The Path To Prosperity
Two reports from Bloomberg on Canada. “Canadians fretted for years that home prices in the country’s largest city are rising at an unsustainable rate. Now they’re doing something about it. Ontario, the country’s most populous province, announced on Thursday a set of measures aimed at cooling the Toronto housing market. The province’s securities regulator on Wednesday also accused an alternative mortgage lender, Home Capital Group Inc., of making misleading disclosures, sending its shares tumbling. The issues at Home Capital relate to an investigation into loans with faulty income information. The company cut ties with 45 brokers in 2015 after finding falsified borrower income information, the same flaw that sunk many subprime lenders in the U.S. during the housing crisis.”
“The Ontario Securities Commission alleged Wednesday night that the company’s former officials didn’t satisfy disclosure requirements, made ‘materially misleading statements’ and failed to comply with other securities rules. ‘I think a lot of this mortgage fraud in Canada has been covered up and you’re now starting to see tips of various icebergs hitting the boat,’ Marc Cohodes, an investor who’s betting against Home Capital’s stock, said in a telephone interview.”
“Home Capital Group Inc.’s shares plunged more than 60 percent after the mortgage lender disclosed a costly new loan to tide it over as its deposits dwindle, intensifying a spiral of bad news. The company is effectively paying 22.5 percent on the first C$1 billion it borrows, which falls to 15 percent if it uses the full C$2 billion available to it, according to Jaeme Gloyn, an analyst at National Bank of Canada.”
“‘They did what appears to be to us a very expensive deal,’ said David Baskin, president of Baskin Wealth Management in Toronto, a former investor in Home Capital stock. ‘Basically they blew up the income statement in order to save the balance sheet, which I guess if you’re facing an existential crisis is what you have to do.’”
The Hamilton Spectator. “Nearly one quarter of Hamilton area homes sold in the first three months of the year were purchased by buyers from the Greater Toronto Area, a new analysis of the local marketplace has found. Conrad Zurini, broker of record for RE/MAX Escarpment Realty said: ‘Increasingly, these are (Toronto) investors looking to purchase townhomes and small single-detached homes as rental properties (in Hamilton).’”
“He suggested a frenzy by Toronto buyers to purchase investment properties could be adding an inventory of new rental properties to the marketplace faster than demand. Central Hamilton really jumped in the numbers. The vacancy rate went to 9.9 per cent in 2016, compared to 5 per cent the previous year.”
The Windsor Star. “Windsor’s real estate market has become so hot, sales agents for the majority of listings are restricting bids to one day — a strategy reserved for the nation’s most competitive housing markets in Toronto or Vancouver.”
“‘It first started (in Windsor) about six or eight months ago,’ said Denny Laurin, a broker/manager at Re/Max Preferred Realty Ltd. ‘But now we are in a situation with ample buyers that, for a seller, the best product to serve them is the multiple-offer situation. At the very start of this (a couple years ago) the average sale price in Windsor was $140,000, now it is nearly $250,000,’ Laurin said. ‘I have seen quite a few in South Windsor being sold for $100,000 over the asking price. A property that last year was worth $250,000 is now sold for $325,000.’”
From Mississauga News. “Residential sale prices in Mississauga shot up more than 30 per cent in the first quarter of 2017, according to a RE/MAX report. Mississauga’s 2017 average residential sale price for the first quarter is $753,788, an increase of 31 per cent from the same time last year. Significant price increases and high demand in the Greater Toronto Area during the first quarter of 2017 spurred growing numbers of buyers to leave the downtown core, RE/MAX said in its Spring Market Trends report. ”
The Winnipeg Free Press. “A new Re/Max report predicts a five per cent increase this year in the average selling price of a Winnipeg home, although one local agent said developments in recent weeks suggest that number may be a bit high. Akash Bedi, owner of Winnipeg’s Re/Max Executives Realty, said selling prices have been climbing at a slightly slower pace since the first-quarter data for the Re/Max report was compiled. ‘We are down a bit so far because of an oversupply of condos and an oversupply of higher-priced homes,’ he explained.”
