Thursday, January 31, 2013

Thur Post #2: Gee... is Chinese New Year approaching? Also, are R/E Associations 'overstating' data

The bizarre thing here is that they are actually offering you $15,000 as an incentive, not $8,888.

When you read the ad you see that it's $8,888 PLUS 2% back on your purchase price.  For a condo costing $299,900, you get $15,000 back.

Year of the Snake? - it's an apt reference (click on image to enlarge).

Speaking of snakes, the Wall Street Journal is out with a story that says Home Sales Date Doubted - Realtor Group May Have Overstated Number of Existing Houses Sold Since 2007.
The housing crash may have been more severe than initial estimates have shown.

The National Association of Realtors, which produces a widely watched monthly estimate of sales of previously owned homes, is examining the possibility that it over-counted U.S. home sales dating back as far as 2007.

The group reported that there were 4.9 million sales of previously owned homes in 2010, down 5.7% from 5.2 million in 2009. But CoreLogic, a real-estate analytics firm based in Santa Ana, Calif., counted just 3.3 million homes sales last year, a drop of 10.8% from 3.7 million in 2009. CoreLogic says NAR could have overstated home sales by as much as 20%.
While revisions wouldn't affect reported home-price numbers, they could show that the housing market faces a bigger overhang in inventory, given the weaker demand.

Economists say any overstatement is the result of difficulty tracking data during market corrections. "This is an economic data issue, not a gaming-the-numbers issue," said Sam Khater, senior economist at CoreLogic. "Any time you get big shifts in the market, the numbers go haywire for a bit."

Haywire is about the only way to classify the date the BCREA was using in our earlier CTV-BC clip in post #1 today.

Is this why, when a market is falling, we get analysis that says the market it "flat?"


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Thur Post #1: CTV BC: Experts predict BC's real estate bubble will remain intact (played to the tune of 'when you wish upon a star')

Oh Tamara... really?

Is this the price we pay so that you can hang out regularly in Aquilini's box at Canuck games?

CTV BC came out with the above shill piece for the real estate industry's on-going campaign to tell you the real estate bubble won't burst - so you best buy now.


And the reason?

Supposedly, according to one real estate agent, there's "optimism in the air.  People are feeling happy, phones are ringing, it feels like we're back into selling real estate."

So it that what were hanging our hat on right now?  Attempts to manipulate buyer confidence?

Then we are fed the BS line that "new numbers are out today from the BC Real Estate association that back this up... signalling better times ahead"

Oh?  And what numbers are those?

Well BCREA pumper in chief, Cameron Muir, tells us that "the fundamentals in the market suggest that home sales should be stronger, higher than the levels were currently seeing."

Based on this wishful thinking we are shown this highly manipulative graph which - as the narrator tells you - is that "based on this, homes sales SHOULD be higher this year and next":

Really? Cameron claims his fundamentals say sales SHOULD be higher so we therefore forecast a 5.6% increase in sales this year and a 6.1% increase in 2014?

Then comes the gushing excitement that based on the fantasyland belief that sales "should be higher", then this means this "forecast uptick in sales is great for developers"  

Completing this daisy chain of fabricated logic is the Omni developer who says "we're seeing some real positive movement that buyers are coming off the fence."

Huh? OMG!

So... it's all about wishful thinking, now? That's what is going to make it all happen? And this passes as NEWS???

Incredibly that seems to be the level of desperation we're at.  Play the media with nothing more than BS to create the ideal that the market has no place to go but up in the hopes of creating some kind of buying frenzy.  Then you hype the 'fantasy frenzy' to manufacture the belief that a real estate uptick is underway and about to crest in the Spring air.

As always - you best buy now or be priced out forever.

Riiight. I truly believe we hit a new level in pathetic with this one.


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Wednesday, January 30, 2013

Seller Psychology

It's always fascinating to observe the manoeuvres of some of the participants in our real estate housing bubble.

It's not that it's different from that of sales in other product streams, as anyone who has spent time on eBay will attest.  You see similar behavioural patterns amongst some sellers there as well.

And the underlying pattern?  Greed and a compulsion to chase the market.

Increasingly on Observer's wonderful Vancouver Price Drop blog you see examples like 3711 West 11th Ave in Vancouver.

This 12 year old,  4 bedroom, 2,204 sq ft home sits on a 3,660 sq ft lot in Point Grey at W. 11th and Alma Street.  The listing description says:
Well maintained, like new 12 years old 4 bedrooms home in most sought after Point Grey Area. Designed by Formwerks with Classic outlook with 2200 SF of contemporary living. Impressive formal living & dining room are great place for entertaining. Kitchen with open concept. Main floor features 10' ceiling, gleaming Brazilian cherry wood throughout and gas fireplaces in living & family room. Upper floor has 4 bedrooms or 3+den. N facing bedrooms have mountain view. Downstairs offers a nanny room & 3 piece bath. All appliances, hood fan and carpets were replaced in 2010. Double garage, security system, fully fenced front & back yards. Lord Byng High School & QE Elementary School Catchment. Priced below 2013 assessment

The house has been almost continuously listed for the past two years and it has sat empty all that time. It's actually been on the market since 2006 and got pulled during 2007-2009.

