Disappointed with the CBC

This morning The Current on the CBC ran a piece on the Housing Bubble and the warnings from the OECD and Carney, the changes from Flaherty and the OSFI proposals.

It is here if you would like to listen to it.

Here is the disappointing part- the panel. Sherry Cooper, a media-savvy bank economist, the head of a mortgage broker's association, and a realtor! Where is the balance??

Where is David Madani, how about Ben Rabidoux even Garth Turner?!

If you are going to ask such a one-sided panel, why not just bring on the board of the CMHC and ask them what they think about it?

First, Sherry (God her voice grates on me) says the 1 TRILLION in mortgage debt the Canadian banks hold is not a big deal as the highly leveraged stuff has been insured by the CMHC, then she dismisses the calls from the OECD for higher rates.

Did she forecast the US housing bubble and subsequent collapse? If so, we should listen to her, if not...

The other two had their expected pro-RE positions. Toronto keeps marching along, one of them said gleefully, not understanding that they are marching over the abyss.

Actually the panel were not as partisan as they could have been. I think even the RE-ra-ra movement realizes that we are dealing with fire here. Fire that could very easily consume us all, and they are trying to sound responsible, least they be held resposnible for what follows.

been a while

Sorry for the lack of posts. We are all waiting to see if the higher inventory and lower sales keep putting pressure on prices.

Another unequivical drop in average prices would be nice. Nothing too dramatic, just a few %. Enough to give the prudent some heart and put fear in the stomach's of the speculators but still stop the politicians from 'doing something'.

Here are some numbers for you. They are SFH from April 23- May 23rd. Even if we assume some sales are still to be loaded on the system, I think they show the lay-of-the land pretty well.

Sales/inventory (SFH)

Maple Ridge: 68/715
New West: 23/110
Sunshine Coast 28/669
Squamish 10/222 !
West Van: 58/518
N. Van 109/393
Surrey 238/2309
Abbotsford 66/840
Van West 105/1043

Local Taxes and then some..

Local property taxes are a confusing morass. When property prices rise, the assessed value rises and people think that their taxes go up because of that.

Well they do and they don't.

Lets remember how they assess the property taxes...

BC Assessment Authority estimates the value of your home supposedly compared to equivilent properties that recently sold. The municipality then multiplies this by the tax level eg 0.4% or 1% is mutiplied by the home value and you have the tax payable. Here is a typical schedule of assessment for a municipality, in this case Surrey.

So of course if the value of the property goes up the amount payable goes up.

However even if property prices fall, unless they cut services, the municipalites need the money to pay for the garbage and policing and rec centres and so they would just have to increase the level of taxable rate to make up for the fall in property prices.

Here is a nifty calclator for the whole of the GVR.

Of course when property prices are rising, the municipalities should be lowering the tax rate and giving home owners a break. But human nautre being what it is, when property prices go up, the municipalities get flush with cash and build shiney rec centres and new infrastructure projects and when prices start going down, they wonder how to fund them and have to raise the taxable rate.

There are ways of reducing the property taxes with a home-owner grant and additional grants if you are over 65 or disabled.

Some municipalities also allow the over 65 and disabled to defer property taxes until the property is sold, a very noble proposition, except I have seen very wealthy seniors getting grants and deferring while a working family struggles to pay their share.

Remember that big recession that was going on somewhere else...

In the US and in Europe where they were sooo irresponsible - where they spent more than they made and let their house prices run away to extreme levels...ha ha... fools.


We had solid banks, a great Finance Minister and an even better Bank of Canada Govenor. We had China. We had things people need like gold and water and wheat and copper, we would never catch the Great Recession.


Well it's here!


The TSX peaked in early 2011 and it is down, down down from there.


China is not happy and looks to be backing off it's 15 year run of hitting Blackjack again and again. 


Our housing markets are at all time highs of lack of affordability,  our household debt has surpassed the spend-and-live-for-today Americans when interest rates are at all time lows. 


We have let a quasi-government outfit run by a very mediocre board run up a huge mountain of liability with inadequate over-sight and risk control (IMF's words - not mine)- I cannot even bear to type their name..


..and if it hits the fan...we cannot cut rates, coz they are already near enough zero, we cannot boost spending coz the Provinces are already laden to the gills with debt and some are having trouble selling their bonds - the biggest two that's who, and coming to a Province near us soon. The Fed's deficit is becoming 'structural' too, which means they are here to stay and any significant downward pressure on house prices will wipe out the CMHC's equity and the Fed's piggy bank will get raided.


In short, we have brought upon ourselves, the very thing we were chiding others for doing. 


But if you believe this guy, there is nothing to worry about.

A Slow Motion Crash?

That would be OK? It would stop the IQ-Challenged politicians from intervening, though they have probably led us into a land-of-no return with ZIRP and the CMHC and unregulated, lax bank lending, and the other gimmicks that helped fuel this fire.


From Today's Globe and Mail:

Vancouver’s real estate swoon deepens

PAUL WALDIE AND  TAVIA GRANT

From Wednesday's Globe and Mail

Published Tuesday, May. 15, 2012 9:17AM EDT

Last updated Tuesday, May. 15, 2012 7:44PM EDT

Deja Vu all over again...

Fannie Mae CEO 2007:

"We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.

September 7th 2008: Fannie Mae is placed into Government Conservatorship. 

From Wiki:
The law enabling expanded regulatory authority over Fannie Mae and Freddie Mac increased the national debt ceiling US$ 800 billion, to a total of US$ 10.7 Trillion in anticipation of the potential need for the Treasury to have the flexibility to support the federal home loan banks. 


So far the Congressional Budget office estimates that $300 Billion of support has been given to the two agencies by tax-payers.


CMHC May 2012:


“CMHC follows prudential regulations as set out by the Office of the Superintendent of Financial Institutions, with CMHC maintaining more than twice the minimum capital required by OSFI,” it said. “As a result, CMHC is well positioned to weather possible severe economic scenarios.”



It pointed out the agency “manages its mortgage loan insurance and securitization guarantee operations using sound business practices that ensure commercial viability without having to rely on the government of Canada for support.”

Are you reassured now?

Great write up of the mess we are in...

From here, which BTW , is a great site for investing your RE savings pile in preferred shares.

The CMHC Annual Report is out. Of particular interest is the table of 5-year financial highlights on page 98 of the PDF … in 2007, there was $345-billion of insurance in force; at the end of fiscal 2011, there is $567-billion. Thanks for inflating the bubble and subsidizing your pals at the banks, guys! To put the figure in perspective, consider this factoid from the Canadian Housing Observer 2011, Chapter 4:

With a contribution of about $330 billion to the Canadian economy, housing-related spending accounted for 20.3% of GDP in 2010, up from 20.1% in 2009.

Gee, it sure is a good thing we’re so much better regulated than those dumb old Americans, eh?
Meanwhile an unfootnoted citation by the G&M states:

CMHC estimates that roughly 25 per cent of condominiums in the Greater Toronto Area are sold but sitting vacant — shades of Miami at the height of its collapsed condo bubble in 2007. Other analysts say the 25 per cent figure may be too low.

Nope, no bubble at all, no sir! Not with Spend-Every-Penny keeping a firm hand at the tiller! For anecdotal support for the phenomenon, try driving along the Gardiner and looking at all the see-through condominiums that now line it. However, if you are driving, DO NOT make notes while discussing your findings on your cell ‘phone! Remember, Smokey the Bear says “Only you can prevent forest fires!”