The Regina Leader Post. “As options for renters in Regina increase, landlords are dealing with higher property taxes but often without the ability to raise rents. Jason Hall, a landlord with multiple properties in the city, is also trying to manage increased property costs in a wide-open rental market. ‘As much as you want to increase, if the market won’t handle that, you can increase it all you want but it will be empty,’ he said.”
“Hall agreed that since the market is favouring renters, it often results in landlords unable to raise rents. ‘I think it would be crazy for a landlord to pass this on to the tenant because they can just go down the street to someone who is not going to raise the rent. It is not good news for any property owner or homeowner. If you have one house, it is probably not as bad as someone who owns 150.’”
From Macleans. “On any given day now you can expect to hear at least one economist, public official or financial commentator express grave concern about the mountain of debt Canadians now carry. As a licensed insolvency trustee firm, our practice is on the front lines of Canada’s household debt binge and the bad personal finance habits that ensnare so many people. And what we see every day is that the majority of those grappling with serious debt trouble are the most typical individuals and families you could imagine.”
“Here is just a sample of recent files that have crossed our desks: A staff accountant with multiple lines of credit, several maxed-out credit cards, a big mortgage, a significant home-equity line of credit (HELOC) and two leased luxury cars; a TTC driver with two mortgages and $100,000 in unsecured lines of credit.”
“Those disturbing financial cases are no longer the extreme end of the spectrum that they were at one time. They are the ‘new normal’ in our trustee practice. The real horror stories are far worse, albeit less frequent. Two or three decades ago, it would have been unthinkable for people to hold the equivalent of $30,000 or $40,000 (or more) in credit card debt. Yet now that has crept into the Canadian psyche as just something one does.”
“(By the way, have you noticed the ‘Estimated Time To Pay’ wording on your credit card statement? It is a calculation of how long it will take to pay off your credit card balance if only the monthly minimum payments are made. The record we’ve seen is 330 years and 10 months.”
From CBC News. “There’s a difference between housing and real estate. Housing is where we live; real estate is an investment. It’s a pedantic but critical distinction. In all the breathless debates over housing bubbles and policy options, we look primarily at the investment. Imagine for a moment those debates centred around an investment other than real estate. A mutual fund. Or gold. Or an Exchange Traded Fund. Wouldn’t there be a backlash against government intervention in those investments? Would any of the stern statements from politicians keen on cooling the market make any sense?”
“The point here is that nearly all the oxygen in any discussion around housing focuses on that investment, and on one generation being priced out while the retirement plans of another generation are based almost exclusively on the soaring value of their homes.”
“But it’s hard to change decades of thinking. Economist Armine Yalnizian says politicians need to rethink the path to prosperity. Traditionally, she says, the two paths were higher education and/or home ownership. ‘The former no longer guarantees even employability, let alone higher wages; the latter is increasingly out of reach in part because of the former,’ she says.”
But Yalnizian says breaking from that orthodoxy comes with risk. ‘Politically it is hard for politicians to get off the ‘ownership society’ narrative track, because it looks like they’re waving the white flag on the future of the middle class for younger voters,’ she says.”
From the Macleans piece:
‘Let me share a scenario of someone who is self employed, as it highlights how a debt problem can spiral out of control quickly. I met recently with a woman in her 50s who owns her own company that furnishes and decorates high-end businesses, like big law firms. Or at least it did. With big firms shrinking to meet reduced market demands and trimming costs, her business had dried up.’
‘Her accountant brought her to me, and it was clear she had severely mismanaged her business and financial affairs, despite her accountant’s warnings. We see this all the time—small business owners are typically very good at what they do, but very poor at handling day-to-day administration.’