Clearly the seller doesn't have to sell.  As a result, they are constantly chasing the market.

On October 06, 2006 it was listed for $1,374,800. Watch the history of price changes after that.

October 23, 2006 - $1,298,000
November 18, 2006 - 1,272,800
December 11, 2006 - removed after 66 days.

The house stayed off the market throughout 2007, 2008 and 2009.  As the market rebounded in 2009, our intrepid sellers tried to capitalize on the rebound and chased a climbing market, presumably influenced by the market assessments.

January 22, 2010 - $1,575,000
March 05, 2010 - removed after 42 days
May 20, 2011 - $2,188,800
November 18, 2011 - removed after 182 days
November 23, 2011 - $2,088,000

At the start of 2012, the 2011 Assessment would have come out. The assessed value of this house: $1,763,000

February 22, 2012 - listing removed after 91 days
March 01, 2012 - $2,128,000
March 28, 2012 - $1,998,000
April 16, 2012 - removed after 46 days
April 26, 2012 - $1,888,000
June 11, 2012 - removed after 46 days
June 15, 2012  - $1,798,000
September 08, 2012 - $1,668,000
November 01, 2012 - removed after 139 days

Then the 2012 Assessment came out in January 2013. New assessed value: $1,618,000

On January 23, 2013 the house was relisted for $1,580,000

It's almost comical to watch. I'm sure when they eventually drop their asking price to the 2006 price of $1,270,000... they will still maintain they "just want what our house is worth."


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Tuesday, January 29, 2013

They call this 'house porn'?

There's a new 'house porn' series out called Love it or List it Vancouver.

Now my first expectation was for offensive realtors pumping outrageous Vancouver properties.  The show was hyped as one that would:
... feature families in the city struggling with homes that no longer suit their needs. Interior designer Jill Harris will "compete" against realtor Todd Talbot to convince people to stay in the Vancouver-area home she remodels for them, rather than "listing" and moving to a new home found by Talbot.
Having watched two episodes, there's no doubt it's offensive.  But not because of the realtor/interior designer hosts.

What's offensive is the featured couples.

If the rest of Canada doesn't view us a stuck up, petulant, myopic and self-centered already, this show will fix that promptly.

House Porn?


It would almost make you feel empathy for realtor's because they have to deal with the type of families profiled in this show.


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Monday, January 28, 2013

Six Canadian Banks Downgraded by ratings service Moody's

Flip over (on the internet, of course) to the Financial Post website and you will find this article: Six Canadian banks downgraded by Moody’s
Most of Canada’s biggest banks have been downgraded by Moody’s Investor Services, one of the world’s major credit rating agencies.

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

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

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

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

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

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

Royal Bank was not included on the list.
This follows Friday's Financial Post article where Theresa Tedesco wrote: Canada’s banking giants headed for earnings iceberg.

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

But this is information on 'the internet.' And you will recall from yesterday's post that the internet is where Alphabet Arnie says:
the entire negative internet world (has) their collective tails between their legs crying about the market "BUBBLING" which just proves that some whine, and some act and that we can sit around here and pontificate about market direction.
Well it seems that the folks at Moody's (with their own collection of ivory tower letters after their names) just whined, acted and pontificated on the internet... all at the same time.

Imagine that.

(hat tip Canadian Watchdog)


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Sunday, January 27, 2013

Sun Post #2: Alphabet Arnie says, "If you don't buy a lottery ticket, you won't be winning"

One of our favourite Richmond real estate agents, nicknamed 'Alphabet Arnie' by some our our faithful readers, has a message for all you real estate doubters out there.

Basically it's 'if you don't buy a real estate lottery ticket, you won't be winning.'

Arnold Shuchat make this point in one of his recent blog posts titled, House gets "Flipped" for 19.4% gross profit in 6 months!
A Single family residence built in 1986 was purchased for $720k in June of 2012 and was just sold for $860k in the Lackner area on Jaskow Dr. It looks from the listing that new flooring and some bathroom updates were added after the purchase. Estimating these updates to be around $15k and considering property purchase taxes and outgoing commissions, legal costs and carrying costs at prime +1%, I figure the seller netted around $80,000 on his investment of $720k or 11.1% in around 6 months.

