Thursday, September 27, 2007

It's a made in Canada problem! Y2ThisTimeIt'sDifferent

In case you've been under a rock today, the credit crunch has hit home in a big way.

Good thing the federal government reports an incredible $14.2 Billion surplus, because they're going to need it to bail out NavCan and CMHC who carry their fair share of ABCP exposure.

So what's to blame? It seems unlike our American cousins who just lent money to anything with a pulse, we in Canada just lent willy-nilly to any business with a pulse with our LAX REGULATORY REGIME. What does this mean?

It won't be just individuals who lose their shirts and homes, it will be businesses and their employees who lose their shirts, cars and homes. On what sort of scale remains to be seen.

The National Post has this account:
"It's a made-in-Canada problem," said Claude Lamoureux, head of Ontario Teachers' Pension Plan. Many people in the market "didn't know or didn't ask questions" because they were making more profits than elsewhere, he added.

In Canada, the market grew more quickly than in other countries, doubling between 2000 and 2007 to $120-billion, because the Canadian definition of disruption to the market was much narrower than elsewhere.

Mr. Smith calculated that Canada's big six banks are on the hook for total liquidity facilities worth $135-billion.
$135 Billion is about ten year's worth of profit for the big six, combined. Wow.

The more I read, the more I realize just how big and unstable this deck of cards is. All it's going to take is someone to get a bit jumpy, stop cooperating with their counterparts in other organizations, cut losses and run for this thing to get ugly real fast.

With all the recent talk of the Conservatives engineering their own defeat around the Throne Speech and heading into a fall election makes me believe they know this is going to get ugly real fast and they don't want to go down with the ship they didn't build.

17 comments:

vg said...

$135 billion !! that is unreal that Canada could be so asleep at the wheel. Who was driving this ship ? Where was Dodge and all these know everything economists ? This will be most interesting to see how this plays out and who starts the blame game.

Village said...

Don't panic. If you are going to panic, panic first!

This public safety announcement brought to you by the Village Idiot. =)

olives said...

Mike Shedlock's blog has a post today called "Global Credit Crisis Canadian Style".

Anonymous said...

Please post Mike's site, Olives. thanks

hhv said...

I'll link it in the blogroll

oh please said...

Mish's blog is here

vg said...

"Condominiums are hot buys and will only get hotter," she said, noting relatively cheap mortgages and affordable price points for first timers."

The mortgage rates are the same as 2000 at 6-7% for a 5 year. Did someone not tell this person that credit lending rules have just tightened in the last 2 weeks ?



"Baby boomers are showing no signs of slowing down as they upgrade to higher-end condominiums or purchase a (studio residence) in addition to having another home in another city."

I thought we put to bed the myth that Albertans were flocking here still and it was only 10% at best and that was up island ?


This is the last ditch effort to pump the market. The sentiment has only been changing the last few weeks as we see the lowering of prices that we see daily. These pumpers wrote this report over a month ago before releasing it and is full of propaganda. Wait til the next two months of sales and prices come out,the trend is beginning to change.

Roger said...

HHV

We are coming to month end for real estate sales and I have an idea for a topic.

Will condos lead the way in Victoria's real estate correction?

What sparked me on this one was this total claptrap in the TC.

B.C.'s house sales will stay strong, real estate group predicts

http://tinyurl.com/ysa7yz

In Victoria, condominiums were in heavy demand as first-time buyers priced out of single-family homes jumped into the sector. Judy Gage, president of Royal LePage Coast Capital Realty, said although there has been an increase in inventory in the third quarter, multiple offers still exist when properties are competitively priced.

"Condominiums are hot buys and will only get hotter," she said, noting relatively cheap mortgages and affordable price points for first timers. "Baby boomers are showing no signs of slowing down as they upgrade to higher-end condominiums or purchase a (studio residence) in addition to having another home in another city."


All you have to do is look at the state of the condo market in Victoria for 5 minutes and you will come to a different conclusion.

Here is a quote from VREB 3 weeks ago:

The average price for all condominiums sold in August was $298,852; the average for the last six months was $313,852. The median was again lower at $275,000.

Take a look at VREB's own graph of average prices:

www.vreb.org/pdf/vrebgap.pdf


Yea the condo market is hot - buy one of the new buildings and you will get burned badly!!

olives said...

A friend of mine today told me she is buying a house (as a first time buyer) and is going to fix it up and live in it for a few years and make some money. Ugh....

HADENOUGH said...

This just came out of the Globe and Mail on how house prices are declining.

http://www.reportonbusiness.com/servlet/story/RTGAM.20070928.whomesales092

vg said...

thanks hadenough,

so now we have a case where the biased pump machine comes out with egg on it's face. This a HUGE statistic, the LARGEST one month decline in 4 years :

TORONTO — The number of resale homes sold in Canada dropped 4.1 per cent in August compared with July - the largest month-over-month decline in nearly four years as soaring prices kept more potential buyers on the sidelines.

Anonymous said...

interesting Olives...my Victoria market anecdote for the week is that I spoke with a friend who confided that they had fabricated information to get their current mortgage!

olives said...

Anon,
I'm sure there's a lot of that these days.

My friend is putting in the offer tomorrow, but I am secretly hoping her financing won't go through (for her sake).

Roger said...

No need to verify your income when you use this Canadian Mortgage broker

www.mynext.com/myAccessible.shtml

Quote from the site:

A mortgage that doesn't require you to verify your income; just tell us what you earn. A much simpler process, especially if your taxable income is not an indicator of your ability to carry a mortgage.

Other interesting tidbits:

www.canadianmortgagetrends.com

Reliant Home Mortgage has suspended it's 55-year amortized mortgage due to financing challenges brought on by the subprime lending crisis.

Canada will have $800 billion of mortgages outstanding this year.

Subprime loan volume will more than double in Canada within 5 years, to almost $70 billion. Canada's subprime markets consists mostly of high-ratio uninsured mortgages. In other words, most subprime borrowers put down less than 20% and don't qualify for mortgage default insurance (from CMHC, Genworth, etc.).

When will U.S. subprime woes end? Ivan Wahl, Chairman of Xceed Mortgage, says we're "only 1/4 of the way through (interest rate) resetting in the U.S." That means a lot more defaults are on their way.

Anonymous said...

What? Again the term subprime in Canada rears it's ugly head. No, no, no. Don't you remember? We are different than the States.

Yes, we think that the fall will start in new condos (if it hasn't already :)).

S2

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