Monday, February 8, 2010

Crazy talk

We have a serious problem in Canada. Not only is Joe Average drunk on cheap credit, it seems our so-called fiscal conservative government can't see the water from the wine. Crazy. Dangerous. And it can only end badly.

Take this article from Saturday's G&M (H/T Rob) where apparently the heads of the Big 5 banks were calling for tighter mortgage lending rules back in late November of last year. Now compare it to today's G&M article providing the government's response: No Bubble, No Changes.

You may be asking yourselves if the banks are so concerned, why don't they just tighten up lending rules themselves? The short answer is competition--they're not the only lenders in the game, and they don't trust one another to play under the same self-imposed rules anyway. They want regulation to apply to everyone.

You may also be asking yourselves why the government is ignoring the now Canada-wide housing market bubble? The answer is simple: political expediency. Rational actions in Ottawa are not welcome. If the government did tighten lending standards, an 18% drop (similar to what occurred when the tightened from 0 down 40 year ams), will likely be the tip of an iceberg.

The opposition will make extreme hay about how the present government created the mess, fooled the "poor, ignorant, not-responsible-for-their own-home-buying-actions citizenry" (of which there has never been more in Canada) into believing the market run-up was going to last forever, only to to do nothing about it when they are elected in a landslide. After all the damage will be done and parent-knows-best-even-more-socialist-Canada's-New-Government job is to now prevent it from ever happening again in the future. It's telling that no political party is talking openly about the Canadian housing market. So while you may be politically inclined to harp on the Harper Cons, they are all to blame IMO.

It's a lose-lose proposition. And the effect keeps the taps wide open in the rapidly filling wading pool where the kiddies are tippy toeing to keep their mouths above the waterline. Eventually the kiddies will be forced into learning to swim for themselves or drown. I have no doubts the majority will learn to swim. I have faith in my fellow Canadians that way. But remember: it's the drowners that make the market.

UPDATE: Double Agent let's us know that the Competition Bureau and the CREA were unable to come to an agreement on curtailing the ability of the CREA and its members to keep fleecing home sellers. Surprise, surprise eh. Like newspapers and the rest of the media, the CREA and many of its members just don't understand that times have changed and refuse to get with the changes.

(Please note that I won't be cutting and pasting articles in blog posts due to recent changes in Canadian copyright law, I'd appreciate it if you would adhere to a paraphrase only limitation in the comments too).


Mr.4AM said...

HHV, can you provide a link to these changes in Canadian copyright law? I wasn't aware there were any changes.

Hmmm, I wonder how this will change essay writing in Universities. We are not allowed to quote sections of another person's work, even if we list the direct link to the source?


HouseHuntVictoria said...

It's not about academic stuff, it's about copyright on online content in newspapers etc... I am not allowed to "republish" in any way, content that is published elsewhere online with copyright. Apparently, some sources (news outlets) will let me buy the article to republish here in whole or in part for $5 a pop. I'd prefer the papers die death by a thousand paper cuts, so I will simply link and let you read them over there for free, for you and me. 4, I can't be bothered to go link hunting, TBH. Google it, you shouldn't have too much trouble finding it and I may not be entirely accurate in my interpretations anyway, so feel free to correct me if I'm wrong.

Post updated to include links from previous post.

Bob leftcoaster said...

No doubt that Flaherty is in a tough position. Changes to CMHC requirements will limit maximum bids from today's prospective buyers leading to a drop in house values that many depended on for their retirement. That alone could lose an election.

On the other hand, he could keep the bubble inflated and keep homeowners happy. But that is dangerous and uncharted territory with the upcoming post-Olympics real estate letdown, HST, and rising interest rates.

Bowing to the banks' demands seems the lesser of two evils, imo but who knows what Flaherty will choose.

It will be an interesting month to come.

Vic said...

As per the previous thread on Murray Langdon's comments on "no bubble", he obviously was late to the real estate game and is crapping his drawers after getting turfed from CHEK back when they canned the noon news. Radio broadcasters do not make much above the poverty line so I am sure he is not in a position of strength. The more denial by the media and builders the better I say, in the end they will all be in a happy place together. ;)

PS I see the front page of the Globe has an article on the collapse of a major NYC commercial deal they are quoting as a "harbringer of trouble ahead". Won't effect our local big boys though, they are immune to world events as usual.

omc said...

The leaked meeting on the weekend, in that we are assured we are notin a bubble, was "jaw boning". Flaherty cannot, and will not change the rules as it would immediatly pop the bubble. The Cons gov't cannot be seen to be responsible for the popping of the bubble, but instead the jaw boning can be referred to after the fact as warning. The old addage that the gov't is only worried as far as the next election.

We shouldn't rely on the gov't to act. This bubble will probably only pop under the same circumstance as 2008; prices rise well above affordability followed by an interest rate rise.

think said...

