A Wile E. Coyote Moment
A report from the San Francisco Chronicle. “Foreign buyers are an increasingly potent force in residential real estate in the Bay Area, as well as nationally. Foreign buyers plowed $82.5 billion into U.S. homes for the 12 months ended in March, up 24 percent from $66.4 billion the year before, according to the National Association of Realtors. The sales - which represented 8.9 percent of all home purchases - were evenly split between recent immigrants and nonresident foreigners, the Realtors group said. Anant Sapatnekar, who was born in India and after 16 years in Canada, moved to San Francisco for a software engineering job a few months ago and decided to buy a home to establish himself in his new city.”
“He faced the usual challenges of sticker shock and a competitive market. But his citizenship added some special hurdles. His first accepted offer fell through when he couldn’t get a home loan in time. Eventually he lined up financing from the U.S. division of the Royal Bank of Canada, since it was able to track his Canadian credit history.”
“In another way, his status as an immigrant helped him. When Sapatnekar found a Bernal Heights condo that he liked, his agent encouraged him to write a personal letter to the seller. ‘I wrote something from my heart about how I just moved here to start a new life, uprooting myself from one country and starting all over again for the second time,’ he said. ‘I said I really liked the house and it would really help me if you sell it to me.’”
The News Press. “Developers and single-family home buyers are returning to Bonita Springs and to many parts of Southwest Florida. About 60 percent of John R. Wood Realtors’ home buyers are buying homes with cash. ‘Our No. 1 foreign buyer is Canada,’ said CEO Phil Wood. ‘Canadians did relatively well during the recession. They’re in much better shape to buy homes than the typical American.’”
From Cronkite News. “When Matt Horton’s cellphone rings these days, it’s often from someone north of the border looking to buy one the luxury homes he lists with Realty One Group. As if on cue, Horton receives a text message, then holds up his phone and chuckles. Another Canadian. Canadian buyers now account for about 85 percent of Horton’s business, up from two or three transactions per year a decade ago. ‘Everybody and their mother has a place down here,’ he said.”
“Canadians purchased 11,400 homes in Maricopa County in 2011, according to the Maricopa Association of Governments. On top of the exchange rate, many Canadians are taking advantage of Arizona’s depressed housing prices, banking on future appreciation, Horton said. Many are investors who rent the properties.”
“The continued influx from the north also depends on Canada’s health, which has been supported by minimal debt and deficit levels as well as foreign interest in the nation’s natural resources, in particular from the Chinese, said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier Inc. in Toronto. Despite that country’s current advantages, the Canadian government is concerned about rising debt, some of which is due to its citizens borrowing on their home equity to invest in U.S. real estate, said Dale Walters, CEO of KeatsConnelly, the largest cross-border wealth management firm in North America.”
“‘There are a million things that could go wrong, but none seem to be highly likely,’ he said. ‘And regardless, for the wealthy, they’re pretty much immune to these things.’”
The Province. “Sagging home sales and flat prices have prompted speculation that the ‘housing bubble’ might be about to burst — a prospect that immediately catches the attention of British Columbians. But there is no housing bubble, according to Tsur Somerville, director of the University of B.C.’s Centre for Urban Economics in the Sauder School of Business. ‘You can’t burst a bubble that wasn’t there,’ said Somerville. ‘But you can have prices above where they should be and it not be a bubble. A bubble isn’t just defined by high prices,’ he said.
“Somerville identified a housing ‘bubble’ as conditions akin to what was happening in 2007. ‘It didn’t matter what the condo looked like or what it’s going to look like or who was building it, people were lined up around the block and snapping it up,’ he said. ‘They were saying, ‘I’ll take 12, please.’ That’s more of a bubble environment.’”
The Globe & Mail. “Société Générale believes Canada still doesn’t have a handle on a frothy real estate market. Senior foreign exchange strategist Sébastien Galy cited the risks associated with a protracted period of low interest rates. ‘The housing bubble is not yet under control and the BoC is starting to be under fire for its ultra loose stance,’ Mr. Galy said before. Rates are low in Canada, he said, and a long time timeline can have ‘unintended consequences.’”