‘Here are some specifics that show how misaligned her lifestyle and business expenses were with the actual cash she was earning:
• Owns a townhouse: mortgage $600,000, estimated value $650,000
• Mortgage payments: $3,600/mo
• CRA lien against house for personal income tax owing: $98,000
• She had previously refinanced her house to help fund her business
• She had a prior bankruptcy 15 yrs ago—discharged
• Leased car: $51,000 owing
• Credit card debt: $75,000
• Business loan (personally guaranteed with a high interest rate): $45,000
• Outstanding debts to suppliers: $80,000
• Business rent owing (seven months behind): $11,000
• Net self-employment income: $3,500 per month, or $42,000 per year’
This article is worth reading in full.
“On any given day now you can expect to hear at least one economist, public official or financial commentator express grave concern about the mountain of debt Canadians now carry. As a licensed insolvency trustee firm, our practice is on the front lines of Canada’s household debt binge and the bad personal finance habits that ensnare so many people. And what we see every day is that the majority of those grappling with serious debt trouble are the most typical individuals and families you could imagine.”
There will always be SOME people like this. What is disturbing is the data saying this is far from an aberration, but more like a typical way of life.
I knew Americans have been on a keep up with the Joneses bing since the start of the Generation Greed era, but I thought of Canadians as more sober-minded, reasonable people. I guess that culture has changed, too.
Either than or homo-sapiens respond to the same stimuli — advertising and zero percent interest rates — the same way. Without the use of the cerebral cortex.
creating credit out of thin air and loaning it to people is part of the problem too. Yes these folks took the bait.
She’s drowning in other people’s money.
Haven’t been on this blog since the last Great Housing Bubble but here we go again! After recently returning from a trip to Toronto for a funeral I stayed at my very middle class, median priced home, and there were 4 houses for sale: ALL FOR OVER $ 1.1 million CD that sold for the mid $350’s 2 years earlier. I told my cousin “put your house up for sale and rent, you’ll be able to pay cash for all four of those in a year.” Just like I did in AZ in August 2007. He’s been in his house 25 years and wasn’t biting.
I hope Trumps new tax plan only includes mortgage deductions on primary residences and adds a 15% non citizen tax when purchasing residential property.
Uh huh
I can’t read an article like this without posting the link to the classic commercial: https://www.youtube.com/watch?v=LG-Z-kYSC4s
And how does a woman who owes 98K loonies for income taxes get approval for a lease for a 50K loonie car? Seriously, these people would be better off they just wiped everything clean and did the loonie equivalent of Oil City.
“Oil City” shacks in Ontario are $300,000.
Aren’t the maritime provinces (Newfoundland, etc.) cheaper?
Stanley! Stanley! Stanley!
A decade ago Canadians were all so sure they were solidly financially conservative. Supposedly that was why what happened in the US could never happen in Canada.
Often, if clients have serious debt problems but also decent incomes, they will attempt a consumer proposal to settle their debt legally through a licensed trustee. In effect, creditors agree to accept just a portion of what they’re owed (which is more than they might get if someone is forced into a personal bankruptcy situation). This allows people to keep their assets (house, vehicles, investments, cottage, etc.) while eliminating unsecured debt
Damn, I’ve been doing things all wrong. Keep the house, vehicle, investments, cottage [second home]? A house, vehicle, and investments are all I have NOW. I should just run up the CC debt with booze and vacays and lipo and escorts. Then I’ll just play victim, discharge it and come out better than I did going in.
It is nice to have a plan B, Oxide. I think we both might have missed the boat. It reminds me of the joke about the Texas wildcatter that makes ten million dollars one year and is broke two years later and someone asks him where did the money go. He says, I spent most of it on drugs, alcohol and prostitutes, the rest I wasted.
‘Oil prices fall on lingering oversupply concerns’
“It is clear that the world has plenty of oil in stock, making OPEC’s life that much harder ahead of its June production cut rollover date,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.’
‘While the United States reported a drop in its commercial crude oil stocks on Wednesday, albeit from near-record highs, its gasoline inventories surged as refiners produced more fuel than the market could consume.’
‘Meanwhile, U.S. crude oil production continued its relentless rise, and is now up 10 percent since mid-2016 at 9.27 million bpd, at comparable levels to the peak oil glut between late 2014 and early 2016.’
