Headlines you won't see in the TC

What a joke the Times Colonist has become. After weeks of being scooped by the G&M on the Bear Mountain story, the TC get's it in the kiester again:

A $6.74-million chunk of prime real estate that was once slated for an upscale condominium tower known as Soaring Peaks at Bear Mountain Resort near Victoria was sold to the municipality of Langford yesterday for just $350,000.

If this isn't front page news in Victoria, I don't know what is. Oh, wait, apparently it's Wendy the Whippet.

Bear Mountain is crumbling. The TC wants you to read about a celebrity dog.

Nothing could be better confirmation that advertising makes the news in the TC. Pathetic.

Canada's proactive bank bailout

And they said we are different here. Of course, they were right: we bail our banks out before they need to be. Apparently, the proactive bail out program will continue:

The banking industry has been pressing the Finance Minister to extend the length of the program because they continue to benefit from it and because there is still the possibility that liquidity pressures could re-emerge.

I think we should make no mistakes about what is happening here. It is very clear that mortgage holders don't want to be lending at today's rates. There is tremendous risk for lenders with home ownership rates at all time highs, home prices at all time highs and interest rates at their lowest in history. There is no wiggle room, the banks would usually price in the risk with higher interest rates, but because they know if they did that, market prices would fall, they don't want to. Thankfully, they have the Canadian taxpayer.

I'd write more, but I came across a piece of writing that has already summed up the issue better than I can:

True, Canadian banks have avoided some of the sillier extremes, particularly those related to off-balance sheet leverage. But the key problem in Canada is precisely the same as it is in the other western countries now experiencing bank solvency crises. Home prices have grown to an abnormally high multiple of employment income, supported by a rapid expansion in mortgage debt.

The key difference between Canada and other markets is that in Canada the cost of bad home loans have been socialized in advance. In Canada, we didn’t need to disguise our sub-prime excesses within dubious mortgage-backed securities. Why create an alphabet soup of bogus AAA paper when our government provides seemingly limitless quantities of underpriced mortgage insurance? As a formula for creating housing froth it has been virtually unbeatable. Housing markets may be cratering throughout the world, yet one observes a perverse new high in Canadian real estate prices in May of 2009.

The key to Canada’s bubbly housing success been the CMHC . The Canada Mortgage and Housing Corporation writes guarantees on most Canadian mortgages originated at greater than 80% Loan-to-Value. This agency has been on a massive expansion binge of late. In 2008, a year of synchronized global recession, the CMHC expanded its mortgage insurance in force by a whopping 18%. CMHC now guarantees $407.7 Billion of high loan-to-value mortgages and an additional $233.9 Billion of securitized mortgages.

In all, the CMHC mortgage guarantees are equal to slightly more than half of Canada’s GDP. Against this total, CMHC has miniscule equity capital of $8.1 Billion. How is it that more than $630 Billion of dodgy mortgages can be guaranteed by an entity posting just over 1% in equity? This is a question that curiously appears to have escaped the notice of Canada’s top notch financial regulators.

The role of the Canadian banks has been to commit capital to CMHC-insured mortgages as quickly as they receive applications. It is not mortgage lending in the traditional sense, more like underwriting government bonds and taking a 150 basis point spread as compensation. In this way, the Canadian real-estate bubble looks a lot like its American cousin. Home loans are being written for those who likely cannot pay by lenders who pass through the credit risk to a third party. However, in the case of Canada, the third party is our own government and not the Chinese or Saudis who snapped up American mortgage paper.

All of the above was quoted word for word from Geoff Castle's blog. The comments over there, on this post anyway, seem to be very intelligent. Discuss away here if you'd like.

This buying boom makes no sense

Even to some of Canada's so-called real estate experts. An interesting article appeared yesterday in the Financial Post that quoted a survey of some real estate agents. I question the validity of the agents equals experts assumptions being made here, but none-the-less it provides some interesting insights into the opinion formation of one group of so-called real estate experts.

As always with national surveys, it's difficult to glean any local relevance, in terms of hard data or fact for those of us who place import on such things. But that said, from knowledge of past national surveys and hard local data, I'd say its safe to assume that applied in Victoria, the answers to these questions become more firm. As in more agents would believe these statements than in other parts of the nation--as a group, they've drunk deep from the fountain of real estate "truth" and therefore have more firm belief; if real estate were a religion, and agents were its prophets, Victoria's agents would likely be classified as fundamentalists. Of course, there are exceptions to that rule.

Here's the highlights (emphasis mine, paraphrased etc):

• Even the real estate industry in Canada is having a hard time swallowing the complete turnaround in the housing market (a dubious claim based not on hard evidence)
  
• A new survey from Royal LePage Real Estate Services Ltd. found more than a quarter of its agents do not believe the housing market's current strength is sustainable
• 61% of agents surveyed believe the market is sustainable
• 28% don't and another 11% didn't know
• 36% of agents who believe the market is unsustainable say the recovery will end with interest rates climbing, which they say is inevitable
• Another 20% of that group says there is no job/income growth to sustain prices
• Overall, 66% of those surveyed said low interest rates were the number one reason behind the recent strength of the housing market. No other category even got a double digit response.
• Of course, Phil Soper sees sustainability, as he's ever the eternal optimist

Those numbers really are remarkable given the headline "Even Canada's real estate industry questions housing turnaround."

What I read was few agents cared enough to understand the reason why the market shifted so dramatically so swiftly. After all, the majority feel the market is sustainable. Only 28% don't. I'd wager the 11% of "don't knows" are really the 11% of agents making 60% of the commissions--they don't care, because they sell houses in all market conditions and make lots of money doing it too.

I don't think we should give any weight to this kind of survey. To quote Jim Sutherland in BC Business magazine:

Anyone who’s read a real estate article or two will be familiar with the oft-quoted usual suspects: developers, realtors, condo marketers, economists working for banks, real estate companies and government agencies. Undeniably these are well-qualified people who know a great deal about the subject. Most of them even work in the field, and of course anyone who’s ever held a job knows what “work” means. Between reports, secondments, committee meetings, ancillary projects, emails, phone calls, lunch dates and farewell gatherings in the boardroom, if these experts spend two or three hours a week thinking and writing about real estate, they’re performing some kind of magic. No wonder so many of them were caught flat-footed by last year’s sudden downturn, then blindsided again when things picked up this spring.

In other words, for all their so-called expert status, they really don't spend much time establishing credibility for their opinions.

August numbers

Preliminary numbers are out via @TimAyres on Twitter. Confirmed now on VREB too.

Total sales: 764

New Listings: 1094

Total Active Listings: 3509

Sales to new listings ratio: 70%

Sales to active listings ratio: 22%

MOM volume change: -19%

YOY SFH price change: +8%

Highlights from the spin cycle, er presser:

• it is usual for sales to slow in August
• the average price was affected by 17 sales of over $1 million... included two sales of over $4 million
• The median price increased $20,000 to $540,000
• Sales so far this year are running over six per cent higher than in the first eight months of last year

Once again, trends tell the story. And the story is sales and listings volumes are declining, as they always do, but the sales to new listings ratio is actually climbing, keeping prices on a flat line for the time being.

Expect in about 3 hours time, the TC will run a headline like: Prices, Volumes Jump in August: Buy now or be priced out forever.

But they should be running a headline like: Despite record low interest rates, buyers still not buying like they did in 2005, 2006 and 2007.

And sales are falling at a faster rate in August 2009 than in the previous 4 years.

Thanks Roger for great graphs again.