Thursday, December 29, 2011

No Kidding!

The CMHC came out and warned about the huge debt load of Canadians. No kidding!? And who helped them get into such a morass of debt and obligations??

The CMHC for one!

Of course we have been screaming on the bear blogs about the huge debt load of Canadians for years, and now- late to the party- Carney, Flaherty, the Banks and even the CMHC are jumping on board.

Of course none of us bloggers can do diddly squat about it- only the four mentioned about can AND THEY WON'T.

No point shouting 'FIRE' while you keep pouring gasoline on the flames!

The first part will make you laugh. The CMHC says that the debt situation warrants closer monitoring by 'the authorities' and yet the IMF says the CMHC needs closer monitoring by 'the authorities'. What a joke!

OTTAWA (Dow Jones)--Canadians' record level of household debt is a "serious issue" that merits closer monitoring by authorities in the years ahead, Canada Mortgage and Housing Corp. (CMH.YY) said.

In a year-end publication released Thursday, CMHC - the government-owned provider of mortgage insurance in Canada - said mortgage debt accounts for 68% of total household debt, by far the largest contributor. The agency, which is Canada's largest mortgage insurer and benefits from explicit government backing, said personal lines of credit have surged in recent years, increasing at higher growth rates than any other sub-component of household debt held by chartered banks.

"It is important that consumers and stakeholders continue to be vigilant in monitoring both the magnitude as well as the composition of household debt and take appropriate action," CMHC said.

The major risk in the mortgage market, it added, is the emergence of another, deep recession that sparks a series of job losses that would affect households' ability to pay their mortgages. Still, "most Canadian households have the capacity to deal with adverse economic conditions, due to the high quality of mortgage credit in Canada, the substantial equity position of most Canadian homeowners with a mortgage, and households' ability to adapt their discretionary spending."

Canada's ratio of household credit market debt to disposable income stood at 150.8% as of the third quarter, prompting warnings this month from the International Monetary Fund. The IMF said further "vigilance" is required by Canadian policymakers, including the possibility of increased supervision of CMHC, which the Washington-based body said has emerged as a key financial institution in Canada.

Federal Finance Minister Jim Flaherty has repeatedly warned - as lately as two weeks ago - that Canadians need to exercise caution in taking on additional mortgage and consumer-loan debt. Under his watch, the Conservative government has tightened mortgage-lending rules three times in an effort to avoid a U.S.-style housing bust.

-By Paul Vieira, Dow Jones Newswires: 613-237-0669;

Tuesday, December 27, 2011


Hubris (also Hybris): over-whelming pride, arrogance or confidence.
From the Greek: to express excessive pride or wanton violence.
Indo-european roots


American lawmakers "have taken leave of their senses," European Union Trade Commissioner Peter Mandelson said late on Monday evening in an interview with the BBC. "I hope that in Europe we will not see politicians and parliamentarians replicating the sort of irresponsibility and political partisanship that we have seen in Washington."

The European Commission spokesman Johannes Laitenberger told reporters on Tuesday that "the turmoil we are facing has originated in the United States. It has become a global problem. The US has a special responsibility in this situation."

"The German government expects, as do I, that the United States of America will pass a bailout package this week, because that is a precondition for restoring trust in the markets," Merkel said. "That is of incredible importance."

"The idea of an all-powerful market which must not be constrained by any rules, by any political intervention, was mad," Sarkozy said. "The idea that markets were always right was mad." He also said that self-regulation and laissez-faire capitalism "were finished."

Europe did nothing to reign in their own debt or their financial institutions.

2011 :

"What started as a sovereign debt crisis in smaller countries in Europe has now spread, causing extreme stress in the European financial sector and threatening global growth. Unfortunately, this time, the policy response to our shared challenges has not been as strong and co-ordinated as it needs to be. This slow response has resulted in missed opportunities, with each missed opportunity increasing the cost and difficulty of resolving the crisis. " Steven Harper October 2011

" A definitive solution that could have been delivered before the G20 meeting this weekend in Paris has been promised by the Cannes summit. Quite frankly, Europe's response over the past year has been disappointing. To be clear, this crisis could have been contained. Instead, it was allowed to grow." Jim Flaherty October 2011.