“U.S. crude oil production climbed for a tenth straight (week) … to an 87-week high,” said Stephen Schork of the Schork report.’
Maybe it’s time for the classic Adan play; start shoving some of that gasoline into crude storage tanks.
He says, I spent most of it on drugs, alcohol and prostitutes, the rest I wasted.
I believe that quote goes to the now deceased footballer* George Best, who said the he spent it on “I spent a lot of money on booze, birds and fast cars. The rest I just squandered.”
*footballer = soccer player
I once saw a T-shirt that said:
Maradona good
Pele better
George Best
Thx!
‘As much as you want to increase, if the market won’t handle that, you can increase it all you want but it will be empty…I think it would be crazy for a landlord to pass this on to the tenant because they can just go down the street to someone who is not going to raise the rent.’
Looks like Oxide needs to eat a little crow.
Not really. I never said “rent always go up.” For several years of my rent career, my rent stayed the same. What I *did* say was that “rents don’t go down for a multi-year tenant.” And that was before all this new inventory. Once we saw all this inventory in the pipe, I requalified my posts to say that the high supply could drive rents down. Even then, I’m not sure rents are going down for existing tenants, certainly not by themselves. Usually the tenant has to threaten to move.
“rent always go up.”
As I recall, it was the foundation of your argument for buying your house. Probably didn’t say it more than a few hundred times.
Crow breath specifically said landlords could always pass on costs to tenants. I replied, such a statement means they could raise rents constantly and at will, because they could invent a new cost. Ain’t true, I’m a landlord, I know.
Heck, if that were true, there would be none of this ‘retail apocalypse’ we keep hearing about lately. Stores could simply say to consumers, “Hey, we paid $X for this stuff. You have to buy it from us for $Y.”
Instead, consumers buy things elsewhere (online, thrift stores, dollar stores) or do without. There are always options and choices, in every market.
“or do without”
This is happening more than anyone in the MSM will admit.
Hi Ben, as a landlord, are you dropping rents too? Or just not raising them?
Eat yer crow and CraterTaters Donk.
And Oxide is still wrong.
Rents can go down, dramatically, if the economy crashes, and people lose their jobs or move away.
Example: Silicon Valley after the dot-bomb crash. My rent decreased dramatically (but I had to ask for the reduction) — and I knew A LOT of people with formerly high paying jobs who moved out.
Ben, do you know remember happened to rents in Texas after the Texas oil crash?
The RE bubble was largely commercial. Houses never got too expensive but there were tons of foreclosures because people lost their jobs and/or did the walk away thing. I first noticed it with rich people who had plenty of money but dropped off the keys. But there was the tax code: passive losses could be written off against real income, so doctors and lawyers were piling into apartment deals. After the tax change, these guys got hosed and free rent banners flew on every apartment complex. I remember driving by half finished apartments in DFW for years. Austin had the highest commercial vacancy in the nation, at over 40%, by 1989.
Looks like Oxide needs to eat a little crow.
To be fair to Oxide, in the long run, rents have had a track record that is upward. I rented a studio apartment in Solana Beach for $400 a month 30+ years ago. It was very close to the beach, just two blocks. I wouldn’t be surprised if it now rents for $2000.
Of course, now we are in “interesting times” with a hefty oversupply nationwide, so I would expect rents to drop into the near future.
Thank you, Colorado. I based my purchase decision based on rents going up long-term. They don’t have to go up every year. In my area, 2-bed are renting for about what my mortgage is. In another 7 years or so, I expect it will be the one-bedrooms that rent for the same as my mortgage. This is about what I expected. To be fair, my area is flooded with Grade B+ which don’t appear to have been luxed up yet.
And even now, are rents really going down, overall? I ask this as a serious question. Remember, all the non-luxe units are being snapped up and refurbished even in places like Columbus Ohio. So, developers are refurbishing Grade B and building only Grade A, so they have basically removed the entire Grade B rent level from the market. In that context, so what if a $2000 luxe unit drops to $1600? That’s still more than the $1200 a Grade B would have been.
