Garth Turner - Real Estate in Canada

[Liberty]

Sales numbers looking pretty ugly, and over time it should start showing up in prices (they are very sticky on the way down, so sales will go down before prices):

 

http://www.greaterfool.ca/wp-content/uploads/2013/03/SALES-PLUNGE.jpg

[nkp007]

In sum, things are a little worse than we thought...but only a little bit. And it should stabilize.  ::)

 

 

http://www.propertywire.com/news/north-america/canada-real-estate-prices-201303217581.html

Canadian property prices not expected to move much in 2013 or 2014

THURSDAY, 21 MARCH 2013

 

The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity and prices as supply responds to lower demand.

The residential real estate market had slowed as a result of changes to mortgage lending rules and guidelines which were introduced in August of last year.

 

The national average home price is now projected to edge down by 0.2% to $362,600 in 2013. This is slightly lower than was previously forecast. While largely flat at the national level, gains in excess of inflation are still expected in the Prairies and in Newfoundland. British Columbia, Ontario, and New Brunswick are forecast to record declines in their provincial average prices this year.

 

The national average price is forecast to edge back up by 1.7% to $368,700 in 2014. As in 2013, Alberta, Newfoundland, and to a lesser extent Saskatchewan and Manitoba are forecast to see the biggest gains. The forecast increase in the national average price in 2014 reflects a modest rebound in British Columbia, where its provincial share of national sales will return closer to normal and lift the national average price.

 

Sales activity on a national basis seems to be stable, as are average prices. However, national housing market trends continue to mask some increasingly divergent regional trends.

 

CREA said that sales activity in the second half of 2012 geared down by more than previously anticipated in some housing markets, resulting in a downward revision to the national sales forecast for 2013.

 

But it pointed out that the continuation of low interest rates will remain supportive for housing activity and prices this year and next year. Sales are still expected to improve later this year in tandem with stronger economic growth.

 

National sales activity is forecast to reach 441,500 units in 2013, a 2.9% fall from 454,573 sales in 2012, and some 5% below the 10 year average from 2003 to 2012. It was also a downward revision from the previous forecast for a 2% fall.

 

Alberta and Manitoba are the only provinces where sales are expected to rise in 2013, albeit modestly. The percentage decline in sales in Saskatchewan, Ontario, Quebec, and Nova Scotia is forecast to exceed the national result this year. The percentage decline in sales in British Columbia, New Brunswick, and Newfoundland and Labrador is forecast to be less than the national result.

 

CREA said that strong sales in the first half of last year will cast a long shadow over year on year comparisons during the first half of 2013 in many parts of the country. The smaller annual decline being forecast for British Columbia and New Brunswick reflects a weakening trend in these provinces during the first half of 2012 that was not apparent elsewhere.

 

In 2014, CREA forecasts that national activity will rebound by 4.5% to 461,200 units, reflecting a slow but steady improvement in activity. This would still leave national sales about one per cent below their 10 year average, with activity not expected to return to levels recorded in the first half of 2012 at any point in the forecast horizon.

 

British Columbia is forecast to see the strongest sales increase in 2014 with growth of 9.5%, albeit from a low base, with most other provinces forecast to post gains in the range between three and five per cent as the continuation of moderate economic, job, population, and income growth offsets small and gradual interest rates increases next year.

 

‘Mortgage rules are expected to remain as they are, so sales should be less volatile than they have been in recent years. Interest rates are also expected to remain low as the economy grows and adds jobs, which is supportive for the resale housing market,’ said Gregory Klump, CREA’s chief economist.

 

This story relates to: Property  canada  property market  property prices  property sales  real estate  [sEE ALL]

[Liberty]

http://business.financialpost.com/2013/04/05/canadian-housing-downturn/

 

Signs of a Canadian housing downturn are everywhere

[Liberty]

http://www.greaterfool.ca/wp-content/uploads/2013/04/CHART.jpg

[rukawa]

I don't think there is any way to take advantage of this except by not buying a house in Canada. I strongly doubt there will be a crash. In Canada mortgages have recourse. House owners will simply not sell their houses and attempt to rent them out. The result will be a prolonged period of flat prices in housing....probably for 15 or so years.

