Too late..

Front page article in the Globe and mail which is worth reading. In fact, IMVHO, the Globe is the only national paper worth reading- the other one is very good for putting under your muddy boots after a good hike.

OK, so the article tells us that debt levels are reaching such high levels that the government may need to intervene to keep 'marginal buyers' OUT of the housing market.

It also says that people are so deep in debt from getting into housing, that hundreds of thousands they are:

1) In a precarious debt position and any rise in rates would put them in peril

2) they are cutting back on other spending.

Isn't this what us bears have been saying for two years!! Where has the OECD and other great economist been when these policy decisions were being made?

Ok folks there is so much here, I don't know where to begin!

Lets go back to 2007, the US housing market implodes and through 2007 and 2008, banks collapse and all the casinos on Wall Street like Lehman and Bear Stern, Merrill followed.

The world hit the wall and capitalism (at least this ponzi form of it perfected in Wall Street) was about to end. We were fairly ok, because we had tighter lending standards and 'marginal buyers' were kept out.

So how did we deal with the problem?

Drop rates to zero, double the CMHC lending capacity - bring in the marginal buyers and become like the US!!

WTF! Of course it worked for a short time. It pushed up housing prices, and instead of punishing speculation, it rewarded it and taught people in a Pavlovian way that they were stupid to be cautious and careful and should have jumped on that little blip down in housing.

Our house prices went through the roof (sorry) everywhere- from SK to Ont to BC, and everyone felt rich again (at least the 60%+ of families that owned) and many borrowed on this new wealth.

Those that bought in the last year, have often mortgaged their molars to get into this market.

Housing is not a very productive way to stimulate the economy-it is quick and lazy and requires little planning - unlike good technological investments, or good infrastructure projects (not just the make-work stuff that we see happening too often). You cant export too much housing- some of it you can via off-shore buyers- but it does not generate long-term wealth if it is not anchored in rising rents and incomes.

The US experience should have made that blindingly obvious.

What about pulling in the marginal buyer now? Well like the horse that is running free outside of it's stable, the debt has already been piled on to the rafters. Any drop in housing will send the 'marginal buyers' into default.

Too late. Too late.

Bet you didn't know this...

Neither did I until recently.

If you pay or collect rent as agent for some one who is a non-resident, YOU are obliged to deduct 25% and send it to Revenue Canada!

At least that's what someone told me and that's what it seems to state HERE.

I am certainly no tax expert - but I do know of people collecting rent and managing apartments who may not know this. One is doing it for a buddy who has gone to Singapore for a few years.

If you file a special form, you can reduce the 25% deduction from Gross rent to Net rent (which I guess is after strata and expenses and property taxes), but you have to file a tax return for the year.

Like I said I am not a tax expert by any means, but if you know of someone either paying rent to someone who has moved or lives elsewhere or is managing their property, send them the link above, as they should get professional advice.

Ignorance of the law is not a defense.

Here it is in full:

International and Non-resident taxes > Common Topics > Rental income and non-resident tax


Filing and reporting requirements When you receive rental income from real property in Canada, the payer, such as the tenant or a property manager, has to withhold non-resident tax at the rate of 25% on the gross rental income paid or credited to you. The payer has to send the tax to the CRA on or before the 15th day of the month following the month the rental income is paid or credited to you.

The payer has to give you two copies of an NR4 slip showing the gross amount of rental income paid or credited to you during the year, and the amount of non-resident tax withheld. The payer also has to send us an NR4 return, as explained in Guide T4061, NR4 - Non Resident Tax Withholding, Remitting, and Reporting.

Generally, the non-resident tax withheld is considered your final tax obligation to Canada on the rental income. However, if you elect under section 216 of the Income Tax Act, you may pay less tax, and you may also receive a refund of some or all of the non-resident tax withheld. For more information, see Guide T4144, Income Tax Guide for Electing Under Section 216.

If you intend to elect under section 216, you may also want to consider having non-resident tax withheld on the net rental income instead of the gross amount. To do this, you and your agent (a resident of Canada who acts on your behalf regarding your Canadian rental income) have to complete Form NR6, Undertaking to File an Income Tax Return by a Non Resident Receiving Rent From Real Property or Receiving a Timber Royalty, and send it to us for approval.

