Must listen to...

Garth Turner on the Howe Street channel.


How we got here and how it is changing big-time!


For those who think 'we are different'. Garth explains the situation where banks gave cash-back mortgages...ie they gave someone with no skin in the game, the 5% deposit and the CMHC (tax-payer) insured the other 95%!


So no incentive for the lending institution to be sensible since they are throwing the risk right at the CMHC. The mortgage broker gets a commission IF the deal is done, not for being cautious. The bank manager builds up his book. The CMHC gets to pump up it's chest and the buyer, seller and realtor are all happy.


So who loses? We all do, when this ponzi scheme come apart.

Who's fault is it that the` volume and price of homes fell in Canada last month?

Not Flaherty's- he hadn't brought in his mortgage changes yet.


Vancouver- according to Sherry Cooper it's our fault. We brought the class average down. Sorry, I know some of you find her voice grating :


Bad little old Vancouver


But don't worry too much. This is not the US for goodness sake. They had much more lax lending than us. We only had a few Billion HELOC here and a few Hundred Billion high-risk mortgages insured there.


Oh and of course we won't worry that our per capita debt is now at their pre-bust levels.


And we know why we are having a bad time in lotusland. Not enough Chinese money washing ashore this year:


Hat tip Best place on Meth  The video shows the invasion of money slowed to a trickle,  however we do know that the Chinese Government is loosening the spigots a bit, so we may have a few more Government officials on 50K salaries buying $2M westside homes :)

Very few buys but big sticker's

Volume has really ground to a halt, despite talk on the media of buyers diving in to beat the changes in the mortgage rules which come into effect this Sunday.


Maybe we will see a huge spike in the sales numbers on Monday as last minute buys hit the MLS or maybe buyers have had their epiphany.


Maybe they realised that if they cannot afford to buy a house at the lowest ever interest rates, rigged with Tax-payer insurance for their default, with just a 5 year change in amortization period from 30 to 25 - then they shouldn't buy it!


In any case some lenders started implementing the changes sooner than July 8th .


Meanwhile the really big money, not concerned by questions of CMHC insurance is still buying.


eg West Van has 7 new SFH listings yesterday, 3 price changes and just one sale, a remarkable $3.3 Million under the original asking price! However the sale price was still $8.08 Million.


That sort of huge number will distort the median and average prices up when over-all volume is so low. There was another high ticket sale on the Westside with anemic sales too.


So we will get some skewing in the prices as the lower end (which is now about one MILLION dollars!) pulls back, while big local, Albertan and off-shore money can still buy the upper end. None of this will change the trajectory, but low volumes have this effect.

FVREB and REBGV Stats Package

FVREB


Sales down 9% YOY. Listings up 5% YOY. MOI over 7. YOY HPI - flat apartments and flat attachment, but SFH up 3.6%. Gotta love that HPI secret sauce, it keeps giving and giving.


Here are the numbers


REBGV


Wording changed to 'buyer's market!'
27.6% less sales that last year. 32.2% below June average.
3% less listings than last June.
List to sales of 13% worse than the FV! (FV is nearer fair value than Vancouver FWIW)
MOI nearer 8 than 7.
Benchmark SFH increased 3.3% YOY. Flat Apartments. Flat Attached. There's that HPI/ Benchmark again. Terrible stats. Average at 2010 levels and yet the HPI for SFH will not go down. The secret sauce that is sooo good, like KFC. Down ask what's in it, just enjoy it.


Here is the stats package. Thanks to VMD who up-loaded it to google.


Two Realtors were on the CBC radio afternoon show discussing the terrible stats for June. One said that it was the media that were whipping negative things up- what?! Our 'Newsapers' are little more than advertising rags pumping the RE industry.


The other one said that anyone who buys now and intends to stay put for five years will be ahead. Well lets look at the HPI for 5 years. We are still very near the top of the bubble, even so the 5 year HPI is negative for the following areas:


SFH-


Whistler, Sunshine Coast and Bowen Island


Apartments-


Burnaby East (-7%), Maple Ridge (-10.8%), Pitt Meadows ( -11.8%), Port Coquitlam and Port Moody, Squamish and West Vancouver.


Attached-


Maple Ridge, Pitt Meadows.


