December 10, 2013

Reading The Writing On The Wall

The Toronto Star reports from Canada. “Canada’s three major condo markets — Toronto, Vancouver and Montreal — are expected to face some ‘instability’ over the next two years, says a new report written on behalf of realtor Royal LePage. There have also been growing rumblings that high rental demand and record-high condo rental rates are set to soften, which could see many investors put their money-losing units up for sale. That assumes investors are just looking to make money on rents, says veteran economist Will Dunning. In fact, they are also looking for long-term capital gains and know that, thanks to low interest rates, they are seeing their equity grow faster than ever. ‘There is no bubble in Canadian condominium markets,’ says Dunning.”

Business News Network. “While the numbers suggest the country’s robust housing market is stabilizing, TD economics says the new housing market is overbuilt in many large urban centres. ‘Even with the monthly retrenchment, the pace of housing start activity remains greater than those supported by demographic fundamentals,’ TD economics said in a note to clients. ‘Weakness was registered in both the single and multi-categories in November. While concerns of overbuilding are typically discussed in the multi category (e.g., condos in Toronto), it is rare to see softness concentrated to just one part of the new housing market.’”

The Canadian Press. “Canada’s much-scrutinized housing market showed signs of softening last month, with starts falling a little further than expected but still to levels many analysts consider too strong to sustain. Benjamin Tal, deputy chief economist with CIBC World Markets, said he expects condo construction in Toronto has reached its limits. ‘The cranes you are seeing in the skyline now are decisions that were made two years ago, but if you look what’s in the pipeline, you see significant downscaling,’ he said. ‘Developers are realizing this market is already oversupplied and that you cannot just add to it if you want to maintain stability.’”

The Montreal Gazette. “The median price of a single family home declined five per cent on Montreal Island to $365,000, compared with a one per cent rise to $278,000 for a home in Greater Montreal. And the median price of a condo declined four per cent on Montreal Island to $270,000, compared with a three per cent decline to $233,000 for a condo in Greater Montreal. Projects are still moving forward, however.”

“In a research note Monday, National Bank Economist Marc Pinsonneault warned developers in Greater Toronto and Montreal to remain cautious because of unsold inventory. In Montreal ‘there is a large level of condos under construction compared to absorption, and … the resale market is favourable to buyers,’ he wrote.”

The Ottawa Citizen. “Shrinking demand for condominiums in November sapped any momentum in Ottawa’s resale homes market. Chris Scott, a Keller Williams VIP Realty sales representative, said he hasn’t seen any major price softening in the apartment-style condos in which he specializes. Still, with new condo developments stalled and as many as 1,000 existing condos listed for sale — ‘almost a year’s worth of inventory’ — he says pressure on sellers to reduce prices will only increase.”

The South China Morning Post. “Joy Mo, a Vancouver-area resident since 2002, says it is time to do something about the rich mainland Chinese she believes have priced locals like her out of the property market. Mo says she became aware of the extent of the problem as she mingled with fellow alumni of Shanghai Maritime University who had recently moved to Vancouver. ‘They thought that the prices of these houses were quite cheap,’ she said, referring to homes ranging up to C$2.4 million. ‘I just gasped. These numbers are just nothing to them and I don’t understand why they don’t pay income tax.’”

The Star Phoenix. “Once again Canada’s big five banks have delivered a record performance, despite the weak economy, slower consumer lending and other headwinds. The challenge for the sector going forward is finding places to grow without taking on excessive risk. After a decade-long binge on real estate, Canadian households are sitting on record debt, mostly in the form of mortgages. ‘The only time I would be weary (of bank performance) is heading into recession, where loans made in the past come could come home to roost,’ said said Ian Nakamoto, director of research at Mac-Dougall MacDougall & MacTier Inc. in Toronto.”

From The Spec. “With Canada’s housing market anticipated to cool, and consumers already carrying record amounts of debt, the banking sector faces challenges to find growth. ‘I think it is going to be pretty sluggish growth for loans here, especially if the housing market starts to slow down,’ said Ian Nakamoto, a portfolio manager at MacDougall Investment Counsel. Several of the banks trimmed staff in the fourth quarter. ‘They are probably reading the writing on the wall as to what is going to be happening over the next several years,’ Nakamoto said.”

From The Tyee. “If Canada’s banking regulations are not substantially toughened by the time the next global financial crisis hits — yes, there will be another crisis — our Big Six banks may very well find themselves in serious trouble. Again. The public is almost entirely unaware that our banking system, with just a couple of wrong moves or some bad luck, could go into a tailspin at any time. And when the next serious setback occurs, we could end up suffering even more than in 2008-2010.”

“Canadian banks remain extremely vulnerable for several reasons. For one, they are making loans and investments valued into the billions of dollars, without holding enough in reserve funds should disaster strike. Secondly, many of our banks’ activities are intertwined with the same U.S. and European financial institutions that are still gambling and taking risks as they did during the period leading up to the collapse. If a foreign bank crashes, or a European government goes broke, the reverberations will reach Canada.”

“‘Common wisdom in Canada has been that our banks have sufficient capital,’ said Jem Berkes, a business consultant who follows developments in the financial community. ‘Using their new improved measures — likely to be adopted by regulators in coming years — Canadian banks actually have some of the poorest capital levels in the world and that’s a cause for great concern. It suggests that our banks do not have enough capital to weather global storms.’”

Bits Bucket for December 10, 2013

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