Carney warned that the world’s advanced economies, especially the Europeans, have spent a generation accumulating a “mountain of debt,” with global public debt to global GDP reaching a ratio of almost 80 per cent, a level that has “historically been associated with widespread sovereign defaults.”

We now have a higher per capita consumer debt than the US did before their collapse. We have higher price/rent ratios is many markets than the bubbliest markets in the US did at the height of their property bubble.

We have the same risk-enabling structures in place (CMHC) that the US did (Freddie and Fannie). Our per capita exposure to this debt-at-risk is higher than the US. BTW- Mr Carney- Our largest province is on credit watch as it's debt spirals out of control, and the BC and the Federal Debts are becoming structural according to the Auditor General.

In the words of the finance Minister: To be clear, this crisis could have been contained. Instead, it was allowed to grow.

Saturday, December 24, 2011


I posted this as a comment on a previous post but it really needs more discussion :

This is what the IMF says about the CMHC.

“Since CMHC is now one of the largest financial institutions in Canada and the key backstop to the housing market, it would be useful to undertake a review aimed at ensuring that CMHC has a modern and effective governance structure and supervision, and assessing the scope for further strengthening its risk management,” said one of dozens of recommendations the IMF made in its annual report on the Canadian economy.


In the question and answer session they mentioned more oversight and supervision of the CMHC being needed several times, and remember we (Canada) are supposed to be the poster child for financial responsibility!

Who is on the Board of Directors of the CMHC? This is from their web-site:

Board of Directors — Biographies

In accordance with the Canada Mortgage and Housing Corporation Act, the CMHC Board of Directors is responsible for managing the affairs of the Corporation and the conduct of its business. The Board is comprised of ten members, including the Chairman, and the President and Chief Executive Officer.

Dino Chiesa
Toronto, Ontario
Chair of the Board of Directors, CMHC
Principal, Chiesa Group

Karen Kinsley
Ottawa, Ontario
President and Chief Executive Officer

James A. Millar
National Capital Region
The Sussex Circle

Brian Johnston
Toronto, Ontario
Monarch Corporation

André G. Plourde
Montréal, Quebec
President, Groupe immobilier de Montréal Inc.

Sophie Joncas
St-Hubert, Quebec
Chartered Accountant

E. Anne MacDonald
Pictou, Nova Scotia

Michael Gendron
Edmonton, Alberta
Chief Financial Officer
Mancap Group

Rennie Pieterman
London, Ontario
Partner, Practical Plumbing Co. Ltd.

A rather small board considering the Hundreds of Billions which are at stake. Their background, from what I have gleaned from the CMHC web-site...

A developer, a CMHC employee and executive, a consultant, another developer, a real estate broker, a CA, a small town lawyer with RE/Wills and municipal experience, another developer, a partner of a plumbing and renovation company.

I am sure they are well meaning people. However I am not reassured. Neither it would seem is the IMF which has called for more supervision.

Where are the well-known Business and Economic Professors from U of T or McGill? Where is the seasoned insurance executive who has dealt with major losses? Where is the representative from the Canadian Tax Payers Association? WHERE is the significant representation of NON-housing interests? Why not have an a housing skeptic Economist like David Madani on the Board?

Would we only let Doctors and Nurses run the Ministry of Health? Of course not. Should the Minister of Health only ever be a doctor, and the Minister of Defence only ever be a soldier? Of course not. We need outside views to be heard too, especially when we all have to share in the liability.

Here is more of what the IMF had to say..

Gian Maria Milesi-Ferretti, the IMF official who led the review of Canada, stressed on a conference call with reporters that the fund has no reason to think CMHC currently represents a risk.

Rather, the IMF simply thinks the government should evaluate closely whether it’s appropriate for one of the country’s largest financial institutions to operate without formal oversight, he said.

