site of this week's hottest Real Estate topic; the four hour sell-out of the development known as Marine Gateway.

In case you aren't aware of what went on, Global TV provides this synopsis:

Marine Gateway, and the 415 pre-sale units that sold, is big news because at a time when listings are soaring and sales have been falling off a cliff, the pre-sales at this development have bucked the negative trend.

In fact it has completely turned that trend on it's head.


Let's put that into perspective.

A sell-out of pre-sale condo unit offerings hasn't happened in Vancouver in over six years.  As Global TV noted in this story, you have to go back to the Woodward's presale in 2006 - before the collapse of the world financial markets - to match an opening day pre-sale sellout of a condo development.

And Marine Gateway sold out even faster than that Woodward's development.  

Woodwards (with similar prices) took 12 hours to sell 536 units.

At Marine Gateway people started lining up last Thursday. And as the lineups began, news spread that over 11,000 people had pre-registered for this development.

But by Saturday morning only about 100 - 150 people had actually lined up (one commenter over at Vancouver Condo Info pegged the number at only 106).

So 106 people bought over 400 units?


Interestingly when you watch the Global clip, one buyer laments she was only able to secure a 1 bedroom condo (without an available parking spot at that). How come? Did she come late and miss out?

No... she stresses she showed up on time.

Even more curious is the fact that Global didn't find anyone to talk to that walked away empty handed.


One can't help but observe that this was a very carefully planned and prepared offering.  As the Global story notes, Rennie Marketing Systems had a lot at stake here.

Checking craigslist in the week before the offering, the infamous Condo King wasn't leaving much to chance.  There was clearly significant marketing and networking done prior to the sale.  

As you can see by these ads (click to enlarge), other realtors were already on board offering the units to customers in advance of the Saturday opening. They were even offering to rebate 20% of their commission to get you on board early:

A lot of preparation went into trying to make this pre-sale a one day success.

Watching the Global TV clip you quickly notice the emphasis being placed on promoting the key feature of Marine Gateway: it's location on the Canada Line. Rennie bends over backwards to replace the R/E mantra of "location, location, location" with the new mantra of "transportation, transportation, transportation."

It's a theme I suspect we will see a lot of in the coming months.

In fact, a few days after the Global piece above aired, we are treated to another treatise emphasizing the "transportation, transportation, transportation" mantra:

And it's in this latest piece we get a glimpse of a wider issue at play here.  

Apparently Bob Rennie has 3 other developments about to go to market along transportation lines. 
  • Next month Rennie will pre-sale of 300 units at another Canada Line Station - Brighouse Station in Richmond.
  • In September he will launch 230 units at Coquitlam Centre where the new Evergreen Line line will be opening.
  • And a month after that 1,100 units, two towers, will go to market along the original Skytrain line in Vancouver at Joyce Road.
Can you imagine how crippling a flop in sales last Saturday could have been? Failure to sell out at Marine Gateway would have been devastating.

I wonder how disappointed Rennie Marketing was when only 106 people showed up in the sales line up by Saturday morning?

But Marine Gateway didn't flop.

Instead we were witness to  THE MOST SUCCESSFUL pre-sale launch in Vancouver history, a perfect event for what is touted as the cutting edge model of what's crucial to real estate sales in the modern city.

All accomplished in the midst of a market which has been screaming negativity week after week from the likes of the mainstream press with their talk of a housing bubble ready to burst.

Amidst negative statements on debt and the real estate bubble from the Governor of the Bank of Canada and similar statements from the Federal Finance Minster.

Amidst warnings from the heads of some of the nation's biggest banks on the threat of a bursting housing bubble.

And all framed by several months of negativity of actual sales results released over the past few months.


I can't help but think of all the shenanigans we have seen over the last few years.

I think they call it 'staging'.

You know what I'm referring to.... development marketers hiring people to stand in line, creating a 'buzz' for a pre-sale. Staged helicopter tours supposedly flying wealthy Asian buyers around proposed new developments. Realtors bringing in 'surprise' competing parties just before a couple is about to make an offer on a house (thereby pressuring you to act right away).

All done in the name of 'staging' the right 'optics'.

So what are the optics created by Marine Gateway?

Would it be wrong to cast such a suspicious eye on a record breaking sellout anomaly that occurs at time when other realtors are openly talking about how dead the market has been so far this year? When only 1% of the registered people interested in the development actually show up on sales day?


