Thursday, February 16, 2017

So how come we haven't heard much about the Chinese New Year home buying spree this year?



So it's mid February and usually the real estate cartel is barfing out stories about how Chinese have come over to our shores on home buying trips for their kids.

It's become an annual tradition to hear this crap.  Here's just a couple of twitter posts from 2015/2014 to illustrate (click image to enlarge):


And with Premier Krusty gutting the Foreign Buyers Tax at the end of January (presumably it's news of this glorious move that's in those little red envelopes above), expectations soared that Cam Good's yellow helicopter might once again fly over the Lower Mainland.

In fact the Real Estate TV Network (RETV)... err... Global BC announced the wet coast's annual heralds of spring just three weeks ago...


Said Global BC:
"Vancouver’s slow-churning real estate market might see a slight uptick next week due to an influx of Chinese New Year vacationers. 
The Chinese national holiday – celebrated widely in Vancouver and around the globe – begins Friday night with a week-long holiday. Many take the time off as an opportunity to travel abroad. Last year, six million Chinese left the country for vacation.

Juwai.com, a China-based website for international real estate, says a quarter of Chinese consumers surveyed plan to travel internationally during Chinese New Year, with 42 per cent of those saying they plan to shop for property while away. In total, just under 11 per cent of all people surveyed said they’ll spend the holiday property hunting. 
The website also surveyed 163 realtors in Canada and found 17 per cent of international agents and 16 per cent of Canadian agents had been contacted by buyers who plan to visit during Chinese New Year. 
“We also see Vancouver getting a steady stream of Chinese visitors seeking a ‘lung cleansing’ holiday,” Charles Pittar, CEO of Juwai.com, said. “Canada is a top-five country for these trips. Other top lung-cleansing spots are Japan, Thailand, Australia and Switzerland. One-half billion Chinese were affected by hazardous smog this winter. They come to Vancouver for clean air, among other things.”
So how has the 'lung cleansing' gone so far this year?

Not that we have heard it on RETV Global BC, but reports are that Chinese New Year Sales of Vancouver Real Estate Are Down 78%.

Now besides debilitating Cam Good, an 80% drop in sales is nothing short of devestating. But the  drop in single family home sales - the bread and butter of the foreign Asian market - is even more spectacular. As the above article notes, "Sales of detached homes had the largest drop during this Chinese New Year vs the years prior. Just 119 sales were logged this year, an 87.28% decline from last year."

Yikes. And it's not just the detached market. Chinese New Year Condo sales are reported to be down 72% and townhouse sales down 78%.

Rumour amongst some agents is that pressure is being applied to the BC Liberals to cut what remains of the Foreign Buyers Tax, currently sitting at 15%, to something much lower.

We will see what happens next.

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Wednesday, February 15, 2017

Wed Post #2: The Vinyl Cafe is closed. RIP Stuart McLean



If you ever browse the radio dial and have come across the CBC, you have invariably heard Stuart McLean and the Vinyl Cafe.

The Vinyl Cafe is an hour-long radio variety show hosted by Stuart that is broadcast on the Canadian Broadcasting Corporation's radio service and is syndicated to approximately 80 U.S. public radio stations through Public Radio International. The program is also available as a podcast, although the podcasts are usually just McLean's stories for studio episodes because of copyright restrictions on recorded music. CBC Radio also currently airs a weekday afternoon program, under the title Vinyl Cafe Stories, which consists of two previously recorded Dave and Morley stories per episode.

The show features essays, fiction and music; while frequently humorous, the weekly programs are also often wistfully nostalgic. The live episodes often begin with Stuart reciting a complimentary description of the venue's community about its character and history. The show also endeavours to introduce listeners to new Canadian musical talent, through playing recordings in studio episodes and performances in the live audience ones.

A major feature of many of McLean's shows are the "Dave and Morley Stories", which feature a fictional Toronto family. The name "Vinyl Cafe" refers both to the show's musical content and the fictional record shop owned by McLean's character Dave. This aspect of the show is priceless and if you ever get a chance to listen to "Christmas At The Turlington's", you'll never let a Christmas season pass without it being part of your holiday ritual.

The Vinyl Cafe stopped touring and producing new episodes following McLean's diagnosis with melanoma in November 2015. On December 13, 2016 McLean announced he required a second round of treatment, meaning further delay in producing new episodes, and that repeats of past shows would stop airing on CBC Radio One effective January 2017 to "make room for others to share their work on the radio."

Moments ago CBC announced that Stuart McLean has passed away. A truly iconic voice of Canadiana has been silenced and will be missed.

RIP Stuart. You brought joy, humour and the occasional life reflection to the airways.  Thank you.



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Wed Post #1: Is Horgan as incompetent as Adrian Dix?



A few years back we criticized the BCNDP: before the election for choosing a Dix - a candidate the electorate would have difficulty voting for; and after the election for choosing Horgan - a candidate who we've suggested wasn't the right person for the job if the BCNDP wants to form the next government.

We see little today to alter that impression.

As you will recall our current Premier, Krusty, adeptly remade the BC Liberals after the resignation of Gordon Campbell and leveraged the built in weaknesses that Dix brought to the table as the BCNDP candidate in the last election (his inherent ties to the corrupt Glen Clark government) and swept to a victory almost no one saw coming on election night. A victory on par for shock value that Donald Trump recently executed over Hillary Clinton.

Four years later, Krusty had seemly failed to heed the lessons of the Gordon Campbell implosion and - until last summer - looked destined for a loss in the upcoming May Provincial elections.

In early 2016 the BC Liberals were being hammered by the BCNDP's David Eby.

Eby is a relative newcomer and a bit of a rising star. He first shot to prominence when he was elected the BCNDP MLA for Vancouver-Point Grey in the 2013 provincial election shocker. In an upset victory for the ages, victory was tempered for Krusty by the fact Eby actually defeated her in Clark's own affluent west side Vancouver riding by 1,063 votes.