This has the potential to have very serious adverse consequences. Anyone who thinks we cannot have a crash like the US because we do things differently here, have not lived through the last few crashes we have had here! This time the stakes are much higher.

Happy Turkey Day...

Joy for everyone but the unfortunate fowl.

Who will be the turkey next year?

For the last half-a-dozen years it is the prudent who have been tarred and feathered. Those who saved, those who refused to buy a broken down mouldy shack for a Million bucks, those who believe in self-dependence and who are trying to live with an eye on their needs for children, retirement or unexpected events. This turkey has been plucked to death!

Those who have borrowed, jumped on the band-wagon and over-indebted themselves have had the plum pudding.

This whole process has been aided and abetted by our bankers who keep telling us to borrow home equity to go on holidays and buy stuff, and that we are 'richer than we think' (who came up with that one), the Central bank which leaves rates at emergency levels for ever and then says don't borrow and spend - SAVE!!

The Government which has killed the Wheat Board because it is not 'free market enough' and yet doubled the CMHC mega-monster, even after they saw what happened with Fannie and Freddie in the US.

What is it they say.."those who ignore history are condemned to repeat it"

Of course the media was it's usually limp self-serving self. Particularly the local papers which have only improved marginally since the Aspers left.

However things they are a changing, Carney, the IMF, the media and most of the banks have now come out with warnings on housing. Though I fail to see what point all these warnings have without some concrete action, like raising mortgage rates 1% or anti-speculation laws, or residency laws for buyers.

Nope, we have leaders who, like the Captain of the Titanic having steered the ship badly now see an iceberg ahead and can only shout hysterically without even trying to turn the wheel.

A Great Christmas to all of you who drop by and to your families.

Thursday, December 22, 2011

Take one part over-indebted consumer. Add two parts bubbling RE and... have a recipe for disaster...

From the Globe and Mail;

IMF casts nervous eye on Canadian housing market

Posted on Thursday, December 22, 2011 12:55PM EST

It is worth looking at the whole article but here is a pertinent excerpt:

With household debt at about 150 per cent of disposable income, the domestic spending boom that helped Canada weather the financial crisis already is at its limits.

A collapse in housing prices would be a serious blow to the economy because of the link between consumer demand and household wealth.

The IMF, in its annual report on Canada’s economy, estimates that a 10 per cent decline in housing prices could result in a 1.1 per cent drop in personal consumption, excluding durable goods, which would correspond to loss 0.5 per cent loss in gross domestic product.

Now you know why Carney is worried, but he wont do anything about it except jaw-bone away.

Wednesday, December 21, 2011

Teranet October Numbers

From the Calgary Herald

CALGARY — Calgary house prices in October fell for the second consecutive month, according to a new national survey which looks at repeat home sales.

The Teranet-National Bank National Composite House Price Index, released Thursday, said prices in Calgary fell by 1.5 per cent from September. However, they were up 1.7 per cent compared with a year ago.

The index is estimated by tracking observed or registered home prices over time using data collected from public land registries. All dwellings that have been sold at least twice are considered in the calculation of the index.

At the national level, prices were flat for the second consecutive month.

But they have increased 7.9 per cent in the 11 metropolitan markets that were surveyed.

On an annual basis, the following markets showed price increases: Halifax (1.6 per cent), Hamilton (4.5 per cent), Montreal (5.4 per cent), Ottawa (3.8 per cent), Quebec City (5.6 per cent), Toronto (10.4 per cent), Vancouver (10.0 per cent), and Winnipeg (7.0 per cent).

Decreases were registered in Edmonton (0.1 per cent) Calgary (1.5 per cent) and Victoria (0.2 per cent).


I suspect their November and December numbers will show a few more dropping from the Green column into the Red Column.

Tuesday, December 20, 2011

Marc Carney finds Fiscal Religion

Well as you all know, I have been a vigorous critic of Central Bankers who for three decades have followed the 'Greenspan Doctrine' that :

1) The business cycle can be thwarted by easing monetary policy if speculation deflates
2) Markets are best left to run themselves
3) You can only see a bubble after it has burst.
4) Only intervene if the speculators are very large and can threaten 'the whole system' or have good connections
5) The accumulation of enormous debt on shaky assets or income flow, is something that should be ignored until it is so large as to threaten 'the whole system' and then some gentle finger wagging is in order.
6) Savers and the prudent most always be punished to benefit the indebted speculators.

