A Wile E. Coyote Moment
A report from the San Francisco Chronicle. “Foreign buyers are an increasingly potent force in residential real estate in the Bay Area, as well as nationally. Foreign buyers plowed $82.5 billion into U.S. homes for the 12 months ended in March, up 24 percent from $66.4 billion the year before, according to the National Association of Realtors. The sales - which represented 8.9 percent of all home purchases - were evenly split between recent immigrants and nonresident foreigners, the Realtors group said. Anant Sapatnekar, who was born in India and after 16 years in Canada, moved to San Francisco for a software engineering job a few months ago and decided to buy a home to establish himself in his new city.”
“He faced the usual challenges of sticker shock and a competitive market. But his citizenship added some special hurdles. His first accepted offer fell through when he couldn’t get a home loan in time. Eventually he lined up financing from the U.S. division of the Royal Bank of Canada, since it was able to track his Canadian credit history.”
“In another way, his status as an immigrant helped him. When Sapatnekar found a Bernal Heights condo that he liked, his agent encouraged him to write a personal letter to the seller. ‘I wrote something from my heart about how I just moved here to start a new life, uprooting myself from one country and starting all over again for the second time,’ he said. ‘I said I really liked the house and it would really help me if you sell it to me.’”
The News Press. “Developers and single-family home buyers are returning to Bonita Springs and to many parts of Southwest Florida. About 60 percent of John R. Wood Realtors’ home buyers are buying homes with cash. ‘Our No. 1 foreign buyer is Canada,’ said CEO Phil Wood. ‘Canadians did relatively well during the recession. They’re in much better shape to buy homes than the typical American.’”
From Cronkite News. “When Matt Horton’s cellphone rings these days, it’s often from someone north of the border looking to buy one the luxury homes he lists with Realty One Group. As if on cue, Horton receives a text message, then holds up his phone and chuckles. Another Canadian. Canadian buyers now account for about 85 percent of Horton’s business, up from two or three transactions per year a decade ago. ‘Everybody and their mother has a place down here,’ he said.”
“Canadians purchased 11,400 homes in Maricopa County in 2011, according to the Maricopa Association of Governments. On top of the exchange rate, many Canadians are taking advantage of Arizona’s depressed housing prices, banking on future appreciation, Horton said. Many are investors who rent the properties.”
“The continued influx from the north also depends on Canada’s health, which has been supported by minimal debt and deficit levels as well as foreign interest in the nation’s natural resources, in particular from the Chinese, said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier Inc. in Toronto. Despite that country’s current advantages, the Canadian government is concerned about rising debt, some of which is due to its citizens borrowing on their home equity to invest in U.S. real estate, said Dale Walters, CEO of KeatsConnelly, the largest cross-border wealth management firm in North America.”
“‘There are a million things that could go wrong, but none seem to be highly likely,’ he said. ‘And regardless, for the wealthy, they’re pretty much immune to these things.’”
The Province. “Sagging home sales and flat prices have prompted speculation that the ‘housing bubble’ might be about to burst — a prospect that immediately catches the attention of British Columbians. But there is no housing bubble, according to Tsur Somerville, director of the University of B.C.’s Centre for Urban Economics in the Sauder School of Business. ‘You can’t burst a bubble that wasn’t there,’ said Somerville. ‘But you can have prices above where they should be and it not be a bubble. A bubble isn’t just defined by high prices,’ he said.
“Somerville identified a housing ‘bubble’ as conditions akin to what was happening in 2007. ‘It didn’t matter what the condo looked like or what it’s going to look like or who was building it, people were lined up around the block and snapping it up,’ he said. ‘They were saying, ‘I’ll take 12, please.’ That’s more of a bubble environment.’”
The Globe & Mail. “Société Générale believes Canada still doesn’t have a handle on a frothy real estate market. Senior foreign exchange strategist Sébastien Galy cited the risks associated with a protracted period of low interest rates. ‘The housing bubble is not yet under control and the BoC is starting to be under fire for its ultra loose stance,’ Mr. Galy said before. Rates are low in Canada, he said, and a long time timeline can have ‘unintended consequences.’”