Krusty was forced to get into the house through an Okanagan by-election months later.

Since then, as housing critic, Eby has masterfully leveraged the havoc that massive worldwide excess credit is wreaking on the Lower Mainland.

This is no small accomplishment considering it's the policies of the Bank of Canada, CMHC and federal government that are to blame, not the BC Provincial Government.

But inaction by Krusty to do what she could to mitigate the damage was creating a rising tide of public resentment. Eby acurrately painted the BC Liberals as being in bed with their Real Estate Development cronies and tied that connection into exacerbating the Vancouver situation.

It struck a chord with the public and Eby was making massive inroads into the BC Libs political support.

Some even wondered if Eby's performance was Leader worthy.

Krusty responded - big time. In a move that astonished even this humble scribe, the BC Liberals imposed a 15% Foreign Buyers tax. Krusty read the mood of the people and moved with lightening speed to enact a significant policy change.

It was roundly cheered by many - both as significant and potentially effective.

By mid September, 2016 the BC Liberals were able to ride the benefits of both a runaway housing market and their attempts to contain it. They announced that, "the B.C. government had raked in $2.2 billion in revenue from the property transfer tax and the new 15-per-cent tax on foreign buyers of Metro Vancouver homes."

That’s a billion dollars more than the government had projected.

As the National Post noted, "That enormous windfall caused Liberal MLAs to break out into a spontaneous conga line through the legislature. Finance Minister Mike de Jong was forecasting a surplus of $1.94 billion, up from an earlier projection of $264 million. He then announced that $500 million from the property tax would fund a housing affordability program and another $400 million would go into the B.C. prosperity fund “as a legacy for future generations,” he said. And this, for the cherry on top: The surplus allowed the government to scrap a planned four-per-cent increase in medical service plan premiums. It wasn’t as tasty a treat as an announcement to revamp or scrap the loathsome MSP entirely would have been. But it did make the medicine go down more easily."

Krusty had neutered the BCNDP criticisms and turned the tide heading into the May 2017 Provincial election.

But in the last three weeks there has been an astonishing about face in the BC Liberal position. Faced with a total collapse in real estate sales (luxury sales down 91% and Vancouver home sales plunged 40%) Krusty has been under enormous pressure to undo the steps she took last September.

Finally she cracked, backtracked and bowed to the pressures of the Real Estate Developers - to the major donors to BC Lib political coffers.

So where is David Eby as this happens? He has been all but invisible.

And now as Toronto housing market starts replicating the excesses seen in Vancouver, the Bank of Montreal publicly declares that Toronto's housing market in a bubble.

And what is a bubble as per BMO economist Douglas Porter?;
“It’s when prices become dangerously detached from economic fundamentals and start rising strongly simply because people believe they will keep rising strongly, encouraging more buying."
That's a definition that describes Vancouver to a tee.

So here you have Canada's major banks finally calling the situation for what it is. And in the midst of it all, Krusty and the BC Liberals are throwing gasoline on a raging fire by gutting the 15% Foreign Buyers tax and introducing the new 'first time homebuyers' giveaway. And it appears to be directly linked to threats by BC Real Estate Developers to yank political donations.

Why isn't David Eby front and center holding the BC Liberal's feet to the fire over this?

You have to wonder if there is a backstory within the BCNDP here.

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Tuesday, February 14, 2017

The gutting of the Foreign Buyer's Tax - might it be Krusty's Achilles Heel?


In our last post we outlined how the our intrepid Premier, Krusty Clark, and the BC Liberals appear to had bowed to pressure from the Real Estate Development community and gutted the 15% Foreign Buyers tax implemented last summer.

Muckraker extraordinaire Bob Mackin advises sources tell him bigwig Developers threatened to withhold huge political donations to the BC Liberals unless they guttered that tax.


Krusty and Co. caved and not only undid the immensely popular move that addressed an out of control real estate market, but they also threw short term fuel on the housing bonfire by introducing a first time home buyers plan that gives young kids the necessary downpayment to get into the housing market. The introduction of this latest moral hazard into the housing mix is just the panacea the condo developers needed to boost a sagging real estate market in clear correction mode.

Combined with the gutting of the 15% Foreign Buyers tax, it will be interesting to see the results at the end of the month.

Just how significantly are the FB tax changes

Another growing name in muckraking media hall of fame is Ian Young, who writes for the South China Morning Post.  In a regular column titled "the Hongcouver" (a title which would have gotten any caucasian crucified by the PC crowd), Young outlines Vancouver’s foreign buyer tax and the work-permit loophole ‘you could drive Highway 99 through’

Young outlines how the rationale for the BC Liberal governments plan to offer exemptions to the tax is sound "assuming that the goal of the tax is to improve affordability by preventing foreign capital further skewing a market that had become detached from local incomes (and is not, say, a pre-election political tactic)."

The theory is that people who live and earn locally should not be unfairly punished.

But when you look at the changes, even the simple minded can see the real intentions of the changes.  As Young writes, "offering foreign-buyer-tax exemptions to work permit holders was a 'Swiss cheese' proposal. “The term ‘work permit’ is too vague to implement the intention (as) foreign-funded buyers pursue permits primarily to escape the tax. There’s a risk that new grads, backed by foreign funds and/or acting as proxies, will dive in."

With less than 100 days to the Provincial election, the BC Liberals are in full campaign mode.  Desperate to preserve political donations, they pragmatically axed the popular move they made last summer by responding to overwhelming public demand to deal with the massive amount of cash (created by the unprecedented excess credit being created in China) sloshing around the world.

But in doing so, the BC Liberals may have created a weakness in their election machine which the politically adept should be exploiting like they were the rebel alliance attacking the Death Star.

The link between the changes and Real Estate Development slush fund money slaps you in the face.  Public anger has not abated from the damaging effects all this malinvestment is having on our communities.

The only saving grace for the BC Liberals may be the inept BCNDP and the mainstream media.