Carney has been no stranger to this play book. He assumed office nearly three years ago and has only just now realized what a critical burden of debt Canadians have put themselves under.

The three years have been filled with mortgage shenanigans from the Federal Government, lax lending from banks, the myriad home-equity-sucking loan companies, and his own zero rates- running 2-3% BELOW inflation.

Bit late old chap! It's like giving a teenager a bottle of moonshine every day and then complaining that he isn't doing his home-work!

Of course Jim Flaherty has been there for nearly 5 years, so when he wags his finger about too much debt, it is worth remembering that he has passing the moonshine out for even longer.

Wednesday, December 14, 2011

What we have in the Vancouver Market is this

A consolidation pattern. So far the market has dropped, picked up a bit, and then dropped a bit again, much like this pattern.

When assets do this, they moved out of their trend and are biding time. Waiting for the next buying frenzy to move them up or a break down and out of the pattern.

It could go either way. So far European debt crises, Chinese slow downs, commodity collapses etc have had very little effect on the price of housing in this city, though outside buyers have seen 5-10% drops in the last two years.

December will show a high sales/list ratio due to on-going buying but less listings. The price may just edge up or down a bit, leaving January with the final tale to tell on this pattern resolution.

It should break down- however I do not for one second count out the possibility of renewed easing by the Central banks of the world. Carney has been talking tough on Canadian consumer debt which he helped create with ultra-low rates, but I am sure he would not blink an eye-lid and join with his buddies in slashing back down to 0.25% which would save the stockmarket and push all assets- gold, RE, oil back into the stratosphere.

One day there will be nowhere to go. rates will be at zero. The US Fed will own most US bonds (they have already bought up so much in their ponzi scheme, that they own more than China or Japan or the Gulf States!) The consumer will be so tapped out that, like a gorged glutton they cannot take on another cent to consume.

We are pretty close to that state but there may be just a little more they can squeeze into the glutton:

Like the fellow who makes his entrance at about one minute 10 seconds

Tuesday, December 13, 2011

Is China's Housing market unravelling?

First this from Bloomberg:

China Stocks Drop to 2-Year Low on Housing Slump, European Debt

By Bloomberg News - Dec 13, 2011 1:46 AM CT

China’s stocks fell to their lowest level in more than two years, after Chinese housing sales slumped and ratings companies said last week’s European summit did little to resolve the region’s debt crisis.

Anhui Conch Cement Co. (600585), whose materials are used in property construction, slid 4.5 percent after Fitch Ratings said China faces slower growth in home sales and construction next year. Poly Real Estate Group Co. led declines for developers after the nation’s biggest real-estate website reported housing transactions plunged more than 50 percent in 13 cities out of 35. Jiangxi Copper Co. (600362) retreated the most this month on concern faltering growth in Europe will cut demand for raw materials.

The Shanghai Composite Index (SHCOMP) slumped 42.96 points, or 1.9 percent, to 2,248.59 at the close, the lowest since March 2009 and capping a four-day, 3.6 percent loss. The CSI 300 Index (SHSZ300) fell 2.3 percent to 2,421.93. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 2.4 percent in New York yesterday.

The Shanghai Composite has slipped 3.6 percent this month as concern about a slowdown in economic growth outweighed the first cut in lenders’ reserve requirement ratios in three years by the central bank on Nov. 30. The index has tumbled 20 percent in 2011, exceeding last year’s 14 percent decline, after the central bank raised interest rates to combat inflation and curb property-price gains.

Anhui Conch, China’s biggest cement maker, lost 4.5 percent to 15.76 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., tumbled 5.1 percent to 12.95 yuan. Gansu Qilianshan Cement Group Co. (600720) slid 4.8 percent to 9.47 yuan.