“Fitch Ratings, affirmed Canada’s triple-A standings, projected a ’soft landing’ in the housing market amid tighter rules. Still, it said, household debt is still the country’s primary risk, making the economy more vulnerable to shocks. ‘Excessive borrowing by individuals is, to a great extent, a by-product of low interest rates, a legacy of the monetary response to the financial crisis,’ Fitch said.”
“The Bank of Canada is putting the present threat of a crumbling global economy ahead of a creeping worry that ultra-low interest rates are sowing the seeds of the next financial crisis. Mark Carney, the central bank’s governor, left the benchmark interest rate at 1 per cent Wednesday – now unchanged for two years – extending the longest period of static interest rates since the mid-1950s.’
“The Bank of Canada noted Wednesday that Canada’s household debt burden continues to rise. That trend likely won’t change significantly until it becomes more expensive to borrow, which is why Mr. Carney is trying to condition Canadians to expect higher interest rates. However, the Bank of Canada acknowledged that growth in China and other big emerging market economies is ‘decelerating somewhat more quickly’ than anticipated.”
“Last week, William White, the Canadian economist who correctly predicted that the U.S. housing boom was a harbinger of trouble, published a new paper that argues ultra-low interest rates risk a lengthy list of ‘unintended consequences,’ including stoking inflation, inflating new asset-price bubbles and exacerbating income disparity. ‘None of these ‘unintended consequences’ could be remotely described as desirable,’ wrote Mr. White.”
The Canadian Press. “The study — ‘Storm Clouds Gather Around Canadian Consumer Credit’ — says while Canada has managed to outperform other G7 countries since the recession it has been propped up by consumer spending, while exports continue to lag. With debt-to-income ratios at an all-time high around 150 per cent, Canadians have stretched themselves to the limit since the recession and have left little head room to buffer against another economic downturn, Moody’s suggests in the report.”
“‘The situation that Canada faces is much riskier than in 2007-2008 when the first global financial crisis occurred,’ said Mark Hopkins, a senior economist at Moody’s Analytics and one of the authors of the report. With Canadians so deep in debt, it would be extremely difficult for domestic spending to pick up slack in the economy if things started to go downhill. That could result in a serious downward spiral in employment levels, household spending and the quantity and quality of credit outstanding, the report says.”
‘There’s a legitimate fear that there may be a Wile E. Coyote moment here,’ says Hopkins.”
ETF Daily News. “As an ardent admirer of all things ‘American’; Canadian Prime Minister Stephen Harper wasn’t content with having just an ordinary housing bubble in Canada’s housing market. He wanted a Canadian bubble of epic proportions, just like Uncle Sam’s. Consequently, Harper’s Conservative government has totally unshackled Canada’s banks, and allowed them to run wild with reckless lending. The Canada Mortgage and Housing Corporation has been buying-up mortgages so fast that the Harper government has had to raise its legal borrowing limit twice just since the Conservatives took power, and will soon raise it a third time as it nears its new limit of $600 billion.”
“In proportionate terms it is now larger than Fannie Mae (at its peak), and this occurs as a Euro Pacific Capital report reveals that, ‘Once small, Canada’s sub-prime mortgage industry is now booming.’ It goes on to report that there are now $500 billion in ‘high-risk mortgages’ in Canada’s housing market – nearly half of the entire mortgage market.”
“Meanwhile, the obscene ‘home equity’ loan market has also exploded in Canada. These ‘HELOC’ loans (once known as ’second mortgages’) have exploded by more than 170% in Canada over the past decade. Standing by, eager to print-up as much paper as necessary is Goldman Sachs Alumnus (and Bank of Canada Governor) Mark Carney.”