Rather than fully focus on the link, the spotlight has been on a pointless harangue about false allegations of BCNDP computer hacking by the BC Liberals.

No one cares.

And in the process the real scandal that should inflame the voting public is being shoved to the back pages.

It is exactly these types of scandals which ultimately brought down the BC Socreds and Bill Vander Zalm, Glen Clark's NDP, and lead to the resignation of Gordon Campbell.

But BCNDP political ineptitude appears to reign supreme. Horgan has failed to capitalize.

The Vancouver Sun is showing signs of following up, but Krusty is deftly promoting the entry level buyer angle and is successfully throwing up teflon on the silly computer hacking story.

We'd be willing to suggest that throwing the R/E Industry the 'first time homebuyers' bone would have been sufficient to address donation slippage. Gutting the Foreign Buyers Tax and the apparent linkage to massive R/E Developer political donations is their achilles heel.

Will the BCNDP exploit this explosive connection?

The gutting of the Foreign Buyers tax is THE fulcrum that could swing the 2017 election.  

So far the Opposition has failed to capitalize on it.

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Friday, February 10, 2017

Cynicism? Krusty says, "Stand aside Moonbeam and hold my beer!"



Yesterday we made note of the cynical populist political shift of our beloved Village Mayor Gregor 'Moonbeam' Robertson as he responded to the 2016 Census Data revelation that there were twice as many 'unoccupied' homes in Vancouver as the City's survey had found in mid 2016.

Said Moonbeam, “Seeing data that shows there may be even more underutilized homes than BC Hydro suggests gives us more reason to aggressively move on the empty homes tax, and other measures that will help bring homes back within reach to residents in all corners of the city."

Giggidy.

Course, such exhortations are a little hard to swallow given his mid year pronouncement that he was against any suggestion of a housing tax targeting non-residents.


But is that real cynicism? Enter the BC Liberal's shouting "hold my beer!"

In July 2016 the BC Liberal's weren't afraid to support a housing tax targeting non-residents. In a surprising move, our beloved Premier Krusty Clark boldly declared a 15% tax targeting foreign buyers and implemented it without much warning.

Now everyone and their dog in the real estate industry (except this dog, of course) was feeding the public the line that foreign buyers were such a small portion of the market that all the fuss about them was a non-issue.

We all knew it was bullshit, but you have to wonder if the BC Liberals thought the tax would be a simple vote-getter without fully appreciating the reality of the situation.

Because the tax had an immediate impact.  A massive immediate impact.

By the end of January 2017, real estate sales in the Village on the Edge of the Rainforest fell off a cliff. Luxury sales were down 91% and Vancouver home sales plunged 40%. The market was cratering.

Did we mention a provincial election is less than 100 days away?

It didn't escape the attention of muckraking reporter extraordinaire Bob Mackin. Bob put his ear to the ground and heard that wealthy developer donors were letting it be known to Krusty, Shrimp de Jong et al that political donations would dry up if they didn't address this catastrophe.


Such news was highly disconcerting to the BC Liberal accountants.

And just who are these $100K+ donors from Feb 2016 that Mackin refers to?

In a recent article, Mackin outlines how the BC real estate development community funnels massive amounts of cash to the BC Libs.

Chronicling one fund-raising extravaganza in February 2016, Makin noted:
The Feb. 26, 2016 haul was thanks primarily to eight individuals and entities that kicked-in a whopping $1.1 million:
  • $200,000 x 2=$400,000: John Redekop Construction and his cousin Peter Wall’s 2300 Kingsway Residences. 
  • $100,000 x 7=$700,000: Peter Redekop, Peter Wall’s PWO Investments and Wall nephew Bruno’s BJW Investment; Townline Homes owner Rick Ilich; Rossano De Cotiis’s RPMG Holdings; Berts Electric; and Seaspan ULC.
Those high rollers are no stranger to writing big cheques to the BC Liberals. Six months before the last election, some of them also injected six-figures into the BC Liberal kitty.

Peter Redekop — whose donations since 2005 now stand unofficially at $609,800 — gave $150,000 on Nov. 8, 2012. His brother John Redekop ponied up the same amount on the same day as a similar windfall from other real estate and construction concerns. 
Also contributing to the party’s Nov. 8, 2012 haul of $833,728 were: Rob Macdonald ($101,200); Intertech Construction Managers/ITC Management/ITC Services ($75,000); Townline Homes ($55,000); Holborn Developments/TA Management and Dayhu Investments ($50,000 each) and Francesco Aquilini ($23,375). The Sheraton Vancouver Wall Centre Hotel donated $4,700. 
Peter Wall and Bruno Wall each gave $150,000 on Nov. 23, 2012, when the Liberals counted another $829,780 in donations. Along with the $300,000 from the Walls came $40,000 from Hassan Khosroshawhi and $20,000 from Colin Bosa.
So it comes as no great surprise (albeit highly disappointing) that with the threat of having the taps turned off on this massive amount of cash that the BC Liberals blinked.

Thus, on Jan. 29, Krusty suddenly announced during Chinese New Year that the BC government would be amending its tax on foreigners buying property in Metro Vancouver. Clark says the levy will be lifted for "those who have a work permit and pay taxes in B.C., in order to encourage more people to come to the province."

The slight change to the Foreign Buyers tax was promoted as a minor adjustment to make the tax fairer so British Columbia can continue to attract the best and brightest to BC.

But given Mackin's revelations about the behind the scenes threats of withholding political donations as the province counts down to what could be another extremely close Provincial Election, it's hard to see the move as anything but selling out to the development community.

Next we will outline just how significantly the BC Liberals have gutted the tax.

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Thursday, February 9, 2017

Mayor Moonbeam Responds To Empty Home Census Data



As outrage grows that there could be as many as 25,502 empty homes in the city, according to the 2016 Canada Census, Vancouver Mayor Gregor Robertson appears to have come out swinging to defend the denizen's of the Village on the Edge of the Rainforest.