Lending to developers will remain tightly controlled as the government prolongs a campaign to stabilize property prices and some smaller builders are “more vulnerable,” Fitch said in a report today.
Tax Cuts

Poly Real Estate, China’s second-largest developer by market value, fell 1.9 percent to 9.58 yuan. China Vanke Co. (000002), the biggest, lost 1.8 percent to 7.17 yuan.

Chinese housing transactions declined in 27 out of 35 cities tracked by Soufun Holdings Ltd. during the week of Dec. 5-11, according to the operator of the nation’s biggest real- estate website. Transactions fell more than 60 percent in at least 4 cities, including Tianjin and Hangzhou, it said.

China may use tax cuts to shore up expansion in the second- largest economy next year as export growth weakens and the threat of bad loans from stimulus spending narrows the government’s options. The nation’s top officials are mapping out policies for 2012 at the annual Central Economic Work Conference in Beijing. The event started yesterday, according to the state- run Xinhua News Agency.
Economic Growth Outlook

“China is no longer able to rely on massive investment in infrastructure building to stimulate the economy,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “Tax cuts are unavoidable.”

The nation’s economic growth may “hit its bottom” in the first and second quarters next year, China Securities Journal reported, citing Ba Shusong, a researcher at the State Council’s Development Research Center. There may be moderate rebound in the third and fourth quarter and growth may be more than 8 percent next year, it said.

If China does falter it may well take some of the steam out of our hotter market segments. Richmond has already started waning and the Westside is losing some of it's frenzied HAM bidders, but West Van is still attracting big number buys.

Though I see some homes have dropped 500k or $1m from original asking. Sooo.... how does the Realtor come up with the selling price , when such huge price drops occur soon after listing. It is crazy really. No other item has such bizarre pricing metrics. When a buyer comes and views a house, they probably think there was formula that the seller or agent used to come up with the price.

Instead it may just be the number the agent used to get the listing or the wishful fantasy of the seller!

Saturday, December 10, 2011

A few thoughts

Here is the HPI for Vancouver

As you can see some areas are already fraying, eg the Sunshine Coast which is down 11% from 3 years ago and nearly 3% from 5 years ago. That means someone who bought with cash would be down 3% + five years of inflation..say 12%= 15% in real terms.

Big, leveraged purchases that drop in value really hurt!

Here is the site

Here are the numbers from the REBGV


Greater Vancouver$890,2041.4$890,561262.911.433.637.5
Maple Ridge$448,3153.4$448,564204.
New Westminster$683,5034.2$659,143281.713.526.733.0
North Vancouver$985,7312.9$970,670246.211.031.726.3
Pitt Meadows$520,4169.0$523,738213.6-0.67.521.5
Port Coquitlam$581,5025.1$554,671245.85.212.921.4
Port Moody$751,34515.4$768,754225.94.429.817.4
South Delta$686,4304.9$718,209224.311.221.019.8
Sunshine Coast$374,5027.1$399,287213.1-6.7-11.2-2.7
Vancouver East$863,1832.4$853,701292.415.942.646.3
Vancouver West$2,019,9262.7$2,019,783335.218.981.081.5
West Vancouver$1,759,6164.2$1,723,444259.223.937.146.4
December is a quiet month. No one lists near Christmas unless they are desperate, however people still buy to get a new place for the New Year, so stats may be skewed to a high sales/list ration. January will tell the tale.

When we look at Larry's average price chart, it looks like we are in a consolidation period like a mini 2008. This could resolve up or down. I have no idea.

We could get another run up if the Bank of Canada cuts rates and the Federal government loses it's nerve again and pumps up the CMHC monster again, despite all the recent rhetoric, or if the HAM money comes in ever bigger amounts perhaps driven by fear of political uncertainty at home.

However, just as easily, we could see it drop down and if so it could be quite precipitous. It is far too tough to call, we will have to wait for the data.

What we do know there have been some major price drops in Victoria, the Sunshine Coast and the Okanagan. The Fraser Valley is flat. Vancouver is the last domino to fall (or not!)