What is noteworthy is that he did this at a time when the entire negative internet world had their collective tails between their legs crying about the market "BUBBLING" which just proves that some whine, and some act and that we can sit around here and pontificate about market direction and lottery winnings, but that if we don't buy a ticket, we won't be winning. Good work, and thank the lord, because it was on my street!
A.A. has been quite bullish recently. It was just the day before the above post, in an entry titled: Forecasting Vancouver Real Estate Prices, that Schuchat declared his belief that within 20 months all those Asian buyers should come flocking back to snap up local real estate
One cannot forecast this market without making a determination about immigration volumes from that side of the world. After consulting with one of Canada's foremost immigration lawyers and policiy analysts I have been lead to believe the following:

There are about 1.5 million millionaires in China and many of those people seek a safe haven for and expatriation of their capital to secure same. Our real estate and our local scene is such that we are relatively close to Asia and are seen as a gateway; we have a local demographic and infrstructure that in many ways can handle non-English speaking immigrants without culture shock, without tax consequences and with very little perceived risk to them. There is no doubt that were the gates to open wide with minimal restrictions, local prices would go through the roof. We simply do not have sufficient inventory to handle that demand. In financial terms, we are a tightly held penny stock.

Ottawa has seen to it that the housing market has cooled off in order to avoid being stuck with the bill for mortgage defaults as a result of insured mortgages having been issued at high prices. Immigration volume has been the singlemost effective way to attenuate local demand from the pressures of offshore buyers. I do not think that the pressure to establish a beachhead here has abated. I think that for the time being, the valves have been tightened, regulations to address income tax imbalances and residency loopholes are being debated and I think that with a change in government in China, money is being freed up to enhance liquidity where possible and there is a pause.

Market watchers would do well to spend some time watching immigration patterns and volumes as this is predominantly what got us to where we are today pricewise. We expect a return within the next 20 months of some of this immigration demand.
Attaboy Arnie, keep your sunny side up and spread the Good News!


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Sun Post #1: Common Sense

Great 10 minute speech by MEP Daniel Hannan who examines the ongoing Great Financial Crisis very succinctly.

He begins this thoroughly British demolition of status quo by looking at the three critical myths surrounding the financial crisis that we are still living through. Those myths are:

  • That this crisis was caused by the failure of Capitalism,
  • that the banking collapse was caused by a lack of regulation,
  • and that we have been brought here by greed.

Hannan argues the past and present bailouts of each and every bank (and 'important' industry) will, one day, be seen as a generational offence.

Hannan argues capitalism has not failed, it has been undermined by political pandering. Subsidies and nationalizations are the opposite of capitalism. In a capitalist system, bad banks would have failed. Their profitable operations would have been sold to more efficient competitors. Bond holders would have lost money, shareholders would have lost money, some depositors would have lost money and taxpayers would not have contributed a penny.

What about the idea there wasn't enough regulation? Hannan notes no industry is more regulated than the financial industry. He states by responding the crisis with more regulation, we repeat the mistakes that were made originally and we make the next crisis more likely.

We have too big to fail banks because we don't allow the market to follow it's course.

Finally Hannan takes on the idea that defending these viewpoints is championing greed.

Hannan suggests in a brief but extremely eloquent debate that there is a world of difference between being pro business and pro market as he destroys any semblance of credibility that the political (and elite) class has echoing a young Ron Paul in his thoroughly libertarian free-market sensibilities.

(hat tip to Zero Hedge)


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Saturday, January 26, 2013

Is BC's first time home buyer grant being used to facilitate CMHC Insurance fraud?

For the past two posts we have been talking about Quadra Homes and their promotional pamphlet for their Langley Condo Development.

Quadra made the news for their unauthorized usage of the BC government's logo when hawking their condo's. The story was headlined in the Vancouver Province newspaper: Major developer was reprimanded over unauthorized use of provincial logo to help sell condos.

But as we asked yesterday, what about counselling buyers to circumvent the new regulations against zero down payments?

House buyers needing 95% financing are not allowed to borrow the last 5% for their down payment. If they do their loans won’t be eligible for CMHC mortgage insurance.

Is the Langley brochure counselling and assisting buyers to do something illegal?

It's an important question because it's not just Quadra Homes engaging in this practice.

One of the contributors to our comments section (hat tip Ray) passes on a similar tactic being used by Aragon Properties at their FLO and DUO developments in New Westminster.

Prospective clients recently received this email blast:

The email clearly promotes a "Zero Down Payment Program" and says:
- 95% insured mortgage financing
- 5% down payment loan with flexible terms
- Offer effective until March 31, 2013
It certainly looks like Aragon Properties is leveraging the BC first time home buyer grant like Quadra was... with one significant difference.

Instead of suggesting you find a generous uncle to spot you the $10,000 down payment until the grant arrives (at which time you pay him back), Aragon says they are offering to loan you the money you need for the down payment themselves.

Perhaps instead of pursuing the unauthorized use of provincial logos to help sell condos, the government should be looking at what appears to be widespread illegal use of the first time home buyer grant to circumvent CMHC mortgage insurance regulations?

Just a thought.