“In a housing crisis, it’s unacceptable for so much housing to be treated as a commodity,” said Robertson in a statement. “Housing is for homes first, and as investments second.”

Umm... err...? We'll come back to that.

As you know by now, the 2016 Canada Census released data yesterday which counted 309,418 private dwellings in Vancouver in 2016 – but only 283,916 of those were occupied by usual residents. By comparison, the 2011 census counted 286,742 private dwellings in Vancouver, with only 264,573 of those occupied by usual residents – a difference of 22,169.

That's a stunning increase at a time that the real estate developers are clamouring for increased density to deal with the housing crisis (or as we call it the malinvestment in real estate as a commodity creating a 'housing bubble').

Now “occupied by usual residents” refers to a home where people live permanently. The 25,502 not included in that number were occupied by people who usually live outside Canada on the day of the census or were totally unoccupied.

Adding to the kerfuffle is the fact that last year Gregor's own staff had used BC Hydro data to conclude there are only 10,800 year-round empty homes in Vancouver.

So what did Mayor Moonbeam have to say about this, ummm, contradiction?

“Seeing data that shows there may be even more underutilized homes than BC Hydro suggests gives us more reason to aggressively move on the empty homes tax, and other measures that will help bring homes back within reach to residents in all corners of the city,” he said.

Ah yes, the empty homes tax.  Now... is this the same Mayor Robertson who, back in July 2016, took this position?


Says Robertson today, “the City won’t sit on the sidelines. Vancouver will continue to do all it can to maintain and protect affordable homes, and pursue all tools available to ensure the best use of all our housing.”

All that it can? Spoken like a true populist politician.

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Wednesday, February 8, 2017

Census Stats showing little or no population growth - and a massive variation in COV empty home data



So the 2016 Census data was released today and created quite the bit of commotion on Twitter this morning.

While most municipalities in the region are showing moderate population growth, certain areas are showing no growth whatsoever.  West Vancouver is the fastest shrinking city in the Lower Mainland.

West Van’s population fell 2.1 per cent in 2016. The City of North Vancouver and District of North Vancouver grew by 0.6 per cent and 0.3 per cent respectively, well below the average growth rate in Greater Vancouver, which was 1.6 per cent. 

Vancouver's west side is stagnant as is Richmond's.

Now all of this data is curious because the narrative has been that everyone is moving here and that is what is driving our housing prices through the roof. But BC doesn't crack the list of the top 3 provinces for population growth (Alberta 18%, Saskatchewan 6.3%, and Manitobia 5.8%).

More significantly Census data estimate over 25,500 unoccupied homes in Vancouver... a number DOUBLE the City of Vancouver estimate.

Look for the real estate cartel to immediately start it's media spin to defend it's push for higher density and rezoning.  We'll see if that's the big theme in the coming days.

Meanwhile, check out this humorous Craigslist post for west side Vancouver accommodation...


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Tuesday, February 7, 2017

Vancouver Housing Bubble Month in Review video



A few days ago we shared a new weekly video on youtube that showcases weekly news and tweets from Twitter on the Vancouver Real Estate bubble. 

They've put out a 'month review' video as well. Their handle on twitter is @VanRE_Week_Rev

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Sunday, February 5, 2017

January 2017 Real Estate Stats are out, will Chinese New Year resuscitate the market?



The Real Estate Board of Greater Vancouver (REBGV) announced the January results at the end of last week and you can read their official press release here.

So, officially, home sales crashed 40% last month on a year over year and were down a dramatic 11% from what is normally one of the slowest months of the year.

Yikes.

Only 444 detached houses sold. That's an almost 60% drop from January 2016. Meanwhile new listings are up 7% and total listings are up 14%.

Normally this is where Real Estate agents rush in and say, "no worries. February is Chinese New Year... which means lots of wealthy foreign buyers."

But here's where it gets sticky. The number houses sold worth upwards of $3 million+ has plunged 79% lower. And there's a current supply of almost four years on hand based on current sales numbers. In houses valued over $5 million there’s a five-year supply. Worse, 91% of all the sales in January were for less than asking.

Whether you blame it on the BC Government's Foreign Buyers Tax or not, the reality is that the number of foreign buyer's looking for Vancouver’s luxury real estate has declined dramatically. According to the most recent numbers from B.C. Ministry of Finance, sales of homes over $3 million declined by a whopping 91% from the July peak. Only 8 luxury properties were bought by foreign buyers in November. Curiously November is the last data point that was published. The MoF seems to have skipped reporting for December which suggests it was even worse than November.

Meanwhile realtor Ross Kay advises that the Average Purchase Price of Vancouver real estate plunged a dramatic 19.2% last month and that over 84% of all homes listed for sale failed to sell. 

One of the things that drew many wealthy Foreign Chinese buyers to Vancouver was it worldwide reputation for being a housing casino with almost guaranteed gains the last few years.  Even if they wanted to catch a falling knife by buying right now, you can be sure any offers are going to be cut throat low.

High expectations are riding on the BC Provincial Government's softening stance to the Foreign Buyers Tax.

We will see next month if it's enough to turn things around.

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Thursday, February 2, 2017

Thur Feb 2nd Post #2: Vancouver Housing Bubble Week In Review


From the email bag, a new weekly video on youtube that seems to showcase weekly news and tweets from Twitter on the Vancouver Real Estate bubble. Their handle on twitter is @VanRE_Week_Rev


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Thur Feb 2nd Post #1: BMO returns to offering cash back to first time home buyers


In the next day or so we will start to see the monthly real estate stats for January 2017 released. Early word is that they are ugly. Real ugly.

Part of that has to do with the brutal frankenumber HPI the industry uses. Critics have denounced the formula as a method to hide any collapse from the public... or at least hide it for a while.  Eventually any long term slide will become very evident and the chatter is that time has come.

Bearing the brunt of the blame has been the 15% Foreign Buyers tax implemented by the government of BC last September. This is now compounded by the recent capital controls announced by the People's Bank of China (PBoC).

