March 2, 2016

People Got Overzealous And There Was No Discipline

The Vancouver Sun reports from Canada. “Housing in Vancouver is becoming dangerously unaffordable. That was among the findings of an RBC report released Monday, the same day Vancouver city councillor Geoff Meggs offered a reality check to homeowners in the country’s hottest real estate market. ‘Let’s be honest — for a long time we really enjoyed that ride. There wasn’t a lot of people complaining about the escalation of single-family home values until relatively recently. That love of speculative gains from land is something that’s part of — I think — our province’s DNA and it’s not good for us. We’re finally hitting the point where we see that it has very negative consequences for the majority of the population,’ Meggs said.”

The Financial Post. “The mortgage broker industry has been facing increased scrutiny since lender Home Capital announced last year it had severed ties with 45 brokers over allegations they had falsified income information. The total value of outstanding loans generated by the brokers in question was $1.72 billion as of Sept. 30. Industry insiders say tightened lending rules and the rise of self-employment have made it tougher for some borrowers to qualify for a mortgage. Meanwhile, competition among brokers has become stiffer as their ranks have expanded.”

“Combined, these factors can make it tempting for brokers, who are paid via commission, to falsify information or use high-pressure sales tactics in order to make sure the deal goes through, observers say. ‘You get big paydays when you close the deal,’ says Cam McCaw, a professor and fraud specialist at Toronto’s Seneca College.”

From CBC News. “A commodity crash which threatens to burst Edmonton’s housing bubble has become cause for caution, for both buyers and sellers, in the local real estate market. Prices in all categories saw a decline in the Edmonton CMA market as many lower priced properties sold in January. ‘Sales volumes are down, relative to the same time last year,’ Realtors Association of Edmonton Chair Steve Sedgwick said in a statement. ‘It is likely that home buyers are responding to current economic uncertainties.’”

The Record. “The oversupply of student housing in this city is far worse than previously thought, says an expert who tracks the investment real estate market. One of the new student apartment buildings in the university town already is in power of sale proceedings, said Karl Innanen, managing director of the Waterloo Region office of Colliers International. Currently, there is an oversupply of nearly 1,200 beds, but when new developments that are in the works are included, the surplus increases to 8,321 beds, Innanen said.”

“The Waterloo skyline is dotted with construction cranes for student apartment buildings. When those buildings are completed, the supply of beds will overshoot the market by 20 per cent, said Innanen. ‘I think the student market was overbuilt because people got overzealous and there was no discipline,’ he said in an interview. ‘Unfortunately, it was a rampant supply of brand new, nice buildings.’”

The Winnepeg Free Press. “A drop in prices made owning a condominium more affordable in Winnipeg in the final quarter of 2015, according to a Royal Bank report. ‘Plentiful availability of newly-built condo apartments continues to be the main thorn on the market’s side, with an unsold inventory amounting to 25 per cent of all apartment units completed in the past 12 months at the end of 2015,’ the report said. ‘Such elevated supply contributed to some price declines in the condo apartment segment.’”

The Globe and Mail. “Calgary resale home prices fell for the fifth straight month in February, as sales of detached homes and condos plunged to the lowest level in more than a decade. Calgary’s condo market has borne the brunt of the economic fallout from falling oil prices and layoffs in the energy sector. Condo sales plunged by an annualized 22 per cent last month, even as new listings rose by more than 7 per cent. The benchmark price for a condominium fell 5.35 per cent from a year earlier to $283,600, compared to a drop of 3.19 per cent for detached houses.”

“‘The last time Calgary’s February real estate market was slower than now, we were watching the first season of Friends,’ wrote real estate agent Mike Fotiou, pointing out that by mid-month, home sales had reached their lowest point since 1995.”

Canadian Mortgage Trends. “In mid-2014 crude began one of its most precipitous declines on record, a plunge that has put oil-town Fort McMurray, Alberta, on the brink of depression. Fast forward to 2016 and job losses are mounting. That’s led to anxious selling and headlines proclaiming how Fort McMurray homes have lost one-fifth of their value. As for Canadian banks, they’re slowly starting to see the effects on their bottom lines. As early as last quarter, during Bank of Montreal’s quarterly conference call, Chief Risk Officer Surjit Rajpal was asked why the bank wasn’t seeing more signs of trouble in household credit given the unfolding economic situation in Alberta.”

“Fast forward to this week’s first-quarter earnings reports and the figures have taken a notable turn south. ‘We did see delinquencies move up this quarter from historical lows in our residential mortgage portfolio in Alberta,’ said RBC’s David McKay, who adds that RBC is ‘proactively working with these clients.’”

“One of the most concerning alarm bells is Alberta’s surging unemployment rate, a historical precursor to defaults. Now above the national average at 7.4%, it was just 4.7% two years ago. To get a better on-the-ground assessment, we reached out to longtime Alberta appraiser Robert Denis, president at Chalifour Denis & Associates in Fort McMurray. ‘The larger, higher-priced homes have taken a bigger decrease in value than some of the smaller more affordable ones,’ said Denis. ‘You have some properties that may have dropped 8-10%, and some of your revenue properties have decreased in excess of 20%.’ Appraisals have been come coming in under some clients’ expectations, he suggested. For those who aren’t following the market conditions, ‘the cut has been a little deeper than [expected].’”

“Boris Bozic, founder and CEO of Merix Financial, one of Canada’s top non-bank mortgage lenders, says the deals being affected the most right now are refinances. ‘We have a higher decline ratio in that bucket of business on refinances, and I can say what’s really driving that is quite simply appraised values. There’s no getting around that because value is value, period.’”

“He notes that refi applications are being scrutinized more than purchases or transfers because they involve someone taking equity out of their home. His advice for brokers who may be submitting a refi in Fort Mac: ‘I would say to brokers more than anything else, be very, very comfortable with the values that you’re sending in.’”

Bits Bucket for March 2, 2016

Post off-topic ideas, links, and Craigslist finds here. Please visit my Youtube channel which you can also find here: