May 25, 2017

Vulnerable To Financial Ruins In A Minor Correction

A report from Bloomberg on Canada. “Toronto’s hot housing market has entered a new phase: jittery. After a double whammy of government intervention and the near-collapse of Home Capital Group Inc., sellers are rushing to list their homes to avoid missing out on the recent price gains. The new dynamic has buyers rethinking purchases and sellers asking why they aren’t attracting the bidding wars their neighbors saw just a few weeks ago in Canada’s largest city.”

“‘We are seeing people who paid those crazy prices over the last few months walking away from their deposits,’ said Carissa Turnbull, a Royal LePage broker in the Toronto suburb of Oakville, who didn’t get a single visitor to an open house on the weekend. ‘They don’t want to close anymore.’”

The Globe and Mail. “Have you heard the one about how supply is going to solve the great Canadian housing crisis? If you’ve listened to the real estate industry or our political leaders, you likely have. Just build more condo towers and presto, problem solved. Well, they’re building them in Metro Vancouver and Greater Toronto – lots of them. Here is the other brutal reality about the great supply argument: vast swaths of these units are being built and presold to foreign purchasers. These buyers, in turn, are either flipping the properties for a profit before they are even finished or hanging on to them as safe investments and renting them out.”

“No, the great supply argument is a myth, a dodge. It is not solving anything.”

The Drayton Valley Western Review. “If you are looking at putting your house up in the market, take into consideration these tips provided by local realtors Tammie Sharpe and Lorinda Gustafson. According to them, it is important to ask for a realtor’s advice as to what needs to be improved in a home before putting it out in the market. If a seller decides to make home renovations, Sharpe advised to do it right the first time and get a professional to do the work.”

“‘Most buyers will get an inspector to come in and inspect the house and if you have done a whole lot of work but not properly, the inspectors are going to find it so the buyers are going to know and they will either back away from making an offer or they are going to drop their price especially now that it is a buyers market and there are a lot of houses for buyers to choose from,’ she said.”

From Better Dwellings. “Vancouver real estate may be showing signs of exhaustion. According to the Bank of Canada (BoC) and the Ministry of Finance (MoF), the quality of mortgages are showing increasing signs of quality deterioration. Over the past year this trend has accelerated, leaving more homeowners vulnerable to financial ruins in the event of a minor correction.”

“A high-ratio mortgage is one where less than 20% is placed as a down payment, and the owner has as little as 5% equity in the home. Chances of these mortgages going underwater (i.e. the owner ending up with negative equity in the home) are already pretty high. The BoC and the MoF data shows that the quality of high-ratio loans in Vancouver is quickly deteriorating. The fiscal year ending in 3Q of 2016 saw high-ratio mortgages with an average LTI higher than 350%, in more than 75% of postal codes in Vancouver. This is an 11% increase from the period prior.”

“These subprime loans are actually getting worse in Vancouver. 36% of postal codes saw the average loan-to-income ratio increase from the year prior. V5X, known to humans as South Vancouver, saw the largest increase. The ratio jumped from insignificant numbers, to an average high-ratio loan-to-income of over 450% – the highest measure the BoC gives.”

“The BoC’s concerns are not just limited to Vancouver, they previously noted that Canadians across the country are increasingly stretching themselves thin to pursue homeownership.”

From The Province. “The Fraser Valley Real Estate board (FVREB) has warned managing brokers that offshore investors have apparently been asking realtors to complete illegal transactions that would break money-laundering and tax-evasion laws. A May 18 memo titled ‘Important notice’ was sent out to hundreds of broker-managers who were told to distribute it to realtor employees.”

“‘It has come to our attention that overseas clients may be asking realtors to allow money to be transferred to their personal accounts, so that the realtors can arrange a bank draft to give to the sellers/developers for their purchase,’ the May 18 notice states. ‘It’s important everyone understands that this violates federal income-tax laws, Fintrac laws and the Real Estate Services Act.’”

“In an interview, board president Gopal Sahota said his board isn’t aware of specific cases where realtors have completed such transactions, but the board acted on information gathered by its members. ‘It is a strongly worded notice,’ Sahota said. ‘We want our members to know lots of laws could be broken. Money has to be legitimate or you have the money-laundering and illegal aspects coming into (transactions) … You can’t be handling suitcases of cash.’”