With reports that high end developers are panicking and have threatened withholding political donations to the BC Liberal Party (crucial with an election looming in May),  the BC government had announced that starting Jan 16 a program was launched to oan first-time homebuyers some of the cash they need to afford their down payment.

The program provides a government-backed loan of up to $37,500, or five per cent, of the purchase price of a home for qualified buyers. The goal is to match part of a person's down payment to help them afford to buy their first home, as long as they already qualify for a mortgage under federal rules and the home is worth less than $750,000.

This attempt to shovel incentive money to first time buyers is being roundly denounced from all quarters nationwide.

And now we learn banks in BC are climbing back on the free money bandwagon.

Last week the Bank of Montreal (BMO) announced they are chasing first-time home buyers with a cash back mortgage promo. First-time home buyers taking out insured mortgages with terms of at least four years are eligible for $500 cash on mortgages of less than $250,000, and $1,000 on larger loans. Once the mortgage is booked, the cash is credited to the customer’s BMO chequing account.

In a statement, BMO called its new offer a “timely” companion to a new interest-free loan program British Columbia’s provincial government launched to help new buyers cobble together down payments amid soaring housing prices. The federal government recently expanded stress tests aimed at ensuring a home buyer could still afford a mortgage at higher rates, making it harder for some prospective buyers to qualify.

“While the provincial government’s offer is exclusive to B.C., our hope is to support all Canadians who come to us for this important milestone and investment,” said Michael Bonner, BMO’s senior vice-president and regional head for British Columbia and Yukon.

Of course sceptics might say it has less to do with 'supporting' Canadians and more to do with the fact that BMO has acknowledged that its residential mortgage portfolio in Canada, which totalled $103.6-billion in Canada as of Oct. 31, 2016, trails when compared with some key competitors.

Canada’s mortgage market is showing signs of slowing growth. Interest rates have risen from rock-bottom lows, consumers are heavily indebted, the federal government has introduced stricter rules on new mortgages in an effort to cool overheating prices in Toronto and Vancouver, the PBoC is implementing capital controls and the 15% Foreign Buyers tax was working far better than everyone imagined.

Now, it appears, there are massive efforts to plug the exact holes the changes were designed to create.

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Wednesday, February 1, 2017

Wed Feb 1st Post #2: Did you know the Housing Bubble in North America was deliberately created by the Feds?


Since we are returning, we thought we'd throw up a few posts reviewing how we got to where we are with our Canadian Housing Bubble.

With all the intense press attention on our housing bubble over the last year or so, China has become the scapegoat for all our housing woes.  And while the world is awash in Chinese money today, it's important to acknowledge the home grown roots of our problem.

And to understand that... it's crucial to recall how the CMHC was specifically instructed by the Harper Conservatives to create our housing bubble.

"Say what?", you exclaim!

It's true.  What is even more astonishing is that the United States also deliberately created their housing bubble too.

Both nation's predicaments were deliberately crafted.

After the dot com crash of 1999 and the 2001 terrorist attacks, America had a choice of entering a painful recession (which critics say was desperately needed to correct the imbalance of excessive monetary stimulus in the 1990s) or politicians could kick the can down the road and artificially inflate the economy.

Economist Paul Krugman, writing in the New York Times on August 2, 2002,  identified the problem:
The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. 
This was a prewar-style recession, a morning after brought on by irrational exuberance. 
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Yes... you read that correctly. To offset a morbid economy, leading economists were recommending that the US Government and the US Federal Reserve create a housing bubble so that consumers could use that 'sense of wealth' to drive the economy with consumer spending.

The creation of a housing bubble was a deliberate economic stimulus move.

And Canada followed America's lead on this.

In America, from 2002-2008, President George W. Bush almost singlehandedly, through cheap rates, lax regulation, government housing subsidies, presidential boosterism and financial engineering, managed to get the home ownership rate to 70%.

Following the lead of Republicans in the US, the Canadian Government saw the success of this plan and began pumping the Ownership Society as well. Gifts, incentives and inducements were showered on home buyers and the result was demand swelled, prices popped and a bubble was born.

The main vehicle for these inducements was the CMHC, or the Canadian Mortgage and Housing Corporation. Founded after World War II to provide housing for returning soldiers, the CMHC's role has grown dramatically in the following 70 years.  A Crown corporation owned by the Government of Canada, it's main function today is  providing insurance for residential mortgage loans to Canadian home buyers. (Note: This insurance isn't for the Canadian who buys a home, rather it protects mortgage lenders against mortgage defaults by home buyers on mortgages with less than 20% down)

Here's how CMHC and mortgages in Canada evolved in the 2000s:
  • Prior to 1999 you needed 10% for a mortgage and that mortgage had a maximum amortization of 25 years.  CMHC also had limits on how much you could buy with their insurance.
  • Just after 1999 CMHC lowered the down payment to 5% with price limits on how much they would insure depending on the area. Amortizations were still 25 years. There would be no price limit on what they would insure if 10% or more was put down.
  • By Sept. 2003 CMHC allowed 5% down on 25 yr amortizations but they removed all price ceiling limitations. Now any mortgage would be insured regardless of the value of home purchased. 
  • In March 2004 CMHC began allowing Flex-Down products which permitted the 5% down to be borrowed and 1.5% closing costs to be borrowed (essentially zero down, but 95% insured).
  • In March 2006 you had  0% down, 30 yr amortizations. This became 0% down, 35 yr amortizations later in the year.  Interest only payments were allowed for 10 years.
  • In November 2006 CMHC began allowing 0% down, 40 yr amortizations along with interest only payments for 10 years. 
  • Canadian banks ramped this up by allowing up to 7% cash back offers is you would take on a mortgage with them.  You could basically get paid if you bought a house.
  • Not only were the rules surrounding the granting of money loosened, but CMHC's cap for granting mortgages grew from $100 Billion in 2006 to almost $600 Billion by 2014.
Right there, in all those details, is where all the money originated to fund our housing bubble.