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Friday, January 25, 2013

Major developer reprimanded over unauthorized use of provincial logo. What about counselling home buyers to circumvent 5% down payment requirements?

In our last post we told you about the pamphlet pictured above which had come out for a Langley condo development.

Seems that pamphlet got the attention, not only of this blog, but of the Provincial Government.

As a faithful reader pointed out in our comments section, the Vancouver Province reported that a Major developer was reprimanded over unauthorized use of provincial logo to help sell condos.
A major condo developer has been reprimanded by the B.C. government for the unauthorized use of the provincial logo in a promotional brochure for a new development in Langley.

Quadra Homes agreed Thursday to delete all references of the government’s registered logo from its website and to destroy the remaining promotional brochures for the development, named Yorkson Creek, which carried the B.C. logo on its front and back page.

The issue came to head on Wednesday after The Province contacted the Ministry of Finance asking about the 28-page, glossy brochure, which began arriving on doorsteps in the Langley and Abbotsford areas within the last two weeks.
The Provincial Government’s first-time homebuyer’s bonus of $10,000 was detailed in the first few pages of the brochure. But the rest of the pages are dedicated to the benefits of buying at Yorkson Creek.
“It is not just misleading, it is wrong,” said Doug Bigg, who received the brochure last week. “I interpreted it as taxpayers' dollars being used to advertise condos for a multi-million dollar corporation. If I thought that, then I’m sure most other people would think that.”

But the government had nothing to do with the brochure, the Ministry of Finance said. And on Thursday, the company was ordered to remove all unauthorized references of the logo.

“This unauthorized use must cease immediately,” part of a letter sent to the company read. “Failure to do [so] in a timely manner may lead to further action on our behalf.”
Personally I think there is more to this than just misuse of the Government's logo and misrepresenting their endorsement of the development.

As Garth Turner noted this week, house buyers needing 95% financing are not allowed to borrow the last 5%, or their loans won’t be eligible for CMHC mortgage insurance.

Turner cited the story of a banking loans officer wherein the...
banking loans officer suggests that he take out a 10k line of credit, give it to his father, so his father can give it back to him with a gift letter. Voila, 5% down.
Turner proceeds to point out that this arrangement circumventing the 5% down payment is illegal.

If that is true, is the Langley brochure doing something just as illegal? 

Note this page of the pamphlet:

It suggests that first-time buyers: "Borrow the down payment from your favourite Uncle and pay him back when you get the $10,000."

Isn't that exactly the same as Turner's example? 


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Wednesday, January 23, 2013

More on the $1 Condo for sale in Richmond and other realtor gimmicks

Yesterday we told you about a Richmond condo that had slashed it's asking price from $355,000 to $1.

Hoax?  Data entry error?

Adding to the mystery was the fact that various sites and realtors had updates with the 'new price'. Richmond realtor Arnold Shuchat  even commented on his blog about the listing.

Shuchat said:
I've just uploaded this listing for a condo at the Laguna in Richmond. And I always thought 1% Realty referred to some commission arrangement! This ranks as one of the largest price reductions ever: From $355,000 down to $1!
We asked if anyone knew what this was all about?

Was it an error? Or was it legit?

In case you missed it, Arnold Shuchat posted a reply to our comments section on that post.

(the post came minus the academic credentials after his name in his google blog signature. Does that mean we should stop referring to him as 'Alphabet Arnie' ?).

Shuchat tells us: 
Well, after getting a few calls on this one, I checked in with the listing realtor. It turns out the one of the owners is a Toronto based realtor and there has been a trend there to list properties for $1 to create some attention. They have no intention of selling for $1 but expect to have offers presented on Sunday night....etc. 
Based on a lot of negativity on some of these blogs, it would be an interesting wager as to whether a multiple offer scenario will materialize.

It will get sold because I think the owners will do what has to be done to sell it. 
I also predict a post-sale advertisement claiming "Sold $315,000 over asking price"!
We thank Arnie for the info and look forward to hearing from him with what the outcome on this little bit of realtor games is.

And Shuchat is right, you can almost see the press release sent out by the selling agent trumpeting just as Shuchat joking predicts: "Sold $315,000 over asking price!"

But let's face it, if it draws attention and the bids come in... it is a creative advertising gimmick to list the property for $1 and set a deadline to sell to the highest bidder.

And there's nothing wrong with that (providing they actually sell to the highest bidder).

Which is more than I can say for this next example.

As everyone is well aware, the federal government moved last year to eliminate the various ways banks had been helping home buyers skirt the 5% down payment requirement (ie. up to 7% cash-back offers).

We also know, all to well, that the biggest lament in the real estate industry right now is how significantly the new mortgage regulations have impacted entry-level buyers... effectively cutting the knees out from those looking to climb the 'property ladder.'

Check out the latest weasel manoeuvre to circumvent the new mortgage regulations.