The bubble IS ALREADY popping. Vancouver stats for the first week of Feb. consistently show lots of new listings and few sales! I'm sure it is the same here - I can't wait for the stats to come out. What happened in 2009 was a SHORT-TERM bounce back up because of the ultra-low interest rates, drop in prices, combined with the fact that the recession hadn't really hit yet - so people thought "I'm fine, got a job, cheap credit, lets buy buy buy!" - now is the reality check - over-priced housing, all the new buyers have been pulled out of the rental pool (look at rentals all over town!), and the recession is hitting! Inventory is going to sky-rocket this spring (distressed sellers, and no more buyers left). It isn't going to take anything else happening, the crash is here - just watch the stats the next few months... party is over.

omc said...

I do hope you are right think. i wonder about the Van stats though; is it just condo listings that are up? This could be due to the market trying to get ahead of the olympic village condos coming on the market after the games.

think said...

Vancouver stats for 1st week of Feb. show MOI increasing in all areas and all types of buildings (condos, attached, detached). For last week there were 2011 new listings, 554 price changes, 821 sales, and the sell/list was 40.83%. Looks like a bear market to me if this continues.
Does anybody have any Victoria stats for first week of Feb??????

think said...

Victoria stats are even more bear-ish!!!! I'm getting excited!!!!!

Victoria month-to-date stats...

sales 137
new listings 372
total active listings 2858
sell/list 36.8%

It's going to take some time to build off such a low base but that sell/list ratio is awesome!!!!!

think said...

sales the first week of Feb (137) are LESS than the last week of Jan (151)!!!!!!!!!!!!!!!!!!!!!!!!!!

Rhino said...

"sales the first week of Feb (137) are LESS than the last week of Jan (151)!!!!!!!!!!!!!!!!!!!!!!!!!!"

Big Deal, your looking too hard for something that isn't there. Seasonality, listings grow this time of year. We are still more bullish for Inventory and MOI than most of the boom years at this time. As soon as there are more listing, the Sale/List will shot up again..mark my words.

Leo S said...

One week does not a trend make. I'll start getting excited in 3 months if it continues.

think said...

Hey don't wreck my buzz man!

It's not just one week - this has been the trend since the start of the year! I agree - too early to be sure - but IF the trend stays the same as it is now by March the market will be tanking. So far this year is a mirror of the start of 2008. Interpret it as you will but I am going to enjoy unless the numbers change :)

think said...

I think the pool of new buyers is exhausted - I have NEVER seen so many vacancy signs around Victoira - and I've lived here a looooooonnnnnngggggg time. If you don't have any more fresh buyers the market is done. It is simple supply and demand.

think said...


usually more listings come on seasonally but ALSO sales usually increase - what we are seeing now is not common - unusually LOW sales numbers and increasing new listings. MOI is low because we are coming off a very very low base of inventory - it will take time. But you can't argue that so far (since Jan 1st 2010) the sales are dismal and there are lots of new listings piling on...

omc said...

Sorry think,

I don't agree. I looked up past stats, and it appears we are on track for a banner year (about 500 sales in feb as in 2006). My PCS is also showing this, with any thing even half decent getting a crazed bidding war above asking (and way above assesment). Sorry, but false hope wears you down.

think said...

February Sales according to VREB website:

2006 - 658
2007 - 707
2008 - 619
2009 - 403

Looks more like 2008 to me if sales stay like they are. But I know that is a big IF. Too early to tell... I'll hold my tongue until the end of the month.

HouseHuntVictoria said...


While I don't share your enthusiasm that this is the start of the "big one," I can see how you are, well, thinking.

Take a look at this graph: listings

And then look at the one on the bottom that compares listings to sales. Yes, listings are up, and are still climbing (they always do in February), but there isn't a flood of new listings abnormal to this time of year.

Let's say the first week of market activity plays out the rest of the month. We end up with this:

137 sales x 4 = 548
372 listings x 4 = 1488

Current listings (2858) + additional listings (372 x 3 = 1116) - additional sales (137 x 3 = 411) and you end the month with 3563 active listings. That's slightly less than we had in 2008 and about 300 less than in 2009.

On the sales side, if you run the same numbers you find similar results: slightly more sales than in 2009, slightly less than in 2008. There really isn't much difference this year than the previous two.

The low sales to new listings ratio is encouraging, if a trend develops and maintains over the course of the next few months.

Vic said...

"The low sales to new listings ratio is encouraging, if a trend develops and maintains over the course of the next few months."

Thats what we have to see, that the so called pent up demand peters out quickly and the listings keep rising. Pigs get slaughtered as they say.

kunwak said...