“In my area, 2-bed are renting for about what my mortgage is.”
Yet still half of your total carrying cost.
Do the math.
In another 7 years or so, I expect…
And so forth and so on. Rents can only go up forever as long as this credit binge continues.
Kalaheo, Hawaii Housing Prices Crater 12% YoY
https://www.zillow.com/kalaheo-hi/home-values/
Off topic …
If any of you ignorant pukes want to become less ignorant (but, alas, forever remain pukes) then you should watch this Frontline video titled “A Subprime Education” …
http://www.pbs.org/wgbh/frontline/film/a-subprime-education/
pieces of paper make people wealthier!
Modern predators camouflage themselves with business suits.
“The issues at Home Capital relate to an investigation into loans with faulty income information. The company cut ties with 45 brokers in 2015 after finding falsified borrower income information, the same flaw that sunk many subprime lenders in the U.S. during the housing crisis.”
This isn’t some flaw, it’s CONTROL FRAUD which William Black explained in detail.
Another Blast from the Past, Frontline again.
It’s titled “The Untouchables” and it deals with (ahem) bankers.
As a bonus it mentions that Wonderful and Great (and a wee bit orange)American, Angelo Mozilo, and his fine and upstanding loan operation known as “Countrywide Financial”.
Enjoy.
http://www.pbs.org/wgbh/frontline/film/untouchables/
Tax reform or none, the MID is sacrosanct:
It is written that renters must eternally subsidize the purchases of supersized luxury homes by Ownership Society members.
Here is my question, and we will have to wait until the legislative creation process runs its course.
The standard deduction amounts are proposed to go up by a substantial amount. Will mortgage interest be separate from the standard deduction or included in the standard deduction?
Here’s why it’s important. If mortgage interest is a separate category, all homeowners will get to write it off. If mortgage interest is included in the standard deduction, only those with large amounts of mortgage interest expense will benefit, i.e. people with large mortgages.
I’ll bet anyone a ham sandwich and a cup of coffee that the Nat’l Assn of Realtors’ lobbyists are all over this like a cop on a donut shop.
NAR didn’t seem to be super happy about it. From yesterday:
https://www.nar.realtor/news-releases/2017/04/homeownership-in-the-crosshairs-of-latest-tax-plan-say-realtors
Raising the standard deduction puts a knife in the MID…. it doesn’t make sense for most debtors right now…. Raise the standard deduction in a big way and it makes sense for even fewer people.
Planned obsolescence my friends… Planned obsolescence
“Raise the standard deduction in a big way and it makes sense for even fewer people.”
Those, however, are the people that matter.
Killing the MID by burial under a larger standard deduction rather than eliminating it outright could create the undesirable consequence of rewarding those with the most ginormous mortgages with a massive tax write-off.
Is this a desirable feature of tax reform?
Not allowing property or income tax deductions is huge. Hits them whether they have a mortgage or not. Mike is curled up in the fetal position over it.
“Mike is curled up in the fetal position over it.”
He’s luck his boss understands.
https://www.youtube.com/watch?v=NYSxkqL9l_8
I don’t know if it’s going to “hit” existing homeowners. If the standard deduction is higher than the itemized including MID, then wouldn’t the homeowner get the same amount of income reduction and the same tax return, if not more? It’s not as if homeowners will get less.
You know who’s really going to take the hit? Charities. If the standard deduction is larger than MID + what you would normally give to charity, then you get the same refund whether you donate or not. There’s no incentive to make charitable contributions. The NAR needs to team up with the churches and the non-profits.
Interesting point on the charity contributions.
I think the psychology is even more important than the numbers for J6P. Everybody likes to feel special. People getting a big deduction for their mortgage interest got to feel like they were getting a special break that made them better and smarter than the people who weren’t. Just the psychology of ending that could have major consequences I think. I’d love to see it happen.
It’s an excellent strategy to dramatically reduce the MIDs negative impact on housing and the economy.