Which brings us back to the picture at the top of this post.

As I said, it was taken this morning... a full five days after what has been a supposed record breaking pre-sale sellout in a dead market wherein only about 106 people lined up and created a 415 unit sellout of a development which will be a springboard for a host of new developments with a "transportation, transportation, transportation" theme.

That picture is conspicuous for what is NOT there.

Let me ask you... when was the last time you saw a developer sell out an offering and not promote the crap out of that success with "SOLD OUT" banners plastered across every conceivable sign posted on the property?

It's been five days and there is nary a single 'sold out' sticker anywhere.

I could understand the day of, or maybe even no stickers until after the weekend was over... but nothing a full five days afterward?

Especially when this is the first of several developments being launched along the transportation network by the same promoter this year.

Perhaps they're waiting until after Cam Good's helicopter makes a fly by?


(Note: follow up post available here)


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Wednesday, March 21, 2012

The Trigger?

As followers of this blog know, China has been trying to engineer a 'soft landing' in their real estate bubble for a few months now.

With property values down over 40% in some cities, some wonder if the 'soft' landing is becoming a 'hard' landing.

Nothwithstanding, China appears resolved to maintain the course they have charted.  In fact China's Premier Wen Jiabao has said he believes there would be chaos if the curbs in the Chinese property market were relaxed.

The ripple effect from these property curbs are being felt around the world and especially in the Village on the Edge of the Rainforest. As property values tumble in China, the evaporating equity is turning off the taps for high end real estate sales to HAM in Vancouver.

But while real estate sales are down, the market has not stalled completely. Canadians continue to pig out on mortgage debt and it has finally reached the point the feds believe it may be time to engineer our own 'soft' landing in the real estate market.

If you have been following the news the past week, several banks have publicly come out calling for a tightening of regulations with an increase in minimum downpayment to 7% and reducing amortization periods from 30 years to 25 years.

This public proposals have been followed up by draft set of changes put forth by the Office of the Superintendent of Financial Institutions (OSFI) of Canada - proposals which will likely be implemented.

(It's less of a draft than a preview of what is coming)

Some of those proposals would leave the casual observer scratching their head in wonderment that they are not already in place.

Banks would have to double-check borrowers’ finances before approving loans.

Home values would have to be confirmed.

HELOCs would see tighter regulations with be less available to access, a move that would slow the use of home equity for more real estate speculation.

Considering how we like to puff out our national chest and boast about the 'soundness' of our banking system, you might find yourself scratching your head that these conditions aren't already in place.

Ditto for the suggestion that banks end the practice of giving cash back to applicants to cover their downpayment.

The claim that our country doesn't give out zero down loans is a lie.

Banks will give you as much as 7% of mortgage back to you in cash.  This means you don't need the 5% down and can actually walk away with money in your pocket to buy a house.

Cutting this off is going to have a dramatic effect on the entry level buyers.

Another change with a dramatic effect is a proposal clarifying mortgage renewals.

This is a topic we have discussed numerous times and have never been able to ascertain clear guidelines about.

What would happen if, at mortgage renewal time, you were seriously underwater (25% or greater) on your mortgage?  Would you be able to renew without coming up with a serious amount of cash to correct the underwater status of your loan?

The common belief is that once you score a mortgage, it’s just automatically renewed at the end of each term at the prevailing rate - regardless of whatever your house happens to be worth.

Random queries to low level mortgage 'specialists' often bring quizzical looks and noncommittal answers.

Nobody has ever definitively answered this.

Now the OSFI does.

The OSFI intends to implement a new regulation which will force the banks to re-calculate the loan-to-value (LTV) ratio of a mortgage every time the home loan comes up for renewal.

What does that mean?

If the housing bubble begins to burst and values fall by 20 - 25% or more, vast numbers of Canadians who bought in the last five years with small down payments (or none at all courtesy of the 7% cash-back programs) of could be in a position where they owe more for the mortgage than the property is worth.

In order for the LTV to be restored to the ratio of the original mortgage, Canadians would have to make up the difference.

As Garth Turner noted earlier today:
"A $400,000 condo bought with 5% down would have a 95% LTV. If, upon renewal, three years later the unit was worth $320,000, then the maximum mortgage amount offered would be 95% of the new value, or $304,000, instead of the original $380,000. In order to renew, the owner would have to hand over $76,000, less the small amount of principal paid."
This is a stunning clarification and as the ramifications becomes known in the mainstream, it could have a chilling effect on the speculative fever so rampant in our market.