“As the architect of Canada’s near-zero interest rates, Mark Carney can be thought of as the man pouring gasoline all over the dry tinder. Even B.S. Bernanke had belatedly begun raising U.S. interest rates to try to cool off the U.S. housing market before its manufactured bubble collapsed. Not Mark Carney. It’s ‘pedal to the metal’ all the way…all the way until he and Stephen Harper have driven Canada’s economy off of a cliff.”
When Sapatnekar found a Bernal Heights condo that he liked, his agent encouraged him to write a personal letter to the seller.
The bubble is alive and well in the Bay Area.
He faced the usual challenges of sticker shock and a competitive market
Sticker shock? When a lousy condo fetches 500K, I’d say that it goes beyond “sticker shock”, more like cardiac arrest. Then again, people around the globe have been conditioned into believing that housing is supposed to be unaffordable, so perhaps he really did see the monstrous Bay Area price tags as being merely a little on the pricey side.
We are back to letters again for the sellers.
A sign at the housing bubble 1.0 was the letter to the seller about taking care of the squirrels.
What will be the sign for housing bubble 2.0?
Taking care of the garden and house fairies.
Taking care of the mortgage?
A certain movie comes to mind ….
Come on, the letter is more RE feel good crap. It was and always will be ’show me the money’ and this sucker was a willing sheep ready for the shearing.
There appears to be no shortage of them in Silly Valley. I have colleagues on H1-B visas who are trying to buy something over there. It’s freaking unbelievable.
When Compuware shut down the Colorado Springs offer and let us all go in 2002, one of the guys was from France on H1-B.
He was like… so what about me?
Their response was a flat, “Oh, no worries, in addition to the 1 month severance, you’ll get the plane ticket back to France as required.”
But I have a house, a leased car…
The wake up call was quite a shock to him. The next day he emailed me a wedding invitation. His live-in girlfriend agreed to marry him. He was still going to have to leave for a month or so until the spousal visa came through.
Yes, I’ve oft seen the same story repeated here in Silicon Valley. Marriage is the new meal ticket for H1-B VISA holders.
The issue here is the high cost of housing, period.
It is not cheap to rent here. 2-3 bedroom houses for under 2K month are simply not available anymore, unless you don’t mind wearing a Kevlar vest whenever you leave your house.
Really? Now why would you say that? Are you misrepresenting the truth about housing in SF? You are.
A quick perusal of craiglist, SF bay area, 3+ bedroom, <$2000/month comes up with 10 pages worth of rentals.
http://sfbay.craigslist.org/search/apa?query=&srchType=A&minAsk=&maxAsk=2000&bedrooms=3
You’re not being truthful. Why?
Not possible. It was almost impossible to find a decent rental in San Diego for under 2k (in East County), and SD is cheaper than SF. There’s no way those 10 pages of rentals are legit.
Lots of scams. Lots of horrible houses. Lots of places that don’t allow pets or kids (although they have to hide the kid part.) But no way are there “pages” of 3+ bedroom homes that middle class people would be willing to live in for under $2k/month. Not without a huge commute.
“Not without a huge commute.”
There it is. As I have often pointed out, life in the Bay Area typically involves a three-way tradeoff between housing quality (including surroundings), price and commute time. If you insist on living close to work, you can expect to pay well for the privilege.
Really? Now why would you say that? Are you misrepresenting the truth about housing in SF? You are.
Dude, do the same search on craigslist, but search in “san franciso”. The search you linked to is a 70 mile radius.
Here you go in case you are too lazy:
http://sfbay.craigslist.org/search/apa/sfc?query=&srchType=A&minAsk=&maxAsk=&bedrooms=2
You’re a misrepresenting liar.
Truth,
I don’t have a dog in this fight but if you look at the Craigslist of rentals you found it includes mostly these regions:
pittsburg / Antioch / vallejo / Benicia / brentwood / Oakley /Hercules / pinole / san Pablo / el sob / concord / pleasant hill / martinez
These aren’t areas that most people that live here consider the “real” SF Bay Area. The “real” Bay Area is the area around the SF Bay surrounded by the coastal hills and extending up the SF Peninsula. In that area what sfrenter said is mostly true.
However if you are willing to commute long distances and sit in traffic you find cheap rentals. They exist especially as you drive over the East Bay Hills and into the central vally i.e. the cities you found on Craigslist. I personally would never consider living there - I’d rather leave the state. But cheap rentals do exist in that hot hell hole of a region. But why stay in California and live in a place like that? Also if you drive far enough North there are endless expanses of cheap rentals in Napa, Sanoma or Solano counties for example. Again - it’s not a great commute.
Otherwise the only cheap rentals near the bay proper are in the more run down areas. I think that may be what sfrenter is trying to say.
But I would say that rentals here are still a bargain compared to buying. You can find something for under $2,500 in the East Bay in a decent place for sure in housing stock that would cost $600K - $700K. You can’t really complain about that.
I personally would never consider living there - I’d rather leave the state.
I recognize it may be less desirable. But is the strength of your statement appropriate for that level of reduced desirability, or does it say more about you?
‘pittsburg / Antioch / vallejo / Benicia / brentwood / Oakley /Hercules / pinole / san Pablo / el sob / concord / pleasant hill / martinez
These aren’t areas that most people that live here consider the “real” SF Bay Area.’
Sounds like if you want to enjoy the appeal of living in the “real” SF Bay Area, you might have to pay a snob premium. However, I note that many of the areas mentioned above are within proximity of the BART system, which provides access to downtown SF and many other parts of the “real” SF Bay Area.
Convenience of access comes with a price.
wow not everyone living in the bay area has the internal need to live the hipster/ bohemian lifestyle to force themselves to absolutely must be in SF… The beauty of the bay area is the diversity, and that can be found spread around quite widely.
“unless you don’t mind wearing a Kevlar vest whenever you leave your house.”
Lobby for concealed weapons permits, the gun free zone thing in SF does not seem to be working out.
If I needed to be packing heat to assure myself a safe commute, I’d move. No thanks.
Just a suggestion. Life is full of trade offs.
Actually, I did find out that our offer on the house we are getting was not the highest offer.
Both agents say it was our letter.
It helped that the seller owned the house outright and had inherited a pile of money.
*Gag*
When you complain about high housing prices, you should look in the mirror. It is you who is responsible for them. You overpaid, perpetuating the very thing you abhor. Will you walk when they fall?
Deja Vu + squirells -
“Both agents say it was our letter.”
Since Realtors™ never lie, I’m sure that is the case. Enjoy feeding the squirrels, and try to keep your doggie guests from eating them.
I was out looking at homes this Sunday in the SF Bay Area. I looked at two homes in the $800K range and the showings were both packed. I am sure they will be sold this week. I spoke to the local Real Estate Agent who’s husband and wife team do most of the sales in my hood. They told me both homes I had visited two weeks ago sold immediately after the first showing, one for full asking price and the other over asking price. The latter didn’t appraise as high as the offer but the seller kicked in the cash over appraisal to push through with the sale. The prices are in excess of last year’s prices. Inventory is down and prices are up. Showings are packed.
I took a look at a third property for $3.2 million. A Tuscany Villa on 25 acres with a guest house, five car garages (plural), plaza, vineyard and horse stables just outside of a popular Silicon Valley bedroom community. A little “mini-Napa Valley.” The attention buyers were paying to minute detail was impressive. Retiring baby boomers are looking for the ultimate final home purchase considering elevators, places to sit and wash in the shower, laundry rooms on every floor, kitchens on every floor. Everything one needs for an aging boomer with limited mobility.
I report you decide
I hear that they are installing elevators in the small two stories in Cambria, CA too.They can’t go outside and walk up and down the hilly streets but clamor to outbid others because ‘everyone wants to live by the ocean’. They don’t even have a quality food market there let alone medical.
Salinasron I’ve been to Camria, CA and as far as I can tell the *only* business in that town is Real Estate. I think everyone who lives there has a real estate license. If you are unfortunate enough to take the Cambria exit off of highway 1 (Or as the locals call it “the one”) on a day trip to Hurst’s Castle or Big Sir you will immediately find your car covered by realtor zombies reaching into your car windows and trying to pull you out. It is truly a horrifying experience.
Cambria has a great food store on the east side. Family owned, one of the last ones. Great stuff, good prices. I forget the name.
Too foggy 6 months of the year, every thing rusts up there.
You distort, we deride.
If I distort please keep me honest by pointing to the underlying principle that I miss.
And playing stupid too?
Why the hostility? If you’ve got a point I’d like to hear it.
u go sweetie!
Bay Area Beeyatch Baby is definitely a p1mp.
I see what you mean about them being “subtle”, RAL, ol’-boy. Took me a while to recalibrate.
Yeah, good luck, syphilitic-wh0re.
My sister lives in the Bay Area, and I’d know if any of this stuff was actually happening!
Ummm, OK.
“subtle”
Not all of them (cough: Darrell) are.
They told me both homes I had visited two weeks ago sold immediately after the first showing, one for full asking price and the other over asking price.
This is what I’m hearing from my Bay Area colleagues as well. It’s insane.
‘on 25 acres…elevators…laundry rooms on every floor, kitchens on every floor’
If they have 25 acres, sounds like they could save a lot of money and effort by just having a one story house.
LOL
Yes indeed the bubble is alive and well in San Francisco.
Bernal Heights is my neighborhood of the last 17 years, and we are leaving for cheaper digs. Priced out.
Careful SFR, you may get the liar label attached to you as well.
“In proportionate terms it is now larger than Fannie Mae (at its peak), and this occurs as a Euro Pacific Capital report reveals that, ‘Once small, Canada’s sub-prime mortgage industry is now booming.’ It goes on to report that there are now $500 billion in ‘high-risk mortgages’ in Canada’s housing market – nearly half of the entire mortgage market.”
Unbelievable.
“Meanwhile, the obscene ‘home equity’ loan market has also exploded in Canada. These ‘HELOC’ loans (once known as ’second mortgages’) have exploded by more than 170% in Canada over the past decade. Standing by, eager to print-up as much paper as necessary is Goldman Sachs Alumnus (and Bank of Canada Governor) Mark Carney.”
So fitting that a Goldman Sachs alumnus is the man behind the curtain pulling the levers!
Unbelievable.
But not unexpected. How else can they “finance” mortgages for houses priced at 10x+ the median HH income? And they don’t even get the MID in Canada.
And they don’t even get the MID in Canada.
Nor 30-year fixed rate mortgages, if I’m not mistaken.
I believe you are correct.
Gee - the Canadians answered their own question:
“‘There are a million things that could go wrong, but none seem to be highly likely,’ he said. ‘And regardless, for the wealthy, they’re pretty much immune to these things.’”
“none seem to be highly likely”
These comments are almost surely going to be followed by stories that include the word “unexpectedly”.
Yes, and the “Goldman boyz” are also running the Troika that took over the banks in Italy and Greece and coordinating with the EBC.
It’s a WORLDWIDE Bankster conspiracy, but you had better not call it one. Goldman-Suchs skimming money everywhere, but with the implicit backing of the FEDERAL RESERVE to cover any possible losses.
What a world. And our Congress, totally oblivious to what is going on, except that the Banksters can provide some of the printed paper to spend on their campaigns and graft…..so nothing changes to break up the Banking Cartel.
What is most disturbing about this Canadian Scam is that it is another example of Games with Printed Paper. The people “cashing out” have done nothing to provide an increase in “wealth” to their economy or ours. The Inflation in prices which is allowing them to HELOC and use their money to BUY up America, is simply a matter of Money Printing and lending buy Banking Cartels. A skimming operation that steals from working families.
However, the ASSETS, i.e. the houses that are purchased with the new money, are REAL assets, representing time, labor, materials that have real value. It is a form of stealing. Nothing more.
The house “flipping” operations that started here in the early 2000’s were the first indication that MONEY creation was a problem, clearly displayed by the rapid run-up in prices leading to the “Bubble”.