[Liberty]

I don't think there is any way to take advantage of this except by not buying a house in Canada. I strongly doubt there will be a crash. In Canada mortgages have recourse. House owners will simply not sell their houses and attempt to rent them out. The result will be a prolonged period of flat prices in housing....probably for 15 or so years.

 

AFAIK states in the US where there's recourse were hit just as bad as the others. I don't expect a sudden crash, but I think prices will go down significantly (or wages will go up a lot, but that's a lot less likely).

[nkp007]

A lot of people are predicting prices will stay flat for many, many years.

 

LOL. As if prices ever stay flat on anything.

[VAL9000]

I think the issue in Canada is the concentration of baby boomers whose primary asset is real estate.  Boomers have a very high percentage of home ownership.  Without looking I would guess that this cohort owns about 50% of all primary residences in Canada.  Get that group all looking to cash in their "savings" over a 15 year period, and a crash is probable.

 

The slack can't be taken up by younger generations at these prices, because they don't have comparable earnings power relative to boomers.

 

[Yours Truly]

A lot of people are predicting prices will stay flat for many, many years.

 

LOL. As if prices ever stay flat on anything.

 

Prices should move up with inflation, thats been the historical trend since forever

[Liberty]

Interesting paper on housing in Canada. The intro's a bit too cute, but good overview and lots of interesting charts and stats:

 

http://www.cansofunds.com/wp-content/uploads/2013/07/Canso-Px-The-Canadian-Housing-Market-July-2013-Revised-2.pdf

[no_free_lunch]

Prices should move up with inflation, thats been the historical trend since forever

 

Wasn't that the trend in the US as well?  Before the huge RE crash?

[nkp007]

This can't be sustainable.

[Liberty]

One of the annoying things about RE in canada is you apparently can't trust the 'official' numbers at all:

 

http://www.greaterfool.ca/2013/10/16/truth-trust/

[Hoodlum]

When I walked out of my local Tim Hortons last night, there were 2 men discussing taking out $100k on their home line of credit to invest in the stock market.  I think we are getting close to the end now.

[alertmeipp]

I have been waiting for a correction for yearssssssss.

[nkp007]

Some great people to follow on twitter if you want to keep up with the day-to-day musings of Canadian real estate:

 

 

[Mark Jr.]

Been following Garth Turner a long time, met him in person a couple times, good guy, fabulous writer.

 

I think he's right about housing but he then goes on to make some recommendations which I find puzzling:

 

He eschews savings for the most part and advocates taking out credit lines against your home to invest in things like equity indexes and bank prefs.

 

Yet, if interest rates have nowhere to go but up, and housing values have nowhere to go but down, won't this eventually squeeze somebody who follows this advice from both ends?

 

• Your borrowing costs go up as interest rates rise
  
• Rising interest rates typically dampen stock market returns
  
• Your collateral (your house) is losing value
  
• Bank shares in particular would come under pressure in a real estate bust, the prefs too I would think
  

 

But when I asked him about this in the comments of his blog once he just gave a one word retort like "*groan* or something like that, as in "obviously you're too stupid to understand so I won't bother explaining why I'm right" sorta deal.

 

[Martian]

Been following Garth Turner a long time, met him in person a couple times, good guy, fabulous writer.

 

I think he's right about housing but he then goes on to make some recommendations which I find puzzling:

 

He eschews savings for the most part and advocates taking out credit lines against your home to invest in things like equity indexes and bank prefs.

 

Yet, if interest rates have nowhere to go but up, and housing values have nowhere to go but down, won't this eventually squeeze somebody who follows this advice from both ends?

 

• Your borrowing costs go up as interest rates rise
  
• Rising interest rates typically dampen stock market returns
  
• Your collateral (your house) is losing value
  
• Bank shares in particular would come under pressure in a real estate bust, the prefs too I would think
  

 

But when I asked him about this in the comments of his blog once he just gave a one word retort like "*groan* or something like that, as in "obviously you're too stupid to understand so I won't bother explaining why I'm right" sorta deal.

 

I don't think he advises to take home equity loan and invest.  He says that lot of people have their savings in low interest paying accounts that have negative earnings after inflation. He wants them to put it into ETFs and bank prefs whose returns are better. He also does not want people to have an emergency fund which earns nothing. He says incase of emergency you can use the credit card/home equity loan for the time being and sell some of your investments that are fully liquid to pay it back.