(although I'm sure they would prefer the more politically correct analysis of 'creative accounting').

The latest ploy comes to us via this pamphlet for a Langley condo development.

The pamphlet outlines how first-time buyers can receive, from the provincial government, a $10,000 first-time home buyer grant.

Their suggestion (as you can see the the third picture above - click on image to enlarge): "Borrow the down payment from your favourite Uncle and pay him back when you get the $10,000."

The key to that $10,000 can be seen here:

With units starting at $179,900... the $10,000 would cover your 5% down payment to buy in this Langley development.

Nothing like watching some elements of the real estate industry actively encouraging home buyers to evade regulations eliminating those derisive 'zero-down' lending practices.

Who says we're all that different from the Americans?

(hat tip Tom)

Of course aren't liar loans, zero down, government R/E handouts and an industry that relentlessly pumps these options how we ended up at this apex where living in a van becomes a lifestyle choice?:

(hat tip GreenhornRET for video)

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Tuesday, January 22, 2013

Tues Post #2: CNBC admits Gold is leased and more paper gold exists than real Gold - speculates Germany's move to repatriate Gold could be huge.


Last week we told you there had been a significant development on the precious metals front. Specifically that Germany had announced they were repatriating Gold they owned and stored in the United States and France back to Germany.

CNBC discussed the story today and, in a stunning bit of candour, acknowledged that Gold is leased and leveraged vs. the paper shares of Gold and that the move by Germany could cause of run on physical Gold.

Stunning to see this acknowledged on CNBC.

(Note: they mentioned that now Holland is doing the same as Germany in moving to repatriate that countries Gold too)

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Tues Post #1: Richmond Condo has asking price slashed from $355,000 to $1?

Not too sure what exactly is the gimmick here (hopes of a bidding war?) but the condo at #117-8189 Jones Road in Richmond has had their asking price slashed from $355,000 to $1.

From the description:
Call to View! Owner Says 'SELL'. Please Bring Offers!
When posting it on his site, real estate agent Arnold Shuchat said:
I've just uploaded this listing for a condo at the Laguna in Richmond. And I always thought 1% Realty referred to some commission arrangement! This ranks as one of the largest price reductions ever: From $355,000 down to $1!
Anyone know what this is all about? The listing for $1 is popping up on real estate sites everywhere.

(hat tip Arnold Shuchat)


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Sunday, January 20, 2013

Real Estate agents continue to whine about mortgage changes

You get the feeling more and more real estate agents are feeling the heat of withering sales. The whining about the government's changes to the mortgage rules continue unabated.  The latest is from our buddy Owen Bigland.
I was wrong when I said I didn't think the new mortgage changes this past July would have much of an impact on the overall Vancouver market. I should have realized the domino effect it would create. 
When you cut off the 1st time buyer existing home owners who want to move up the property ladder by selling their place and buying a bigger home - they can't do it. 
Here's my rant! I'm all for Canadians reducing some of their debt, I've blogged about it many times but why on earth is our finance minister going after good debt like mortgages before he goes after all the bad debt that's out there like credit cards? 
Does he not realize that for the vast majority of Canadians in their 60's, 70's and 80's their principal residence is the largest and sometimes the only asset they own. Most will tell you that looking back at buying their first home was the best financial decision they ever made.  
It's like a forced savings account. Maybe Ottawa should get their own financial house in order before they start telling Canadians they can't buy that first home. You might also want to look into the credit card industry and some of their practices.
Gee Owen, maybe your right. Ottawa should get their own financial house in order before the continue to subsidize the real estate industry through CMHC insured mortgages and with artificially low interest rates?

If it so happens the mortgage rule changes (which don't even return us to what those very rules were 15 years ago) are driving housing prices down to what the vast majority of Canadians in their 60s,70s and 80s originally paid for their homes, then getting on the property ladder wouldn't be an issue now, would they?

In fact, aren't today's regulations (and interest rates) even more lax than what they were for those Canadians in their 60's, 70's and 80's when they first bought? Perhaps we should return to the  mortgage rules that were in place then in order to bring the market back into balance?

Just a  thought.


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Saturday, January 19, 2013

Sat Post #2: Sound familiar?

The debt binge that drove the bubble was a worldwide phenomenon.

In commenting on this worldwide spectacle, The Economist magazine noted:
"The bust has been much less widespread than the boom. Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark. But in most other countries they have dipped by less than 10%, as in Britain and Italy. In some countries, such as Australia and Canada, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued."
Another one of those countries where prices wobbled but have not crashed yet is France.

But like Canada, the days of reckoning for the debt binge may be upon us in France as this article notes. In fact if you replace the word France with Canada, or Paris with Vancouver and the article bears a frightening resemblance to what is happening here.
In the lofty realm of apartments in Paris that are valued at €2 million or higher—€2 million doesn’t buy all that much in Paris anymore—a game of chicken is apparently transpiring. The number of transactions crashed by 42% in 2012.

Barnes, a British real estate group that specializes in high-end properties in France and certain tony locations elsewhere, based its study on data gleaned from lawyers (notaires) who engage in real estate transactions. Prices of high-end homes in Paris dropped by 10-15%. For properties under €2 million, transactions screeched lower by 28%, but prices remained stable.

Optimism is hissing out of the French real estate bubble. For 2013, Barnes sees a market that remains “hesitant” during the first quarter of 2013, “with a low level of transactions,” that would gradually recover, somehow, with a “slow correction in prices”—rather than a sudden correction, or a crash even. Other industry insiders see darker clouds on the horizon.

“Sellers still haven’t understood that they have to lower their asking prices drastically, even though prices in Paris have already fallen more than 10%,” said Philippe Chevalier, CEO of Emile Garcin, another high-end real estate outfit. He blamed foreign buyers, or rather the sudden scarcity thereof—foreign, because few French can still afford to buy a nice home in their capital. They’ve been effectively priced out of the market. But foreign buyers have gotten cold feet, he said, due to the “accumulation of tax pressures on real estate.”

And not just in Paris. In the “provinces”—outside the metro area of Paris—sales of existing homes during the third quarter plummeted 20% year over year, accelerating from the 16% decline of the second quarter (PDF, released January 10). And new homes sales in France plunged 25% in the third quarter, a dizzying acceleration from the second quarter’s 14% decline.

Yet, prices in France, at least in the third quarter last year, haven’t budged much to the downside as sellers are still clinging to the hope—proven illusory in every real-estate bust so far—that this too shall pass. And despite mortgage rates that averaged 3.31% in November over an average term of 208 months, home mortgage originations plunged 32.6% from prior year.
Presumably the 'foreign' buyers who have gotten 'cold feet' are booking flights from China right now and bringing buckets of money over for Chinese New Year to rescue the market - or so will go the R/E spin in France.

As you can see not only was the housing bubble a result of a worldwide debt infused plan for inflating the economy, but the rationalizations and excuses for the unwinding of the bubble know no boundaries as well.

(hat tip PM)


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Sat Post #1: Global TV reports Vancouver Real Estate Prices To Fall 10% in 2013

Buried in a piece of about the economy, Global reports that Vancouver Real Estate will drop another 10% in 2013.

Naturally is is couched with the rationalization that this drop will be - at best - a correction, not a crash because interest rates aren't heading up anytime soon.

But it's significant to note we have now moved from the "prices are flat" mantra to this is a "correction, not a crash" mantra.

(hat tip GreenhornRET)


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Friday, January 18, 2013

2013 could be shaping up to provide us with a wild real estate ride

So the barrage of negative (or positive, depending on your viewpoint) housing bubble news continues.

Yesterday we profiled the upcoming February edition of Canadian Business Magazine with their cover article "How Low Will House Prices Go"

In a another article this week, the Globe and Mail proclaimed Home sales plunge, market 'clearly in correction mode'
Canada’s housing market can best be plotted on two timelines: pre-Flaherty and post-Flaherty. And for many, the post-Flaherty era is a good thing.

Sales have slipped since Canada's Finance Minister Jim Flaherty brought in new mortgage restrictions in July in an attempt to engineer the slowdown we're now seeing, and most observers expect a soft landing, not a crash.
But that 'expectation' of a soft landing apparently doesn't apply to Vancouver:
Vancouver, in particular, has taken it on the chin, and observers believe it is the one market to have gone beyond a soft landing.
Vancouver? Beyond a soft landing already? Not quite the way Somerville and Muir portray the situation, is it?

Meanwhile some bank economists are saying, 'told you so.'
"Canada’s housing market is clearly in correction mode as we had been warning would occur well before the figures began to roll over," Derek Holt and Dov Zigler of Bank of Nova Scotia said before the CREA report.
But buried deep in the article is a quote Sonya Gulati, Senior Economist at the Toronto-Dominion Bank that stands out:
Ms. Gulati expects the market will stabilize now over the next few months, and that the impact of Mr. Flaherty's changes are now priced in.

"When looking at previous mortgage rule tightening episodes, the housing market impacts have been temporary in nature," she said. "There is no reason to think that this time will be any different."
That's quite the statement.Think about that.

The position of one of Canada's biggest banks is that previous mortgage tightening episodes have been temporary in nature and there's no reason to think this time will be any different.

Kinda cuts the whole real estate industry attempts at pressuring the Government to scale back their mortgage rule changes at the knees, doesn't it?

And I believe it reinforces the Government's position to remain resolute in the face of all the pressure from the real estate industry.

But nothing moves in a straight line.  And for those giddy about the direction house prices are moving in, I urge caution.