The feds are determined to engineer a 'soft' landing in the real estate market and the sum total of all these changes are sounding alarm bells.

Watch for a full court press by the real estate industry to try and temper the implementation of these changes.

Canadian Mortgage Trends is first out of the gate in launching an offensive:
“If the government decrees new insured mortgage regulations, and/or rates rise significantly, and/or unemployment unexpectedly spikes, it could form the proverbial perfect storm that blows over housing valuations. It’s one thing to induce a measured housing correction (which is probably needed in some regions), but a policy-initiated free-fall is another matter.”
And that's the fear, that the scope of these changes could initiate a free-fall.

For years bears have speculated that rising interest rates would be the trigger that burst the bubble.

Bulls have revelled in the fact that the weakened economy had handcuffed the Bank of Canada from even attempting to burst the real estate gravy train by raising those rates.

If will be interesting to see what happens next.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Saturday, March 17, 2012

"It's a market that will have a lot of units for sale and more coming on stream."

Over the past two months we have been talking about the exploding number of real estate listings in Vancouver, listings which have grown by more than 50% since the first business day of 2012.

On his Facebook page today, local real estate icon Ozzie Jurock made a post which contained the following observation about the real estate market in greater Vancouver:
"(It's) a market that will have a lot of units for sale and more coming on stream."
Jurock used this teaser to let followers know about his OpEd piece in yesterday's Vancouver Sun, a piece that had several nuggets of interesting info and expanded on his observations about increasing inventory:
As of Feb. 29, 2012, there were 6,000-plus condos for sale through the Vancouver Real Estate Board - up 15% compared to the previous year.

At the same time, sales of used condos were down by 18%.

Add to this the fact that - according to MPC Intelligence - there are some 8,000 pre-sale condos being launched in the first six months of this year.
Now Ozzie's piece was all about how to buy a condo in such a market, but anybody looking to sell in the environment must have felt their blood run cold when they read this.

Because you saw that correctly - a tsunami of pre-sale condos is about to descend upon the real market, a wave of product which will more than DOUBLE the current available condo inventory.

Perhaps this explains some realtor advice given to some friends recently.

Looking to sell their Coquitlam condo (which they bought brand new 5 years ago), their realtor commented on the current competitive marketplace.

His advice?

Completely renovate the condo - new floors, new paint, new appliances, etc - because this was the only way to successfully market the unit against new stock coming on the market.

At first I wasn't sure why he was adamant they take these steps. I know listings were going up, but I had no idea the amount of available condo inventory was about to more than double.

Now it all makes sense - the local real estate sales game is about to become a highly competitive sport.

And - I suspect - a very ruthless one at that.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Friday, March 16, 2012

A clear and present danger

It's fascinating to watch the media as the housing bubble enters the public consciousness. 

In addition, one wonders how the recent 'fire sale' of low interest offerings from the mortgage divisions of the big banks will counter counter the growing public concern about the state of real estate. 

On a personal level I have many friends and associates who have bombarded me with queries at the uber low 3.99% 10 year mortgage offerings and ask "why not?" 

You have to believe sales will see a boost in the last half of March as housing lust pulls in the remaining holdouts to buy at the top of the market. But the media warning signs still shout 'DANGER' to all who wish to see them. 

Even today CBC is reporting on a TD bank report which says:
"Overvalued housing markets in several Canadian cities and high household debt poses a clear and present danger... The report flags Vancouver as the market with the greatest risk of a housing price correction."
And yet how many selectively block out these messages? 

More significantly, how bizarre is it to watch one arm of TD bank actively encourage Canadians to plunge themselves into what could become one of the worst financial decision of their lifetimes while another cries out about the danger of doing that very thing? 

Says the TD economist:
"all cities are at risk when interest rates eventually rise from their present 'exceedingly' low levels. Household debt growth over the past decade has been fuelled not as much by credit card borrowing but largely by loans secured by real estate, in particular home equity lines of credit. The ratio of debt-to-personal disposable income, which is now above 150% is likely to reach by late next year the 160% peak experienced in the U.S. and the U.K. before their real estate corrections occurred."
When rates do return to more normal levels, higher by two to three percentage points than they are now, TD estimates more than one million Canadian households, or about 10% of those that currently have debt, will have to devote 40% or more of their income to making their monthly debt payments. 