[Guest ajc]

Q&A with Vijai Mohan, the man who's shorting Canada's banks

 

Recently, The Globe and Mail ran a story about Vijai Mohan, a U.S. hedge fund manager who has made an all-in bet against Canada.

 

The founder of a small San Francisco-based hedge fund called Hyphen Partners LP has staked 95 per cent of his investors’ assets on a wager that the country’s housing market and banking sector are about to come apart at the seams. Mr. Mohan has amassed large short positions on Canadian bank shares and the loonie, betting their values will fall sharply.

 

Vijai joined Globe business reporter Sean Silcoff and business community editor Dianne Nice for an online chat, and took your questions about the risks he sees in Canadian investments.

 

You can read a transcript from the discussion below....

 

http://www.theglobeandmail.com/globe-investor/investor-community/live-chat-with-vijai-mohan-the-man-whos-shorting-canadas-banks/article11731134/?ss=1

[Liberty]

Thanks ajc. I came here to post that but you beat me to it. Good read. Nothing totally new, but well argued. The argument about put-backs to the banks from CHMC is particularly interesting, though it's hard to know how that would play out.

[no_free_lunch]

I have heard it prophesized for years.  We'll see if this comes to pass.  It seems inevitable but the timing.. very difficult to pick.

 

Prior to the release of the OSFI B20 regulations, my research indicates that one could a) present self-employment income using self-reported income with no stringent background checks to prove that indeed the source of income is valid, b) enter into a real estate transaction without a physical appraisal, and also c) enter into a 100% loan to value mortgage - all simultaneously qualifying for a CMHC insured mortgage product.

 

I can vouch for b & c.  That was very, very common.  I have even heard of excess of 100%.  Not sure about point a.

 

The one thing that concerns me about housing in Canada is the prevalence of 5 year mortgages.  In the US, it seems that they are fully amortized over 15 or 30 years, so no interest rate risk.  If interest rates ever rise in Canada, watch out.  It is not just new buyers who are going to be hurting.

[racemize]

I have heard it prophesized for years.  We'll see if this comes to pass.  It seems inevitable but the timing.. very difficult to pick.

 

Prior to the release of the OSFI B20 regulations, my research indicates that one could a) present self-employment income using self-reported income with no stringent background checks to prove that indeed the source of income is valid, b) enter into a real estate transaction without a physical appraisal, and also c) enter into a 100% loan to value mortgage - all simultaneously qualifying for a CMHC insured mortgage product.

 

I can vouch for b & c.  That was very, very common.  I have even heard of excess of 100%.  Not sure about point a.

 

The one thing that concerns me about housing in Canada is the prevalence of 5 year mortgages.  In the US, it seems that they are fully amortized over 15 or 30 years, so no interest rate risk.  If interest rates ever rise in Canada, watch out.  It is not just new buyers who are going to be hurting.

 

well that certainly sounds frightening.

[enoch01]

Thanks ajc. I came here to post that but you beat me to it. Good read. Nothing totally new, but well argued. The argument about put-backs to the banks from CHMC is particularly interesting, though it's hard to know how that would play out.

 

I'm betting it won't play out with CMHC rolling over and the banks not settling for some amount.

[wisdom]

a) was prevalent in Vancouver prior to GFC. Stated income and equity programs (asset based lending) were common. No proof of income was required for either option.

 

In addition, certain first nations groups to whom regulations did not apply were offering 100% financing with no proof of income.

 

Brokers and bank lenders have been beating the system:

Most banks do not report mortgages on credit bureaus in Canada. From what I understand it has been common practice amongst brokers and lenders to educate their clients not to include other properties owned but financed at other institutions so that debt servicing is within guidelines. There is no way to know unless advised by the client.

 

This is why individuals who work the system borrow from banks and avoid HELOC's as those get reported.

 

Mortgages under corporations do not get reported on bureaus either. The system is full of holes and there will be consequences in Vancouver as the system has been exploited to an extreme. Everyone has chosen to look away as there was so much money to be made.

 

Why do you think individuals have been able to buy houses when the average house price is at 10x average household income.

[racemize]

Horizon Kinetics commentary on Canadian REITs.  No real mention of the danger of housing prices falling--I presume that is an issue for REITs?  (I've always ignored them as they have seemed risky to me, but don't know much of the mechanics).

 

http://www.horizonkinetics.com/docs/December_Commentary_Canadian_REIT.pdf