If we approve your Form NR6, your agent has to withhold non resident tax at the rate of 25% on your net rental income (i.e., the amount of rental income available after the rental expenses have been paid). Your agent must send us the tax on or before the 15th day of the month following the month the rental income is paid or credited to you. If we approve your Form NR6, you must also file a section 216 income tax return for that year, even if you have no tax payable or you are not expecting a refund.

You should send us Form NR6 on or before January each year, or before the first rental payment is due. For more information, read the Important reminder about Form NR6, and see Guide T4144

Okanagan

Sorry Chad. I know it is outside of Vancouver.

Over-all for the whole OK- 455 sales and 9897 listings = 21 MOI

Actually a few more sales than July, but high MOI and the prices!

Here are the stats for the Central OK.

Look at page 9. Prices are flat compared to last year to down for all categories except apartments. As expected lots and bare land got hit hard as specumoney came off the bid.

It is a small sample and I always have trouble following all the stats in these packages, as the focus always seem to be total dollar volume of sales and not the HPI or prices. The North Okanagan and Shuswap look similar.

More bear fodder...

The Sunshine Coast has been weak for the last two years and prices have gone nowhere.

Here are the numbers and charts.

Detached prices are actually DOWN 9% over the last 3 years and UP 15.9% for the last five years - which is probably no more than inflation.

Fraser Valley is now sitting at 10 MOI too. The areas outside of Vancouver like the FVREB, Okanagan, Sunshine Coast and Vancouver Island, struggled to recover from the 2008 crash. They are now showing increasing weakness. If we think the price/income ratio is out of whack for Vancouver- then it was really out of whack for many of these areas.

Incomes are lower, they don't have the benefit of wealthy migrants (except for the OK and Albertans and retirees coming from the East)- so they were more vulnerable, where-as it is very possible that Vancouver will be buoyed by higher income and the influx of money for longer.

Of course any weakening in Vancouver will damage the periphery even more-since many used their new found RE wealth to borrow against and buy a second home/ cottage/condo (just like the US!) or sold and moved and put a nice chunk in the bank.

Vivat Regina!

I had to put up another picture of this fine lady, she was such a happy, photogenic historical figure :)

Well Victoria now has RE price graphs that would make a bear growl with delight.

Cast your eyes over these babies

..and they have 10.5 MOI

Clearly sanity has returned to the Victoria market. Lets hope it crosses the Georgia Straights.

"We are not amused".

HPI is OUT- No change

GREATER VANCOUVER

For all Residential properties:

August 2010 HPI r - $576,597

July 2010 HPI - $ 577,076

All time high HPI April 2010: $593,419

For Detached:

August 2010 $795,076.

July 2010 $793,193

For Apartments:

August 2010 HPI $385,968

July 2010 HPI $387,879

For Attached:

August 2010 HPI $489,511.

July 2010 HPI $490,995.

All changes are +/- 1% ie well within the error of sampling and modelling. We can say with confidence that House Prices in Greater Vancouver were flat from July 2010 to August 2010. At least we have moved from option 3 in my previous post to option 2).

MOI is 7

Now lets see what higher MOI brings us.

Vancouver the Surreal City

Larry is out first with the Average Price again- kudos.

I usually put his chart on my blog (with his permission). However I cannot do it this time. My stomach wont let me. We suspected that prices were strong. Well answer this students of economy 101

Imagine you have something to sell and the inventory in the market place, from the previous month, is up over 20% and the sales are down nearly 40%, what should happen to the price:

1) Go down sharply

2) Stay flat

3) Go up!

Of course the right answer and the one which will give you the course credit is 1) but in fact what has happened is 3)!

We are now back up to our all time average price in detached (though condos fell). I am not going to try and explain it away for you, yes it could be higher end buyers are still buying while everyone else has dropped out of the market.

I will just suggest that state of affairs cannot continue. We will either have to have more buyers coming in to the market soon, or the price will take a sharp down-turn.

If I am wrong and September shows less sales, more inventory and higher prices...I will close the blog down because there is no point commenting on an irrational market.

After all our huffing and puffing above, we may actually see the HPI come down for August. For that we have to wait for the GVREB numbers.