“Fitch Ratings, affirmed Canada’s triple-A standings, projected a ’soft landing’ in the housing market amid tighter rules. Still, it said, household debt is still the country’s primary risk, making the economy more vulnerable to shocks. ‘Excessive borrowing by individuals is, to a great extent, a by-product of low interest rates, a legacy of the monetary response to the financial crisis,’ Fitch said.”
“The Bank of Canada is putting the present threat of a crumbling global economy ahead of a creeping worry that ultra-low interest rates are sowing the seeds of the next financial crisis. Mark Carney, the central bank’s governor, left the benchmark interest rate at 1 per cent Wednesday – now unchanged for two years – extending the longest period of static interest rates since the mid-1950s.’
“The Bank of Canada noted Wednesday that Canada’s household debt burden continues to rise. That trend likely won’t change significantly until it becomes more expensive to borrow, which is why Mr. Carney is trying to condition Canadians to expect higher interest rates. However, the Bank of Canada acknowledged that growth in China and other big emerging market economies is ‘decelerating somewhat more quickly’ than anticipated.”
“Last week, William White, the Canadian economist who correctly predicted that the U.S. housing boom was a harbinger of trouble, published a new paper that argues ultra-low interest rates risk a lengthy list of ‘unintended consequences,’ including stoking inflation, inflating new asset-price bubbles and exacerbating income disparity. ‘None of these ‘unintended consequences’ could be remotely described as desirable,’ wrote Mr. White.”
The Canadian Press. “The study — ‘Storm Clouds Gather Around Canadian Consumer Credit’ — says while Canada has managed to outperform other G7 countries since the recession it has been propped up by consumer spending, while exports continue to lag. With debt-to-income ratios at an all-time high around 150 per cent, Canadians have stretched themselves to the limit since the recession and have left little head room to buffer against another economic downturn, Moody’s suggests in the report.”
“‘The situation that Canada faces is much riskier than in 2007-2008 when the first global financial crisis occurred,’ said Mark Hopkins, a senior economist at Moody’s Analytics and one of the authors of the report. With Canadians so deep in debt, it would be extremely difficult for domestic spending to pick up slack in the economy if things started to go downhill. That could result in a serious downward spiral in employment levels, household spending and the quantity and quality of credit outstanding, the report says.”
‘There’s a legitimate fear that there may be a Wile E. Coyote moment here,’ says Hopkins.”
ETF Daily News. “As an ardent admirer of all things ‘American’; Canadian Prime Minister Stephen Harper wasn’t content with having just an ordinary housing bubble in Canada’s housing market. He wanted a Canadian bubble of epic proportions, just like Uncle Sam’s. Consequently, Harper’s Conservative government has totally unshackled Canada’s banks, and allowed them to run wild with reckless lending. The Canada Mortgage and Housing Corporation has been buying-up mortgages so fast that the Harper government has had to raise its legal borrowing limit twice just since the Conservatives took power, and will soon raise it a third time as it nears its new limit of $600 billion.”
“In proportionate terms it is now larger than Fannie Mae (at its peak), and this occurs as a Euro Pacific Capital report reveals that, ‘Once small, Canada’s sub-prime mortgage industry is now booming.’ It goes on to report that there are now $500 billion in ‘high-risk mortgages’ in Canada’s housing market – nearly half of the entire mortgage market.”
“Meanwhile, the obscene ‘home equity’ loan market has also exploded in Canada. These ‘HELOC’ loans (once known as ’second mortgages’) have exploded by more than 170% in Canada over the past decade. Standing by, eager to print-up as much paper as necessary is Goldman Sachs Alumnus (and Bank of Canada Governor) Mark Carney.”
“As the architect of Canada’s near-zero interest rates, Mark Carney can be thought of as the man pouring gasoline all over the dry tinder. Even B.S. Bernanke had belatedly begun raising U.S. interest rates to try to cool off the U.S. housing market before its manufactured bubble collapsed. Not Mark Carney. It’s ‘pedal to the metal’ all the way…all the way until he and Stephen Harper have driven Canada’s economy off of a cliff.”
