April 20, 2012

A Long Way To Go Until The Music Stops

It’s Friday desk clearing time for this blogger. “A Roncesvalles realtor has the dubious distinction of having the cheapest detached property for sale in Toronto right now — a dilapidated garage that comes with 16 by 12 feet of land. Laugh if you will that it’s an eyesore and listed for $99,999. Nick Kourakos has already had one offer — for $50,000. ‘I said No. I’d let it go for $80,000, but that’s my bottom line.’ Kourakos, a veteran realtor, is hoping to cash in on a housing market that remains so unrelentingly hot, the average detached house in Toronto sold for $819,169 in March. ‘There’s no place else in the city where you can get almost 200 square feet of land for $100,000. I bought it because I couldn’t find anything else around for that little money anywhere in Toronto. It was just for a little investment. But I’m already regretting putting it on the market.’”

“The Bank of Canada sounded the alarm on growing household debt Wednesday, taking aim in particular at the growing tendency of Canadians to take out lines of credit using home equity. Bank governor Mark Carney pointed to concerns raised by the country’s banking regulator that said earlier this year that the standard of some home equity loans was slipping. A quarterly economic overview compiled by the central bank highlights the explosive growth of HELOCs and mortgage refinancings in the past decade, which have surged to $64-billion as of 2010 from $8-billion in 2001.”

“‘Like any financial innovation, home equity lines of credit have both positives and negatives associated with them,’ Carney said. ‘The issue, as with any debt, is if these innovations or this access to debt is taken too far.’”

“Australia’s Crown Group is now offering Singapore investors an opportunity to purchase two of its residential developments, Top Ryde City Living and V by Crown at Parramatta, in Sydney. At a press launch last week, Iwan Sunito, CEO for Crown Group, gave a briefing on Sydney’s property market outlook and said capital appreciation in Sydney is promising. Data showed a 52.2 per cent increase in new home loans in the last four months of 2011 compared to the same period in 2010. ‘50 to 60 per cent of the market is dominated by Asians,’ said Sunito.”

“Diana Beaumont of 3CR community radio in Melbourne interviewed Vincent Kolo, senior editor of Chinaworker, on his recent visit to Australia. Diana: You explained at a meeting in Melbourne that previously the local governments were not allowed by the central government to go into debt. Is that true? Vincent: Yes. By law they are not allowed to incur debt and they’d been kept on a tight rein previously. But the government hit the panic button in 2008.”

“They allowed the local governments to spend, but the way they’ve done it is they’ve actually copied a lot of the Wall Street ‘witch doctory’. They’ve set up local government finance vehicles (LGFVs) using land as collateral and borrowed heavily from the banks, which of course are also government-owned in China. And this has resulted in a collective debt – the government says that the local government debt, from almost nothing four years ago, is now 10.7 trillion RMB, which in Australian dollars is around A$1.65 trillion, which is significantly more than entire GDP of Australia. So, there is a major local government debt problem. One Chinese professor said, ‘Every province of China is Greece.’”

“When he was boss of Centro, Glenn Rufrano learned a lot about debt refinancing as he had to refinance more than $5 billion of bank debt within weeks. Private equity turned out to be a godsend. It replaced an Australian syndicate of 23 banks and life companies. It is a similar story in the United States, where debt of hundreds of billions of dollars is due to mature this year. Eight of the top 20 most active investors were Asian and four were American.”

“His company forecasts investment sales in the US will increase by about 25 per cent this year. The reason is simple: improving fundamentals and a rebound in confidence will increase the appetite for risk, which will filter down into the property markets. But it was too much debt that got the global economy into the GFC mess and, while private equity, hedge funds, banks and governments are playing a key role passing the parcels of debt around, there is still a long way to go until the music stops. When it does, the hope is that the parcel of debt has shrunk to a size where the holder isn’t a loser.”

“The latest figures from March released by the Northeast Florida Realtors Association show pending sales up 17% over a year ago, and list prices are rising. Dane Leslie, NEFRA President, says ‘Anyone who is waiting around for the absolute best deal for a new home or investment should take a closer look at what is happening and make their move soon.’”

“Foreclosure activity plummeted in March across the Coachella Valley, continuing a nearly year-long trend and raising hopes about the trajectory of the local housing market. In some valley communities, the demand for bargain distressed properties has exceeded supply, Cohn said. ‘Nearly every home sold has multiple offers, and the values are going up as quickly as appraisals will allow,’ said Bret Cohn, a mortgage consultant. ‘I have had several deals, particularly flip properties, where the accepted offer is higher than the list price and the appraisal will come in a little low.’”

“Cohn also expects a steady stream of foreclosures and short sales to continue for the next couple of years. ‘The (foreclosure) numbers do look down, but there is still a tremendous amount of shadow inventory out there.’”

“In the first quarter of 2012, there were 37 foreclosures in Ravalli County, based on foreclosure auctions at the Ravalli County Courthouse, down from 49 in the first quarter of 2011. According to local real estate agent and appraiser Darwin Ernst, who compiled the statistics, said that he only has data from trustee deeds at the Ravalli County Courthouse because Montana has no public data for real estate sales. ‘The Realtors have their database, you have to subscribe to that data, so it’s really hard to get the data,’ he explained.’The legislators have decided that the right to keep this sale information private outweighs the public’s right to know. I think it’s our right to know if we are paying the taxes, but the Realtors own that database and they will lobby against making it public.’”

“‘We still have shadow inventory from last year, the properties were foreclosed on in 2011 but they haven’t been flushed out of the system because they haven’t been listed or repaired yet,’ he explained. ‘ The shadow inventory is key to understanding the market. We haven‘t been able to sell the properties that have been foreclosed.’”

“Jake Zaagman said his Wyoming home was invaded by cockroaches coming from the house next door and he put rodent traps in his own garage because there were so many mice. Since January 2011, the house has been owned by US Bank, which took it over in a foreclosure. The family renting the property suddenly moved out last week. Target 8 investigators obtained inspection reports on the house. In the past couple of years, they ordered the outdoor cleanup of debris including litter, garbarge, couches and a rug. One time they responded to a complaint about the tenant operaging a second-hand business from the house, and another time over the house being used as storage for a flea market.”

“‘It’s terrible,’ he told Target 8 investigators. ‘They got garbage piled all over.’ His daughter, Marybeth Knapp, said, ‘There was a rat in the driveway, and 212 mice in the traps. All coming from this house.’”

“For recent newlyweds Dee-Jay and Chris Cobbe, it seemed almost too good to be true. The couple was renting an apartment in Woodlands and really wanted to buy a home, but just couldn’t save for the down payment. And then, as fate would have it, one cold day in October 2011, Dee-Jay’s car broke down and she ended up taking the bus to work. ‘I looked up and in front of me was a billboard for the PEAK program,” says the 27-year-old, who works as a generalist.”

“The PEAK Home Ownership Program - which stands for Public, Essential and Key workers, is a joint initiative with Habitat for Humanity, the Government of Alberta and the Trico Charitable Foundation. It provides qualified applicants a hand up into affordable home ownership by providing a repayable down payment and a mortgage subsidy. She came home that evening and told her husband, Chris, who works as a bartender, about the program. The couple filled out an application online and were approved within a few days.”

“The Cobbes were able to purchase a two-bedroom, double master plan in the project for $260,000. ‘The issue isn’t being approved for a mortgage, it is coming up with the down payment,’ says 29-year-old Chris. ‘We are so excited,’ says Dee-Jay. ‘When we tell people about this, they say: ‘What is the catch?’”




RSS feed

40 Comments »

Comment by polly
2012-04-20 06:03:38

What is a generalist?

Comment by combotechie
2012-04-20 06:14:00

He’s the guy who will stick one of your feet in 32 degree water and the other foot in 118 degree water - which will give both your feet an average temperature of a comfortable 75 degrees - and then will wonder why you are complaining.

Comment by polly
2012-04-20 07:08:23

So this is a job commonly taken by 27 year olds married to bartenders who can’t save any money for house downpayements?

 
 
Comment by oxide
2012-04-20 09:58:03

Seems to be Canada-speak for government worker, especially the non-technical administrative types. Dee-Jay “works as a generalist for AISH (Assured Income for the Severely Handicapped).”

 
 
Comment by Hwy50ina49Dodge
2012-04-20 06:25:06

“the average detached house in Toronto sold for $819,169 in March.” = “Oh, Canada!”

Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 08:40:19

Their home prices bubble up much higher than U.S. home prices did.

But no worries — it’s different in Canada.

Comment by Beer and Cigar Guy
2012-04-20 09:07:42

“But no worries — it’s different in Canada.”

Compared to most of the US, its a helluva lot colder for a helluva lot longer. I want to get me one of them 4,000 sq/ft Canadian McMansions and heat it for a few winters…

Comment by Lola
2012-04-20 09:14:27

Actually, if you heat with natural gas, it’s not that bad given how low natural gas prices are. Would probably be equivalent to what it would cost to cool a house with electric A/C in the southern U.S.

(Comments wont nest below this level)
Comment by Realtors Are Liars®
2012-04-21 05:41:58

And fuel oil was selling for 48 cents per gallon (500 gall) minimum in 1999 when we sold our shack(Vt).

Hows that working out for the sucker buyer?

 
 
 
 
Comment by Diogenes (Tampa, Fl)
2012-04-20 09:05:06

O H M Y g o d ! ! ! !
Why don’t they get really aggressive and start bidding them up to an even million. Then all the neighbors can brag about living in million dollar homes. Canadian dollars, of course.

The real question becomes, how FAST will the crash come when everyone is trying to get out of their “purchase” when the mania ends and depression begins? Can their bankers flood the economy with lots of free money to keep prices elevated? Do they even have a “Fed” equivalent?

Comment by polly
2012-04-20 10:00:48

The CA$ is at US$0.99 today (actually .9911) It has been between US$0.98 and US$1.05 since last September. Did you miss the whole parity thing?

 
Comment by oxide
2012-04-20 10:01:17

Canadian dollars, of course.

$1.00 == $0.9912 CAD.

 
Comment by Al
2012-04-20 10:04:44

Various fun facts:

1) Recent survey found that 25% of Canadians are willing to enter a bidding war to get the property they want.

2) Toronto is building more condos than any other city anywhere.

3) The Canadian dollar is bouncing around par with the $US. It was much lower a few years back.

4) This year we saw a rate war, pushing the rate for a 5 year fixed mortgage down to 2.99%. Shorter term variable rates are lower.

5) I don’t believe we have 30 year mortgages (though we do have 30 year ams). 10 year mortgages are commonly available, but not commonly taken.

6) Some of our banks were requesting increased regulation (most notably TD).

7) Toronto is cheap compared to Vancouver.

8) The creatively named Bank of Canada is the Fed equivalent.

9) It is different here. We will not have a US style crash. Our bubble bursting will have a distinctly Canadian flavour.

 
 
 
Comment by snake charmer
2012-04-20 06:25:51

“A Roncesvalles realtor has the dubious distinction of having the cheapest detached property for sale in Toronto right now — a dilapidated garage that comes with 16 by 12 feet of land. Laugh if you will that it’s an eyesore and listed for $99,999.”
___________________________/

This reminds me of one of the most laughably stupid moments from the U.S. bubble peak — a listing of a small, empty, rocky island in a lake. The island was so hopeless that it looked like something from a comic strip whose characters are marooned. There might have been a single sapling for vegetation and I don’t think there even was space to build a one-room cabin. If memory serves me correctly, the owner was asking $50,000.

I’ve searched the internet but can’t find it. It was publicized at the time and I believe it was in California.

Comment by oxide
2012-04-20 18:54:31

I remember that. It was linked here from HBB (Craigslist?), but I can’t find it either. We had a field day with it. $50K? Set up a pup tent and you could sell it for $200K…add a stick for “landscape” and it’s $300K…

Comment by Prime_Is_Contained
2012-04-21 16:41:42

I was thinking the island was off the coast of NY—maybe even near the city…

I could be wrong though…

 
 
 
Comment by WT Economist
2012-04-20 07:31:31

“The Bank of Canada sounded the alarm on growing household debt Wednesday, taking aim in particular at the growing tendency of Canadians to take out lines of credit using home equity.”

I thought Canadians were more level headed and responsible than that. Perhaps we humans do all respond to stimuli like ameobas.

Comment by LasVegasDude
2012-04-20 13:21:37

The Canadians I know think they are a bit superior to Yanks when it comes to financial matters. But let’s face it–Canada is just the 51st State!

 
 
Comment by polly
2012-04-20 07:43:08

I used to live in this development. They would actually lower the rent on my unit when vacancies were up. If I called right before the renewal paperwork was due, they would often lower it again. I guess February was a slow month.

http://www.nytimes.com/2012/04/18/realestate/commercial/lefrak-office-project-in-jersey-city-awaits-a-tenant.html?src=rechp

In Jersey City, a LeFrak Office Project Awaits a Tenant

Tease:

But the company will not build on speculation. The tenant — most likely a financial services or media company that requires a huge amount of room — will determine the size and configuration of the buildings, said Jamie LeFrak, a principal in the company.

“We wouldn’t have stayed in business for 100 years if we were doing wild speculation,” said Mr. LeFrak, who represents the fourth generation to run a company that built LeFrak City, in Corona, Queens, and Gateway, in Battery Park City, among other major projects.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 12:48:36

Could they legally have charged you more rent at renewal time than they concurrently were offering new occupants?

Comment by polly
2012-04-20 13:34:01

Probably.

 
 
 
Comment by Lisa
2012-04-20 08:04:04

“The Cobbes were able to purchase a two-bedroom, double master plan in the project for $260,000. ‘The issue isn’t being approved for a mortgage, it is coming up with the down payment,’ says 29-year-old Chris. ‘We are so excited,’ says Dee-Jay. ‘When we tell people about this, they say: ‘What is the catch?’”

This ought to end well. I bought my first house for about $280K, but was making $100K at the time. Even with that, owning was a chunk of change every month, mortgage, taxes, insurance, maintenance, and it took several years of saving to pay back my savings account for the 10% down payment I made.

Comment by Ben Jones
2012-04-20 08:49:46

Yeah, and they just had to have a new house. I don’t see how people can claim there aren’t subprime loans in Canada.

Comment by KenWPA
2012-04-20 09:52:27

I think 29 year old Chris will soon see “What the Catch is”, whenever they have to try to repay that loan….

Poor Dee-Jay is too dumb to realize that she had to take the bus to work, because they couldn’t afford to fix her car. What are they going to do whenever something in the house breaks, leaks, backs up or whatever? Oh, I know they will finally realize WHAT THE CATCH IS! You have to be able to afford PITI and all of lifes other curve balls at the same time. Good luck.

Comment by oxide
2012-04-20 12:18:16

It doesn’t say that couldn’t afford to fix the car. More like they didn’t have time to fix the car before going to work. That said, it’s very difficult to save up nearly $30K when you’re 27 and 29. I wonder what their closing costs were.

(Comments wont nest below this level)
 
 
Comment by Al
2012-04-20 10:15:06

Some use to claim there were no subprime loans in Canada. Then they did some research and discovered that we do in fact have a fairly small percentage of loans that are subprime, offered by non-bank lenders. Most of our loans aren’t subprime by definition since they meet the qualifications for CMHC insurance. But, the real catch has been lowering the standard set by CMHC*. We have waves of loans out there now that are technically not subprime, but have poor characteristics. $0 down with 40 year ams for instance.

* CMHC has recently been tightening things up, though not to the 20% down, 25 year am standard that was good for decades. Some mortgage and house sellers have decried the the tightening as interfering with the market. Some housing bulls have jumped on the fact that the tightening of standards hasn’t yet caused a crash, so therefore there won’t be one. Bears know that momentum wins against everything for awhile, but when it changes….

 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 12:53:57

“…several years of saving to pay back my savings account for the 10% down payment I made.”

My view is that it is a bad financial move to be the greater fool to bring a 10%-20% downpayment to the closing table when programs like the Canadian subprime buyer downpayment assistance loan are operating. You end up competing with people who have nothing to lose, since they have no skin in the game, and who are likely to quickly go underwater and walk away once prices drop a tiny bit.

Under such lending conditions, buyers with downpayments can quickly find themselves owning a home with 100%+ LTV and remaining home equity below $0, including loss of downpayment.

Comment by polly
2012-04-20 13:35:54

That is why I’m still not looking. I have no reason to fight with people who are only going to put down 3.5%.

Comment by oxide
2012-04-20 18:56:30

Only if the remaining 16.5% is sucked up in rent. And that can happen in less than 2 years.

(Comments wont nest below this level)
Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 23:44:20

“Only if the remaining 16.5% is sucked up in rent. And that can happen in less than 2 years.”

Maybe where you are, it can. Our rent over two year’s time is more like 13.8% of market value, based on recent comps, or 9.8% of what our landlords paid at the peak.

 
Comment by Prime_Is_Contained
2012-04-21 16:42:51

Only if the remaining 16.5% is sucked up in rent. And that can happen in less than 2 years.

Not to mention that this is a flawed analysis, if you are not also considering the amount sucked up by interest payments in the purchase scenario.

 
 
 
Comment by snake charmer
2012-04-20 13:40:34

That’s what I used to say back in 2005. I’m not going to use my hard-earned money to compete with people bidding with money that isn’t even theirs. With loose money, people being offered half-million-dollar loans are richer than you even if they have next to nothing in their bank accounts.

 
 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 08:53:49

‘Every province of China is Greece.’

But doesn’t China have a printing press technology (unlike Greece)? I would think that would make the problem easier to alleviate than it is in Greece.

Comment by LasVegasDude
2012-04-20 13:26:28

Yep, they have printing presses and no democracy–they can and will print like a demon when that time comes.

 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 11:21:44

‘Since January 2011, the house has been owned by US Bank, which took it over in a foreclosure.’

‘There was a rat in the driveway, and 212 mice in the traps. All coming from this house.’

Why can’t they sue US Bank for failing to control vermin and generally allowing their REO to become a blight on neighbors?

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 11:38:21

“The Cobbes were able to purchase a two-bedroom, double master plan in the project for $260,000. ‘The issue isn’t being approved for a mortgage, it is coming up with the down payment,’ says 29-year-old Chris. ‘We are so excited,’ says Dee-Jay. ‘When we tell people about this, they say: ‘What is the catch?’”

Subprime, Canadian style

Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 11:40:47

‘What is the catch?’

The catches are that Dee-Jay is supposed to repay of principle on the 100% loan, and that a Canadian home “in the project” might eventually not prove to be worth all of $260,000.

 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-04-20 11:43:18

“The Bank of Canada sounded the alarm on growing household debt Wednesday, taking aim in particular at the growing tendency of Canadians to take out lines of credit using home equity.”

Didn’t lots of American home owners do the same, on the encouragement of no less than Alan Greenspan?

Comment by snake charmer
2012-04-20 13:49:08

I know I’ve been predicting this for a long time — it hasn’t happened yet — but when this comes crashing down, I expect political consequences, because there’s no excuse for what’s happened, not after Canada had ample opportunity to learn from the mistakes of the U.S., Ireland, and Spain. This kind of behavior gives lemmings a bad name.

I have not had time to compose a long post today, so I will try to post Bogota part II next Friday.

 
 
Comment by SnotNose
2012-04-20 13:48:10

So, even thought ‘it is different in Canada’ — which stocks do we want to be short when reality strikes?

 
Name (required)
E-mail (required - never shown publicly)
URI
Your Comment (smaller size | larger size)
You may use <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong> in your comment.

Trackback responses to this post