I agree with HHV, OMC et al. In the real estate marked, trends are very slow to develop and difficult to detect. You cannot take a couple weeks. It takes months to detect anything meaningful. It is also misleading to think in terms of "I have NEVER seen so many vacancy signs around Victoira". It's anecdotal evidence, nothing more. It's likely even highly biased. Don't work yourself up, patience is the name of the game. Significant changes could be years from now. Time will tell. Good news is: There is no rush. You can rent for less than owing cost. You are not loosing anything IF you have the patience.

think said...

Yes, I agree, I'm getting excited too early, just wait and see. I guess I am paying attention so closely because it is DIFFERENT than what we saw in the fall/winter...that is encouraging.
In terms of vacancy signs how can you disagree...everywhere I drive almost every building has vacancies (some even have signs out saying "show suite open to view") - this is a DRAMATIC difference from the usual - even during the hot real estate market the past 10 years almost all buildings have no vacancy signs out. I think (yes okay just an opinion) vacancy rates are way higher in VIctoria than reported. How do you interpret that? I just can't see the insanity continuing. But, sigh, patience is something I'm getting better at with all the practice :)

Vic said...

think has a point with anecdotal notes. A trend always starts with most people noticing a change from the usual. As I posted the other day, my apartment has 4 vacant suites for the first time in 6 years I have been here and have been that way for over 2 months now.

Since my building was in high demand because of students and location, then that tells me there is something very serious afoot when this happens in January and February when the chance of an opening was never seen til April or May when students vacate and would be short lived.

Major trends start with small things like think noted, especially more signs in his locale and CL rental listings. I haven't seen more for sale signs but I do see some total junk for sale for over $550,000 and some $800,000 places that would usually be in the mid 900's not long ago.

Just Jack said...

I agree on the vacancy signs. I was saying to Just Jack while we were driving awhile ago "look at all of the vacancy signs. There's another one. And another one. And it is JANUARY!"

I'm getting too excited too early also.


msr said...
This comment has been removed by the author.
msr said...

So, I had some spare time and I thought I'd put together some graphs ala Roger.

I created it as a Google Docs and you can view it here.

I pulled the sales numbers from VREB but the listings numbers I had to pull from around the web on press releases so any corrections would be appreciated.

Vic said...

Some great articles in the Globe this morning. They are online but the hard copy is nice to see as you flip the pages and see all the conflicting opinions and misleleading articles which is a great sign.

One article is the pump that house prices will hit record prices this year, but flip a few pages and you see an article calling for house prices to go down in the title but seems all the same CREA pump til the very end where a real estate consulting company stating there could easily be a double dip in the real estate with such high unemployment.

You can tell who owns the Globe...can you say CREA. Though I give them credit for the bubble definition with large picture of all the elements needed in a bubble and we have them all in spades. What they didn't mention is the denial and ignorance that accompanies the pre-crash requirements.

Vic said...


Since you are one that seems up on his copyright laws,can you answer me this one.

I was reading Carla's pump article in the Times Communist this morning,then a while later I read a Financial Post article and low and behold in the middle of the article I see two whole paragraphs that seem to be plagerized from the FP article into her article on comments about Flaherty possibly making mortgage rule changes.

Is this common for a reporter to steal from another so blatantly or do journalists commonly do this ?

Seems to me that cut and pasting someone ele's work is a lazy reporters way of filling space. Epecially from one so bent on portraying that La La Land as the market that never ever goes down.

patriotz said...

Times Communist this morning,then a while later I read a Financial Post article and low and behold in the middle of the article I see two whole paragraphs that seem to be plagerized from the FP article

TC and FP are both Canwest so I would think it's not only considered OK by the papers but likely SOP.

HouseHuntVictoria said...

Patriotz is correct re ownership and SOP. They also routinely cut and paste from press releases too, but a PR isn't copyrighted as it's "released" for use by others.

Biz/beat reporters rarely write anything anymore. Where there used to be 10 of them, there's now 1, with their 9 laid off peers having gone out into the "communications and public relations" biz to feed them this BS on behalf of paying clients.

Biz figured out a while back that paying for advertisements is a waste of money UNLESS you also get subsequent "news" stories written about you as well. So biz now pays people to write stories for them and feed them into the MSM. Search "communications" job descriptions and you'll find 2 keys in every posting: relationships with the media and previous experience working "with" the media (note: with means for, not alongside).

Is all one big incestuous circle now.

omc said...

Todays Globe is more than a bit beaRISH

Vic said...

As one Globe article states is the "over heated demand" as a bubble requirement, not the RE/MSM term "pent up demand".

These are two different things where the former is the rule because in a bubble "there is never enough of the asset to meet the demand - wether it's tulips or Vancouver houses".

This is a false impression by realtors to keep the sheep buying because it creates this psychological game to make you think everyone is doing so it must be OK, and that if we don't we will never own.

I love all this exposure by national newspapers who are now really getting into this insanity that permeates the west coast.

Fozzie said...