Conservative Prime Minister Stephen Harper's government altered mortgage and tax rules to the point we had the zero down, forty year mortgage. They allowed Canadians to raid RRSP's for down payments. They created the Home Reno Tax Credit. They gave us the first-time buyer's closing cost gift and they instituted the infamous 'emergency interest rate' which has kept interest rates artificially low since 2009 - an astonishing 8 years! 

Harper's Conservatives gave us more pro-real estate initiatives than Canadians had seen in the last quarter-century.

But wait... there's more!

The most astonishing element, in addition to of all this, was something that has been effectively buried. Something that, now that the mainstream Canadian media have finally turned their attention to the chaos being created by all this malinvestment in Real Estate, are completely unaware of.

Back in 2009 we profiled series of excellent articles put out by Murray Dobbin. One of them, Dobbin's 2009 article titled 'Why Canada's Housing Bubble Will Burst', garnered significant interest in the blogosphere. In that article he stated:
  • In an effort to prop up the real estate market in 2008 (when affordability nosedived), the Harper government directed the CMHC to approve as many high-risk borrowers as possible and to keep credit flowing. CMHC described these risky loans as "high ratio homeowner units approved to address less-served markets and/or to serve specific government priorities." The approval rate for these risky loans went from 33 per cent in 2007 to 42 per cent in 2008. By mid-2007, average equity as a share of home value was down to six per cent -- from 48 per cent in 2003. At the peak of the U.S. housing bubble, just before it burst, house prices were five times the average American income; in Canada today that ratio is 7.4:1 -- almost 50 per cent higher.
That's a stunning statement. He's saying the Harper Government specifically directed the CMHC to approve risky loans in an attempt to keep the economy afloat and blow the Housing Bubble even bigger.

Shortly after the article was written, this blog contacted Dobbin and asked him about the source for this comment.

Dobbin stated he got the reference from a CMHC report which was freely available on the CMHC website.  

Your dutiful scribes from this blog checked out the document and read it personally.  Unfortunately we did not download a copy (and if anyone out there did, we would love to know).

Dobbin's statement was confirmed, CMHC stated in that document that they had been directed by the government to approve as many high-risk borrowers as possible.

A few months later, when a curious reader asked us about the source for this quote, we went to the CMHC site to forward the link to the report.  It was then we noticed the report had been removed.   When we asked Dobbin about it, he also noted (with surprise) that the report was gone from the CMHC website.  Dobbin also had failed to download a copy.

Dobbin columns had obviously struck a nerve and CMHC were directed to remove the document from their website.

Curiously Wikipedia incorporated Dobbin's information into it's database about the CMHC.

Don't bother to look for it now, tho. Curiously, when we went to reference the site for our original post on this several years ago we discovered that the Wiki CMHC page had undergone a significant sanitization.

Gone was the notation about CMHC being directed by the Conservative Government to change policy to approve more high risk borrowers.  Also removed were all the statistics about the ballooning level of CMHC backed mortgages.

In it's place are bland descriptions of CMHC functions. 

At the top of the page is this warning bar (click on image to enlarge):


If anyone is interested what the Wiki page used to say, you can still find it at a website called 'the full wiki'. It contains the old information that the Wiki page used to hold. 

In Slide #7 it states: "In 2008, Canadian home prices started to dip as affordability become the worst on record in many cities. CMHC publicly admitted that it was ordered to approve as many high risk borrowers as possible to prop up the housing marked and keep credit flowing."

That is a stunning acknowledgement.

When the American housing bubble popped in 2008, the Conservatives bet heavily they could shield our boom from the 2008 financial crisis. What they did to add fuel to a powder keg which has now grown insanely large as other Central Banks (US Fed and Peoples Bank of China) have flooded the world with Quantitative Easing and excess credit.

But make no mistake. The foundation of this massive bubble started at home - with the manipulation of CMHC policies.

(Below are the screen shots of the original Wiki site on CMHC before it was sanitized)











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Wed Feb 1st Post #1: After a long slumber, it is time for Rip Van Whisperer to awake?


After a long slumber, it is time for Rip Van Whisperer to awake?

But then again, have we really been asleep?

Faithful readers will know we have been alive and well on Twitter during our blog sabbatical. And the 'retweet' button has certainly had a workout.

But it may be appropriate to return to pounding out prose about our little Village on the Edge of the Rainforest again. Hopefully you make your way back to see us on a regular basis.

You dutiful scribe,

     - Village Whisperer

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Sunday, August 23, 2015

It's simple math - be it for our housing bubble or the American National Debt

When it comes to our housing bubble, it's simple math.

Any boom created by excess credit will always bust. And our housing boom was created by excess credit.  CMHC has gone from $100 Billion in 2006 to $600 Billion today.

Canadians are in debt to an extent never before seen in Canadian history.Much of this debt is invested in home ownership.

In 1980 the ratio of household debt to personal disposable income was 66%; that ratio is now in excess of 164%.

It doesn't require a sage to foresee where we are headed.

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Monday, December 1, 2014

How bad could it be?


he numbers are becoming increasingly clear; the bloom is off of the Canadian real estate bubble and boom.

Among a variety of indicators, sales of condos in the second quarter of this year in Toronto have fallen by half and a record number of units were left unsold. In Vancouver July residential sales were the lowest for any July in ten years and fell 11.2% from the month of June.

While prices are not dropping yet, the fact that commentators from the business and real estate communities themselves believe a 15% downward adjustment in prices is imminent means that we can likely expect a greater decrease. These are, after all, people whose best interests are served by minimizing any potential housing market panic.

The increasingly interventionist actions being taken by the Conservative government and Finance Minister Jim Flaherty to dampen the market, counter-intuitively if one does not really understand what is behind the real estate market boom of the past few years in the first place, also shows that the powers that be are worried. Very worried.