“rewarding those with the most ginormous mortgages”
A penny of reward for a pound of pain.
Economists Fear Trump’s Tax Plan Only Heightens a ‘Mountain of Debt’
The New York Times
April 27, 2017
Common Sense
By JAMES B. STEWART
During his campaign, Donald J. Trump embraced the cause of fiscal responsibility and accused President Barack Obama of shackling the country with a “mountain of debt.”
Mr. Obama “doubled our national debt. Doubled it,” Mr. Trump claimed in a speech in Virginia Beach.
Then on Wednesday, Mr. Trump unveiled the outlines of his much-anticipated tax overhaul, calling for steep tax cuts with only modest offsetting revenue increases. Economists I spoke to this week estimate it would add trillions to the national debt over the next decade.
“We’ve only done the rough numbers, but this looks like a tax cut of a magnitude of about $5 trillion,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan advocacy organization for fiscal responsibility. “That is simply unimaginable given our fiscal situation and the size of the deficit, which is already the worst since World War II.”
…
http://successpatheducation.com/register-for-events/event-registration-Sacramento/?nab=0&nabe=5292021300592640:1,5365249771569152:1&utm_source=AW-SP-BRAND-(S)&utm_medium=285/&gclid=CNSF9avLxNMCFQ6SaQodc1ABMA&utm_referrer=https%3A%2F%2Fwww.google.com%2F
Sign of the top?
Clinkle swindles investors:
https://www.forbes.com/sites/ryanmac/2016/01/22/clinkle-up-in-smoke-as-investors-want-their-money-back/#450e7197138d
Sell some stock and spend their money.What a scam.
Reminds me of a quote …
“It was surreal. When someone asked why he was doing the deal, here–now, he actually said, basically, ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’” - CEO Dryship, George Economou
what happens if the great recovery they have talked about for 8 years finally shows up? Is that the sell signal and then climb another wall of worry for a decade with a bunch more hype?
didn’t we predict this years ago….
http://theweek.com/articles/694772/how-espn-went-from-powerhouse-bloodbath
Not sure if we made that prediction or not… let’s assemble a 4 man team of concussed former athletes to energetically debate it for a while (in lieu of watching actual sports).
I never understood why anyone would want to watch SportsCenter.
There have been comments about ESPN and cable TV channels in general being in trouble and facing declining sales.
NFL ratings are also down.
So they are using people’s pension money to bail out the failing Canadian mortgage bank? What a great idea.
Coral Gables, FL Housing Prices Crater 6% YoY
https://www.zillow.com/coral-gables-fl/home-values/
‘As if housing market prices in Toronto aren’t discouraging enough, a celebrity pad in Los Angeles can be comparable in price to some homes in the downtown core.’
“I’ve had a number of big investors who are prominent in Toronto who are looking to get into the L.A. market,” says Matthew Gaskill, a realtor with Sotheby’s International, which specializes in luxury homes and real estate.’
Look at the photos of these dumps in Toronto and what they can trade up for LA. Gives you an idea of the bubble up there.
And LA is no bowl of fruit.
LA is a bowl, a nasty porcelain bowl mounted to the floor in a public restroom.
Too many non-americans took it over.
Isnt is all being bought up with fake Yuan, they just want to spend it before the gig is up.
This is pretty funny. I thought it was the American celebs who were going to move to Canada when Trump was elected. Now it’s really the Canadians celebs moving to America? Sounds like a great episode of Trading Spaces, y’all! I wonder how Jared Leto will enjoy living in that attached dump on Adelaide Street, right next to the dumpsters in the parking lot.
The Canuck entertainers and celebs have always moved here, because if they can make it, there are big reward$, far more than they’d ever make up north.
income fraud?
the 5-6 x income qualifying isn’t bad enough
What will Freddy and Fannie’s bailout number be this time? They’re already in the hole hundreds of billions on toxic subprime mortgages made in the last 9 years.
$48 oil will correct Canadahhhh
set of measures aimed at cooling the Toronto housing market. The province’s securities regulator
crater