I believe the scene is being set for what could be a very dramatic year. Recall our 'stages of a bubble' chart.  As the collapse continues to pick up steam, we should expect some kind of resurgence as we enter what is known as the 'bull trap' :

Some real estate agents have been talking about a certain amount of pent-up buying desire.

I agree with that assessment.

There is a lot of demand that is pent-up, keen to jump on the collapse and buy.  They read all the negative press about falling prices and are holding off.

I have a feeling that at some point - perhaps as early as the end of the Spring market if prices start to fall - we may see that buying surge materialize.

If it does, look out.

The Real Estate Industry will seize upon it with relish - complete with a flood of media stories.  The angle they will hype?  "It's 2009 all over again and you must get in now before you miss this chance."

I suspect that pent-up desire to buy, ignited with the media hype around the 'return to normal' swing -  will surprise even the bears with how intense it is.

Suddenly that quote from TD's Sonya Gulati will taken on blinding significance to the government.

Because if that 'return to normal' phase does materialize with accompanying media intensity, the steps Flaherty has taken to date will be viewed as completely ineffective - only able to trigger a temporary impact on surging Canadian debt levels.

At this point the Federal Government will be emboldened to take the final, crucial step.

Recall our post about a Bank of Canada study suggesting lower home prices were a national priority.
A substantial downturn in prices – say, 10 to 20 per cent – would, in theory, not only reduce mortgage debts for new home buyers, but, significantly, push down non-mortgage debt to the tune of 4 to 8 per cent. That would get Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney a lot closer to solving the country’s household debt problem, reducing what is considered a serious risk to the stability of the Canadian economy.
A 'return to normal' surge and the accompanying media frenzy (driving even more into the market) will be just the catalyst the Feds need to justify moving to break the back of our housing bubble.

In such a milieu, I believe you won't see the BOC raise interest rates. Instead I think you will see mortgage regulations changed dramatically.

Perhaps we will see down payments raised... not just up to back to 10%, but perhaps even higher.

Could we see the return of the 25% down payment for CMHC insurance? Could this lead to an incentive for banks to offer non-CMHC insured mortgages (with say a lower down payment than required for CMHC insurance) but at higher interest rates than a 25% down CMHC mortgage would offer?

It is going to be an interesting year.


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Thursday, January 17, 2013

Canadian Business Magazine asks: How low will house prices go?

Canadian Business Magazine joins the media attention on our housing bubble with an article that asks: How Low Will House Prices Go?
Before every housing correction, there’s a Looney Tunes moment. In the animated universe, there’s a gravitational peculiarity that briefly suspends an overzealous pursuer in mid-air, just long enough to flash a HELP! sign, before plummeting off the cliff he failed to navigate. When it comes to overheated real estate, there is a pause that follows the outset of a correction, during which the market fails to realize there is nothing below but air.

Ahh yes, the Wile E. Coyote moment.  Two weeks ago it was Macleans insisting that we were there, now it's Canadian Business Magazine.
The pattern is familiar: it starts with slowing sales activity. Listings begin to generate fewer offers. Would-be homeowners start to see the sense in holding off. In Toronto, where less than a year ago a rundown semi-detached could sell for $100,000 or more over asking price, the era of the bidding war is fading. “Buyers are sensing that prices are going to come down, so why buy now?” says Thomas Neal, a Royal LePage agent in Toronto, where housing transactions in December slid by 25% from the prior year. In Vancouver, the number of homes sold last year trailed the 10-year average by 25%. It is in those two markets where the twin epicentres of the Canadian housing shakeup reside. But the ground is beginning to shift under the national market as a whole. Those kinds of numbers support the view that “a potentially severe housing correction is underway,” says David Madani, an economist at Capital Economics, who for months has been predicting a 25% decline in Canadian home prices.
Which brings us to where we are now... the denial stage where sellers refuse to acknowledge the shifting market.

The real estate industry insists sellers will hold firm forcing buyers to capitulate and continue to pay higher and higher prices.  Canadian Business has a different take:
As usual, one-half of the market refuses to look down. “We’ve got a number of sellers who say, ‘If we’re not going to sell for a particular value, we’re not going to sell at all,’” says Victoria real estate agent Tony Joe. “A lot of people are still pricing their properties based on yesterday’s market.” So, even though demand is weakening, prices have yet to fall for most of the country.

The reluctance of sellers to compromise is understandable, given recent history. For more than a decade, real estate in Canada appreciated almost without interruption. Even the financial crisis and ensuing Great Recession registered as little more than a blip. Meanwhile, most economists take the current trends as indicative of a “soft landing” for the sector, with just a slight moderation in prices afoot. But asking a bank economist or real estate market insider about the likelihood of a soft landing is like “asking your barber if you need a haircut,” says George Athanassakos, a finance professor at the Richard Ivey School of Business, who expects a “severe correction,” and soon. The current resilience in home values could simply be the brief mid-air pause before physics brings about the plunge fated for inflated housing markets and cartoon coyotes alike.