The Bank of Canada calls that a level that puts households in a financially vulnerable position. 

In Vancouver, the situation will be far, far more dire. 

Thus I content myself with reminding those who will listen... don't be seduced. 

Meanwhile the banks look for a mea non-culpa. TD says an acceptable way to manage the current situation is not for banks to agree to lend less.
“To do so would be collusion, and it is illegal.”
Instead TD is calling for several options to head off further growth in household debt. 

The first is to ask the federal government to shorten the maximum amortization on mortgages from 30 years to 25. TD also believes the feds should also raise the minimum down payment for a mortgage from 5% to 7%. 

Both moves are long overdue but clearly the Conservatives have been waiting until public consensus is on their side before making such a move. 

The fact of the matter, though, is that it is too late.

The damage has been done. Canadians have pigged out on debt and a giant segment of our society is going to get crushed when the tide turns. 

Queen’s University prof Louis Gagnon says we could have a housing panic if the borrowing does not stop.
“It would be a classic case of everybody dropping their asset at the same time just to make ends meet.”
Meanwhile a new research paper from Pacifica Partners concludes.
“Our outlook on Canadian real-estate remains negative and we believe Canadian housing will begin an extended contraction phase.”
The above mentioned changes should be made to Canadian mortgage rules but this is closing the barn door after the horse has already run away.

Curiously TD is suggesting that banks be required to stress test credit applicants who apply for home equity lines of credit to demonstrate their ability to pay it off in 20 years.

They are also suggesting that banks should be required to impose a sort of stress test on borrowers in order to qualify for a mortgage, a test that would require borrowers to demonstrate to handle interest rates in the order of 5.5%.

How much do you want to bet the banks would be doing this already if CMHC weren't guaranteeing Canadian home mortgages?

This is your greatest indication of the 'clear and present danger' the housing bubble is about to force on our country.

Banks aren't properly vetting mortgage applicants. Banks HAVE been lending out money to people who can't pay it back.

TD Bank says that:
"Implementing all these measures gradually would be sensible for the long-term, and not just in the current environment.”
Agreed, but it doesn't defuse the ticking time bomb we currently face. 

We do face a clear and present danger... and that danger looms larger than most people realize.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Thursday, March 15, 2012

"A little is alright" - the danger of inflation

Earlier this week US Federal Reserve Chairman Ben Bernanke uttered this infamous phrase about inflation:
"A little is alright"
This blog has talked about the dangers of inflation before.  And just like interest rates, the idea that inflation could rear it's ugly head again is considered insanity by villagers on the Edge of the Rainforest.

But Bernanke has a different message, "a little is all right." Or at least that’s what he said when asked about the evidence of inflation in the U.S. recovery.

This is a change for Bernanke. In the past he has simply said he  doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

Bloomberg picked up on Bernanke's shift from 'subdued' to 'a little is alright' message and made some good points.

Looking back at history, inflation has a way of coming about suddenly and, once it does, can be very difficult to stop.

The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. 

Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

“Sudden” has happened to us before. 

In World War I, an early version of what we would call the CPI-U, the consumer price index for urban areas, went from 1% for 1915 to 7% in 1916 to 17% in 1917. 

To returning vets, that felt awful sudden.

History has other examples. In 1945, all seemed well: Inflation was 2%, at least officially. Within two years that level hit 14%.

All appeared calm in 1972, too, before inflation jumped to 11% by 1974, and stayed high for the rest of the decade, diminishing the quality of life for everyone.

As central banks around the world massively increase the money supply (the true definition of inflation - it just takes several years to see it reflected in prices), we are told not to worry by Bernanke.

First he told us it isn't there.

Now he is telling us a little is a good thing.

Why will this time be any different?


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Wednesday, March 14, 2012

Unmasking the US Federal Reserve

A 35 minute video in which Joseph Salerno, Economics Professor at Pace University, speaks on the US Federal Reserve and exposes some of the fallacies regarding how the Federal Reserve functions, creates money, and controls the monetary system the United States.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Tuesday, March 13, 2012

Tues Post #2: A Day Made of Glass

Saw this over on Mike 'Mish' Shedlock's blog and was wow'd by it so I thought I would share it.