Just reading this in the Times Colonist's summary of the Throne Speech

"Families with children under the age of 18 will be able to defer their property taxes, said the speech, read in the legislature by Lt.-Gov. Steven Point, which marks the opening of the second session of the 39th parliament.

The family deferral program is similar to an existing program for senior citizens and low-income residents, the speech said. Those programs allow people to defer their taxes for as long as they live and own their home. Eventually, the deferred taxes must be fully repaid with interest before the home is sold.

That makes sense for seniors, said Saanich Mayor Frank Leonard, but not so much for young homeowners. Seniors see their home’s value increase more than the taxes deferred, so they lose little. With escalating house prices, the cost of the home when it sells easily covers the deferred taxes so all that means is that the inheritors get a little less. But it’s a different situation for younger homeowners.

“It’s not something I’d advise someone to do,” said Leonard. “I’m not sure what the finance minister was thinking with that one.”

Taxes eventually have to be paid, and it may simply be putting off the inevitable until it becomes insurmountable for new homeowners in an already expensive market, he said. It will not impact municipal budgets.

The province will work with municipalities to “dramatically reduce housing costs for young families” and increase available homes, although no specifics were provided"

WOW. As a fiscally responsible taxpayer I'm very afraid for the long-run... Basically young family in 2010 puts 5% down payment on a 35 year mortage at extremely low interest rate, and buys a bigger/more expensive house than they can really afford. When interest rates start raising again, they struggle to make mortagage payments, so they defer their property taxes to assist with mortgage. House doesn't appreciate, they possibly go "underwater", because we're at the housing peak and demographics are in favor of downsizing over the long-run. Something happens to them, loss of job, divorce, need to move (these things happen), and then they're forced to sell with negative equity + need to pay their deffered taxes (plus interest). OUCH. So much for retirement savinds (if any).

Then we see couple on to Debt to Us Part Episode looking dumpfounded ... The blind leading the blind ... Thanks Gordo!

Just Jack said...

Nope, not going to happen.

The taxes appear as a charge on the title. And I believe this charge is in first position to be paid on the sale of the home.

The lender of any first mortgage wants to be in first position to be paid out. So there is a conflict.

Consequently only the families that qualify for the tax deferral are those that have paid off their mortgage. If this family wants to mortgage the home later, then they would have to pay the taxes and interest so that the bank would be in first position.

Its all political points, very few young families will qualify for this.

I am not a real estate lawyer. This is from my memory and one should always contact a lawyer to verify the accuracy or inaccuracy in my statement as your circumstance may or may not be the same.

Fozzie said...

Thanks Just Jack.

Your explanation makes sense to me, and I just spoke to my wife who works at a bank, and she agreed with your thoughts.

While impressed with your smarts, she was less impressed with your show picture ... but good on you ... The National Association to Advance Bitch Titties Acceptance applauds your efforts ...

I hope the government announces it as: you have to 100% own your home in their early March budget.

patriotz said...

The taxes appear as a charge on the title. And I believe this charge is in first position to be paid on the sale of the home.

Further to what JJ said, it is a condition of all mortgage loans that the owner must keep current on the taxes, and falling into arrears is grounds for foreclosure as it is jeopardizing the lender's lien on the title.

I honestly don't know why Gordo and company would even talk about something like this. Any rational person can see that it's just nuts. Then again, how many rational people are left in this province.

Vic said...

"I honestly don't know why Gordo and company would even talk about something like this. Any rational person can see that it's just nuts. Then again, how many rational people are left in this province."

He obviously has nothing left to pull out of his bag of tricks and these lame attempts to make us think we are getting a deal on something is a joke. If this is the good news, just wait for the budget because it will have a ton of nasties in there.

Vic said...
This comment has been removed by the author.
Just Janice said...

If what Just Jack says is true - and it sounds likely, then this is a freebie of sorts. Say one thing, but on the ground it means nothing because few families with young children are in a position of having their house completely paid off. Look we gave you X - it's not our fault you don't qualify for X...

The budget itself ought to be interesting on a number of fronts...most telling with be the size and accuracy of the deficit as well as the forecasted numbers of FTE' will be most interesting to compare the FTE numbers from prior years with the current FTE numbers... And I have no doubt the vast majority of the reduction in FTEs will be based out of Victoria.

Vic said...

Have no fear people, Captain Jimbo O'Flaherty is "actively monitoring" the housing market and he will be the one to determine wether or not it is indeed a bubble.

Back on earth, David Dodge reports that the housing insanity is "unsustainable".

Lay your bets soon folks. Is it the one who use to control the Bank of Canada or the elected official who is in denial and is more worried about his job than your wallet ? My money's says take the old guy.

Puzzling question though. How does one "actively monitor" a housing bubble ? Sounds like keeping an eye out for the tooth fairy and Santa at the same time.