And they are worried for good reason. It was the government itself that facilitated the creation of the overheated market and it is the government that is ultimately on the hook for the tab should an American style meltdown occur. Which means that, in the end, you are on the hook.

Many of us have, from grade school on, been inculcated with the notion that we live in a "free market" society where prices reflect the interplays between supply and demand that fluctuate due to the rational economic decisions of buyers and sellers. For those who truly enjoy simplistic fantasies our own publicly owned broadcaster, the CBC, has programs with imbecilic "commentators" like Kevin O'Leary or that are cheerleaders for a world that exists only in the demented dreams of libertarians, such as the hilariously summer school economic "thinking" that the radio show "The Invisible Hand" soothes those who might doubt neo-conservative ideas with. Both on, ironically, a "tax-payer" funded network.

But the actual economy is much more of a planned Pyramid Scheme where the greater a company or sector's economic clout and the higher up they are in the pyramid in terms of importance to the fundamental soundness of the country's economy in the eyes of the government, the less they face the vagaries of actual market forces. The nearer to the pinnacle, the more the government intervenes, directly and indirectly. This has been true for decades, but was made most obvious during the 2008-2009 bailouts.

In the case of housing, Canadian society has raised the concept of personal home ownership to near fetishistic levels. It is part of the "Canadian Dream" that you will own your own little plot of land (or sky, in the case of condos). It is a logical extension of what originally brought many to the so-called "New World" in the first place a hundred or more years ago; only now the land is far from free for those who wish to settle it. A staggering number of citizens buy into the notion that owning a home represents some kind of freedom, despite the reality that "their" home is actually usually owned, for at least the first twenty-five years, by whoever provided them with a mortgage. Missing a few mortgage payments will make this abundantly clear.

Given the centrality that personal home ownership holds to the sense of self-actualization of much of the electorate, it is hardly surprising that, especially if it felt that the economy might be stalling, a government might chose to make sure that the "free market" worked in such a way that it would continue to facilitate this dream as a highly dangerous form of "stimulus".

And this is precisely what the Canadian government did in the period after 2008.

Under the auspices of the Canada Mortgage and Housing Corporation (CMHC) the Canadian government has insured the mortgages that Canada's banks have provided to Canadians to the tune of a projected $558 billion this year. This figure, one might note, represents over one-third of Canada's total GDP! This is up dramatically since 2007-2008, directly due to the fact that the government raised the limit on mortgages that CMHC could insure from $450 billion to $600 billion and loosened the rules on what types of mortgage would qualify.

Insured means exactly what you think it does. In the event that Canadians begin to default on their mortgages, and in the event that this default level were to reach the point where the CMHC could no longer cover defaults, the government of Canada, and, therefore, you will be on the hook for the bank's "losses". As Chris Horlacher of the free market, right-wing think-tank, the Ludwig-von-Mises Instistute of Canada shows, the inability of the CMHC to cover defaults in the event of a real bubble burst is highly likely. This is due to the fact that the CMHC's "assets" are largely identical to what it is insuring, namely mortgages! "In the event of a severe downturn in the mortgage market, claims will start pouring in. The CMHC (nor any kind of insurance company) never possesses enough cash to cover all of these potential liabilities, they invest it. The problem here is that the CMHC has bought the very same assets they are insuring against. If the mortgage market collapses, so too will the value of the assets of the CMHC, making them extraordinarily difficult to liquidate in order to raise the cash necessary to pay out their claimants. It’s a catch-22 that spells potential disaster and deeply impairs their ability to actually insure against this particular type of credit risk."

Given this, Horlacher goes on to conclude that "The CMHC remains highly susceptible to even a slight increase in the rate of mortgage defaults, or a rise in interest rates. With the federal government, and ultimately the Canadian taxpayer, on the hook for all of the CMHC’s liabilities we could soon find ourselves in an extremely difficult financial position."

In other words, to facilitate the accessibility of easy credit the federal government took the risk to the banks out of potentially risky mortgages and laid them at our doorsteps.

In addition, for several years, in response to the economic crisis that began in 2008, the government allowed the CMHC to insure mortgages with amortization periods above 25 years, with lower down-payment requirements and with unsustainable, artificially low interest rates courtesy of the Bank of Canada.

This had a direct and intended consequence. It allowed the banks to offer mortgages to people who, in reality, could not really afford to enter the market and this, in turn, allowed those people to, in fact, enter the market. The reality of how this plays out can be seen from the fact that housing prices have risen far more rapidly than income. (These figures also lay to the rest the myth that the Canadian housing market is only experiencing a bubble in two of its major centres. The bubble is far more widespread than that.)

Taking these steps did stimulate growth in the construction industry and helped to dig the banks out of their recently uncovered, and previously denied, liquidity crisis. But it also had the effect of creating what amounts to artificial "demand" for houses and condos in many urban markets, most notably, but far from exclusively, in Vancouver and Toronto. This, in turn, drove prices up in dramatic ways, leading the banks to extend riskier credit to citizens desperate to get in on the action who, in turn were encouraged by the government created environment to buy properties that, by any objective standards, are out of their price range.

The CMHC, an organization that was originally formed, in part, to help to put home ownership within the reach of the average Canadian has recently done so by placing them into dangerous debt situations in an artificially created price bubble where even relatively minor downturns in the economy or drops in housing prices can create an economic disturbance whose ripple effects could lead to economic consequences akin to what is happening in Spain.

The basic facts of this situation have been acknowledged by Flaherty himself who has clearly and repeatedly stated that household debt in Canada has reached levels that threaten economic stability. He has made these cautionary comments in ways that make it seem that he is warning citizens for their own benefit and against their own behaviour.

But there is more to it than that.