It's a promotional video by Corning for Photovoltaic Glass and it's possibilities.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Tues Post #1: Foreclosure Tours on Vancouver Island

As the housing situation worsens on Vancouver Island, foreclosure tours are becoming common place as this piece on CHEK news observes.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Monday, March 12, 2012

Gold, Central Banks and Canada

CTV's Question Period talks about Gold, Central Banks and Canada's official holdings with Eric Sprott.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Sunday, March 11, 2012

Ottawa Citizen Newspaper chastises Federal Government on debt message

Yesterday the Ottawa Citizen newspaper chastised the Federal Government on it's mixed message about Canadian debt.

Here is the content of their editorial:
Why is the federal government warning Canadians about debt while it is encouraging aggressive mortgage lending?

When it comes to interest rates and housing prices, it's difficult to see the thread of consistency in federal government policy. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty frequently warn Canadians that levels of household debt are too high. At the same time, the Bank of Canada's low interest rates make possible the low mortgage rates that are fuelling the housing market.

The government encourages risky mortgage lending even more by facilitating it through the Canada Mortgage and Housing Corporation. The government-owned mortgage insurer charges a substantial premium to home buyers with less than 20 per cent to put down, a federally mandated practice that effectively takes the risk out of mortgage lending for Canada's banks.

As concerns about a contraction in Canadian housing prices increase, the CMHC is finally getting some long overdue scrutiny. This week, the Ottawa-based Macdonald-Laurier Institute recommended a thorough review of how Canada finances mortgages. The institute questioned whether home buyers are paying too much for CMHC mortgage insurance, a fee which can be up to 2.9 per cent of your loan, higher if you are self-employed.

This mortgage insurance fee costs home buyers thousands of dollars, and the institute asks whether the fees are unduly high. The fact that the CM-HC has returned profits to the federal government of $14 billion over a decade suggests that this is a cash cow.

Other organizations, including the International Monetary Fund and the C.D. Howe Institute, are worried that the publicly owned CMHC has taken on too much mortgage liability, exposing Canadian taxpayers to undue risk. While there is a debate about whether Canada has a housing bubble, housing prices have increased 44 per cent since 2006. The CMHC's total loan insurance portfolio is now $541 billion, up from $350 billion in 2007. The Howe institute has suggested encouraging private mortgage insurers to play a larger role.

The main question, generally unasked, is why a federal agency has to take the risk out of mortgage lending for Canada's big banks. It's particularly pertinent with banks lowering rates again this week as they fight for more lending businesses. Normal businesses take risks. Why not our banks?

Our financial leaders say they are against debt, but their policies encourage it, and the government makes a tidy profit off insuring it. As long as those policies persist, they should spare us the lectures.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Saturday, March 10, 2012

Polar Opposites

Meet Willow Tufano.

See's 14 years old and is going to give us a glimpse of what has to be the polar opposite of Vancouver manic real estate bubble. Fittingly she lives in the other corner of the continent... Florida.

Believe it or not Willow, at the tender age of 14, just bought a house in the Sunshine State.  

You read that right... she just bought a house.

In 2005, when Willow was 7, the housing market was booming. Home prices in some Florida neighbourhoods nearly doubled from one month to the next. Her family moved into a big house; her mom became a real estate agent.

But as Willow moved from childhood to adolescence, the market turned, and the neighborhood emptied out. "Everyone is getting foreclosed on here," she says.

After the housing market in the US collapsed, Willow's mom (Shannon) started working with investors who wanted to bid on cheap, foreclosed homes.

Sometimes Willow tagged along.

Recently her mom saw a two-bedroom, concrete-block home on auction for $12,000 — down from $100,000 at the peak of the bubble. Shannon was telling her husband about the house, when Willow piped up.

"I was like, 'What if I bought a house? That would be crazy,' " Willow says.

Willow wound up splitting the house with her mom and plans to buy her mom out in the next few years, and put her name on the title when she turns 18.

The place was a mess when they bought it. They cleaned it up and rented it out to a young couple for $700 a month.

Think about that for a moment.

Houses are so cheap in some parts of the United States right now that a 14 year old can buy them.  And the monthly rent that the 14 year old is collecting would equal the cost of the house in less than two years.

Compare that to the west side of Vancouver.

Multi-million dollar homes here command about $3,000 per month in rent. It would take you between 55-80 years of monthly rent to collect the cost of these homes.

I imagine, dear reader, your jaw is hitting the floor regardless of whether you are reading this in Vancouver or in Florida. Yet each reader (be they in Vancouver or Florida) is muttering the exact same thing about the other city:
"That is just whacked!!"
Indeed it is.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.