If we continue with negative growth over 5 years and we know that  renting is cheaper than buying, often a lot cheaper, then being ahead over five years is not a sure thing by any means.

We did it

Look at Larry's graph, it shows we did break the previous lows for SFH average prices.


I think this will have a significant effect on RE psychology in this bubble city. 


Expect a rear-guard defence from the RE interests claiming that this is a buying opportunity and when that fails that RE must be supported or we will be in economic trouble (which we could well be). 


Finally, Bears will be blamed as lacking civic responsibility for wishing the demise of the RE bubble. As if wishes have anything to do with it. To be honest these bogs have very little effect on the market, despite all the words and time we expend on them over the years. They have almost no effect compared with the ill-thought out actions of doubling the CMHC cap or dropping rates to near zero.


 Have a great Canada day!

On the Cusp

Take a look at the REBGV Average Price Chart.


It is the same as Larry Yatter's, except Larry comes out with his much sooner.


Well we are at a crucial point IMVHO. We had a nice double top in 2011 which matched the 2010 top. Now what will June's numbers bring. If we break decisively below the bottoms of 2010 and 2011, I think the mood will change in RE in this town and we will be in a correction mode.


We are in a different environment from the bottoms of 2010 and 2011. The Government has come to it's senses and reined in the CMHC's excesses, we have a slow-down in China, a recognition that buy and dump by off-shore money and out of Province money for that matter, is a bad thing (though no one knows what to do about it), a resource sector that has come under pressure- but still rock bottom interest rates.


If interest rates had gone up too, we would be facing a cliff drop, which we do not want. That would take the Province and City into a tail-spin and would bring more ill-thought action from the politicians responding to the pain of the home-owners. 


We want a gradual and sensible correction. at least of us who don't want to see our friends, neighbours and Government in severe financial stress.


Of course the market cares little about what we want, and will take it's own course. 


We will know in a few days.


Happy Canada Day!

A Response to the Mortgage Industry and those who think Flaherty's actions were Foolish.

There are some who are already starting to blame Flaherty for the housing correction- even though it started a year ago in Vancouver and has not yet started in Toronto. The complaints from the mortgage industry over his efforts to tighten lending have been very loud. The reply to these complaints is a simple one.


John Hussman, a first rate money manager, had it in in his recent commentary. It actually came from Angela Merkel, the Prime Minister of Germany and one of the few politicians who 'gets it'.

German Chancellor Angela Merkel explained the entire situation in five words: "Liability and control belong together." This is a profound phrase, because it also summarizes how the U.S. got into the housing crisis - the government deregulated the banking system and abdicated proper control, while still assuming the liability through deposit insurance and other government backstops. Liability without control leads to disaster.

It is an obvious concept. If you accept liability for a transaction, you must also have full control over it. To put it simply, if you agreed to co-sign for a friend/ sibling etc on their mortgage, you would want to set the term, watch his/her finances carefully, make sure they paid in time so forth.

What the US had which was such a catastrophe for them, was a deregulated lending market ; zero down, money back, teaser rates, document-lite loans etc and yet the Government was taking all the hits via Fannie and Freddie.

This has been one of the major flaws of the current market driven, deregulation capitalism that we have, but I will discuss that further in another post. 

We had exactly the same situation in Canada. The banks and lenders were getting ever more 'imaginative' to get people into over-priced housing and passing the risk onto the Government.

Rather late in the game Flaherty has realised that to transfer the liability to the tax-payer he MUST exercise some control. Maybe he understood what Angela said. Of course there are people complaining. Some are calling it a folly. Where does it say in the Charter of Rights, that we have a right to borrow more than a sensible lender would lend us WITHOUT tax-payer insurance??

Where does it say that you have a right to buy your high leverage multimillion dollar house and if you default the tax-payer, many of whom have decided to rent and live more modest and prudent lives, have to pick up the tab?

To the mortgage industry I would say, I understand your anger and concern, but you have had over a decade of excellent returns even as the risk to Canadians and the Government has become more precarious.

Eventually everyone who feeds from the public trough has to pull away (or be pulled away) some time.   Some very wealthy doctors in Ontario are learning that, civil servants in Ottawa are learning that and others will in due course.