The real worry, enough to keep finance ministers awake at night and to get them to try to manage the burst of a bubble, is what will occur should the markets in Toronto, Vancouver and elsewhere experience a rapid downward market adjustment in both prices and demand, especially if people who bought residential units for speculative purposes (and there are more of these than is commonly understood) or at the height of their value suddenly find themselves holding on to mortgages that face higher interest rates down the road and making payments on properties whose values have declined by 15-20% or more (should a runaway effect occur). Given that, in many cases, these people may actually have far less equity invested in their properties than one might suppose, there is a point where default makes a lot more "rational" economic sense then the decision to buy in the first place did.

The worry of financial analysts, and our finance minister no doubt, is compounded, as Finn Poschmann a vice-president at the C.D. Howe Institute noted, by the fact that "Since 2007, Canadian banks have increasingly come to the covered bond market with bonds backed, in whole or in part, by mortgages individually insured by the Canada Mortgage and Housing Corporation. This insurance cover boosts the surety of the bond pool, and marginally lowers the banks’ cost of capital and, arguably, perhaps lowers the cost of homebuyers’ mortgages. But an otherwise functioning financial market also gains government and taxpayer participation, and risk exposure, to uncertain net benefit."

While he, of course, is looking at it from the perspective of the bankers, as he makes clear there are dangerous historical antecedents for this situation, and the government and taxpayers are, as Poshmann puts it "exposed".

This is an understatement.

In the end, this is a direct lesson in how governments help to create the conditions in which the present European style austerity regime becomes "necessary". The Canadian government, to aid with bank liquidity in 2008, to generate a kind of short-term, politically popular, but relatively high risk form of stimulus by loosening the reigns on personal credit accessibility and aiding very directly in the rise of the highly overheated Canadian housing market, and to help to sustain a middle-class fantasy that everyone should be able to afford a home even when we live in a system where this is not possible unless and until the government gets into the business of building and regulating housing as opposed to being the agent that props up the riskiest end of the entire housing sector, that of credit, has put us all at risk by underwriting the "exposure" of the banks themselves.

The government has chosen the most bank friendly model of "intervention" in the housing market; they don't build affordable housing for all, rather they allow the banks, at no risk to themselves, to put citizens into unsustainable levels of personal debt to own what is completely unaffordable housing.

If a real housing correction occurs, and if it results in an entirely predictable and at least somewhat likely wave of foreclosures and defaults, and if the government is forced to cover even a relatively small proportion of the near $600 billion in insured mortgages, the cuts of recent federal budgets will look like happy times with hindsight. The economic "side-effects" will also be devastating.

Even if this is a bullet that we do manage to dodge, Canadians need to ask themselves if the role of their government and their taxes is to fund social programs, health care, direct housing and infrastructure expenditures, or if it is to put all of these necessities at risk by removing actual market and risk factors from the mortgage business for the big banks by insuring and taking on liability for their loans and the lifestyle of a certain segment of the population, potentially on the backs of all Canadians.

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Tuesday, October 7, 2014

BIV: A Closer Look at Olympic Village Property Values



Business in Vancouver Magazine is out today with a shocking series of slides taking a closer loop at Olympic Village property values.

In the first one, the average change from assessed values in 2011 to 2014 is down almost a stunning 20%:


Breaking down the properties, the average price drop per unit is a whopping $221,546.  The largest price drop is $627,000 for one unit:


Based on floors, from units on the 10th floor and up, prices are down -33%. Mid floors (5th - 9th floor) are down 22% and Lower floors (4th and below) are also down 22%.


BIV also gives a breakdown of the smaller to bigger units:


It's a stunning look at property values in the former Olympic Village.

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Tuesday, May 13, 2014

Investors Group shakes up Canadian R/E market announcing the 1.99% Mortgage



Are these the effects of the Bank of Canada's recent declaration that low interest rates are here to stay?

Today Investors Group unveiled a 3-year mortgage at 1.99%, a move sure to reverberate through the real estate industry:
The Winnipeg-based financial services firm posted the rate on its website Tuesday, offering a 36-month term at a variable rate 101 basis points below IG's current prime rate of three per cent.

"It's probably something we may see more of," Toronto mortgage broker Marcus Tzaferis said. "They offer it up so they can cross-sell their investment products."

The offer comes with strings attached — namely that you can't break the mortgage for any fee during the three-year term, unless you sell your home. But the offer does come with the ability to double up monthly payments, or pay a 15 per cent lump sum once a year.

In real dollar terms, it could knock a lot of money off a mortgage payment, at least over the short term. A standard 25-year $500,000 mortgage at a five-year rate of 2.99 per cent works out to $2,364 a month. That mortgage under IG's new terms would be $2,115 a month — savings of $249 monthly, at least for the first three years, and as long as the variable rate doesn't increase.

Tzaferis speculates the company is willing to take a loss on the home loan temporarily in the hopes of making money elsewhere down the line.

"They get the opportunity to wrap you up and cross-sell their mutual funds and you'll probably renew and pay an extra half a per cent for a five-year then," he said.

Investors Group's five-year posted rate is currently at 3.4 per cent, slightly higher than what the market-leading big banks are offering.

Tzaferis says he recalls seeing five-year variable rate mortgages below two per cent several years ago, but it's believed this is the first such posted product since the recession that began in late 2008. Kelvin Mangaroo, president of mortgage comparison website RateSupermarket.ca, says it's the lowest rates he has seen in his company's six-year history.

"I think they were trying to break the psychological barrier of two per cent to generate some interest ... ahead of the peak spring buying season," Mangaroo said.

"Rates will go up over time, but it looks like it won't be any time soon," he said.

In 2012, a number of Canadian banks offered five-year mortgage rates below three per cent — something that earned them a stern rebuke at the time from then-finance minister Jim Flaherty. The banks quickly dropped the offer.

In March, Bank of Montreal again offered a five-year rate of 2.99 per cent, a deal that Flaherty's successor Joe Oliver was much more silent about.

Oliver released a statement Tuesday following news of the rate, noting the government has moved repeatedly in recent years to tighten lending rules and keep a lid on consumer debt and the housing market, but offering no hint it has any pressing intervention plans.

"I will continue to monitor the market closely," the statement read.

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