People tend to have short memories about real estate, Neal says. Since 2000, the average home price in Canada has shot up by 125%, which has reinforced the perception that residential real estate is infallible.
So what will trigger a slide?
Just as excessive faith in home appreciation can overheat a market, so too can a change in sentiment accelerate and intensify the downside. With the rate of home ownership now close to 70%, and with household debt at a record high, much of the financial health of Canadian households is inextricably linked to home values, making it the kind of dominant concern that not only affects household finances, but consumer psychology and confidence.

Even most bank economists believe Canadian housing is overpriced somewhere in the range of 10% to 20%, perhaps more so for the hottest condo markets. That’s manageable as long as interest rates and unemployment remain low, says Doug Porter, deputy chief economist at BMO Capital Markets. Absent an external economic shock that would ultimately put Canadians out of work, there is no reason to expect markets to correct hard and fast, he argues. “What would force people to feel that they have to sell at much deeper prices, given that the interest rate environment is likely to remain quite benign at least through next year?” Without a trigger, there should be no national housing crash, Porter says.
Ahh yes, the lack of a national trigger. That's been Tsur Somerville's argument.
But there are some mortgage professionals who argue that the catalyst for a national reaction has already arrived by way of the federal government, which deliberately cooled the market by tightening mortgage regulations. Those changes would have disqualified almost 10% of all 2010 homebuyers, according to a report by Will Dunning, chief economist for the Canadian Association of Accredited Mortgage Professionals. “That’s taking a lot of demand out of the market,” Dunning says. “You’re putting the housing market at risk, and the broader economy.” Now Dunning says the market is “weak enough it could result in prices falling in many places across the country.”
And under these conditions, which group of seller's might panic and bail on the market?
In 2011, Toronto had record condo sales of more than 28,000 units. “The kind of construction we’ve seen is absolutely off the charts,” Porter says. “It is the kind of market that is so heavily supported by investor demand, we could have a temporary spell of a pretty serious correction.” Investors are potentially more likely to sell when prices decline, which could ultimately flood the condo market with resale listings. With 240,000 more planned condo units yet to be built in the Toronto area, many are worried about a burgeoning supply-demand imbalance. Already, investors are backing away from the Toronto condo market, which reported a drop in third-quarter unit sales of 30%. Developers reacted to both slowing sales and a record high level of unsold inventory by launching just five new projects in the third quarter in the 416 area, which typically sees 15 to 20 new projects per quarter. 
Investment demand also looms over Vancouver, where the condo market spent most of the year in full retreat. Since May, the benchmark condo price in Vancouver has already fallen by 13%. If the expectation of appreciation disappears, another layer of demand could shrink from the market. Ohad Lederer, an analyst at Veritas Investment Research, calculates that investors buying condos to supply the rental market are accepting annual returns of less than 4%. “That only makes sense if buyers believe that prices will go up.” But if prices in those two markets fall significantly, as Lederer believes they will, condo investors could face some tough decisions. “That’s where the intestinal fortitude of those investors will be tested,” he says.
The market has 'softened', to use the R/E industry phrase, but it has not crashed hard - yet. So we still have a saw-off in analysis which each side firmly sticking to their positions about where we are going:
The stability of housing in Canada relies on a Goldilocks economy—not too strong and not too weak. Economic expansion could lead to rate hikes, which would expose the unsustainable finances of many indebted households. On the other hand, a destabilizing economic event could trigger the housing crash Canada avoided in 2009. The historic crash in the United States is not likely to be repeated here. The U.S. bubble was more a product of risky lending. “A lot of people were allowed to take on debt with little or no prospect of paying it back,” Porter says. In Canada, debt is better distributed among middle and upper-income borrowers, he says. “There still is a relatively solid credit-vetting process in Canada.” Still, many Canadian homeowners are stretched thin. According to a Euro Pacific Capital report, high-risk mortgages make up more than $500 billion of Canada’s $1.1 trillion housing market.

The average home price, at more than $350,000 (which is double the median existing home price in the United States), now sits at about five times the average household income. Housing investment is close to peak levels at more than 7% of GDP—about the measure reached in both the late 1970s and late 1980s, Athanassakos says. “Right after that, the market collapsed in both cycles.”

Canadian demographics no longer support inflated prices, Athanassakos argues. The proportion of Canadians of the age when homes are typically purchased is at a turning point and is set to decline, which historically has been a powerful indicator of housing trends. “The long cycle is most of the time affected by demographics,” he says. And a very long cycle it could be. He foresees a 20-year span of declining home prices. There need not be an explicit economic trigger for an acute housing correction. The imbalances are already there. Changing sentiment could be the spark, Lederer says. “When it turns, it turns very fast.”
And Canadian Business Magazine gives Athanassakos' prediction prominence making it clear where they think we are going:

(hat tip VMD)


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