However, all the “experts”, i.e. paid political economic hacks and government experts and FED heads, all said it was a simple sign of “housing demand”. It was not, as we have clearly seen.
It was MAL-investment and OVERbuilding.
But, in the final analysis, if you were one of the lucky ones, who managed to buy 5 or more houses and “flip them” as the prices were going up, then you got fabulously wealthy for trading PAPER. Your contribution to America: NONE. However, you got rich.
Now the Canadians are coming to buy up the houses that working Americans can’t afford.
What are they giving us in exchange? Printed Paper Promises.
The Same kind the FED hands out. Based on the current ASSET PRICE of their Canadian houses. WE MUST KILL THE FED and the CENTRAL BANKS.
They are simply accessories to Larceny, while helping to enrich their member buddy banksters. It’s Not Wallstreet. It’s Bankstreet.
Diogenes - I’ve been gone from this forum for many years. After reading your missive I am very glad to be back. You are spot on sir!
lmao…. Ok SF Pimp.
WE MUST KILL THE FED
Standing by, eager to print-up as much paper as necessary is Goldman Sachs Alumnus (and Bank of Canada Governor) Mark Carney.
The metastasis of these financial parasites is astonishing.
“It’s ‘pedal to the metal’ all the way…all the way until he and Stephen Harper have driven Canada’s economy off of a cliff.”
This should be spectacular to watch. Unfortunately, no place in the U.S. where liberated Canadian home equity has translated into all-cash investments (e.g. the Phoenix town house market) will be unaffected by the collateral damage.
Hopefully it’s been Canadian bank HELOCs that have been financing these “investments”
Yeah, but when the Canadian in-VEST-ors dump these houses, it’s Arizona that will have to deal with them.
True, but they were already vacant to begin with, right? And if they were financed with Royal Bank of Canada HELOCs, then maybe the Canucks will move to Arizona to live in the “paid for” house and dump the shack in Winnipeg.
Or conversely, they could sell their Arizona house, at retail market, and buy back in Canada for the reduced “housing crash” price. Any way you look at it, it is simply stealing.
Cash out on Inflated Prices is stealing. You take the money and run.
CENTRAL BANKS have been at the heart of the “Bubbles” in every country, whether is it housing, stocks or government boondoggles. It wouldn’t matter to me that Canadians are living the same nightmare we had with inflated house prices.
What is disconcerting is that they get to “cash out” with Canadian dollars, convert to US dollars and BUY up houses that many Americans would like to have, but can’t afford.
Globalization is really a game for BANKSTERS. They are all working together now. When the Canadian market crashes, they will need a “bailout” program and will pass the losses onto their “taxpayers”, too. The Game players won’t loose a nickel, but will be flying to their Swiss chalet to enjoy the early fall, happy with the “system” that allows them a steady stream of money flows without a worry in the world.
‘Globalization is really a game for BANKSTERS’
It always has been. Read the minutes from Bank of International Settlements meetings. They talk about globalism all the time. You won’t hear Bernanke talk about it much, probably because they don’t want the public to link central banking with globalism.
‘houses that many Americans would like to have, but can’t afford’
They are bidding up houses in some places. Remember the Scottsdale house that 4 Canadians were bidding for? There probably wasn’t a US ‘bidder’.
There’s a life span to this sort of thing. Over a year ago I was told by a Tucson UHS that by this past summer there wouldn’t be any houses there under $100k. He had all sort of charts and analysis, broken out by zip code. He also let slip that his brokerage was sitting on 150 REO’s, waiting to put them on the market (at the direction of asset mangers) when the others sold. Some people may have believed his price predictions, but there are plenty of houses in Tucson under 100k today.
There’s a life span to this sort of thing. Over a year ago I was told by a Tucson UHS that by this past summer there wouldn’t be any houses there under $100k. He had all sort of charts and analysis, broken out by zip code. He also let slip that his brokerage was sitting on 150 REO’s, waiting to put them on the market (at the direction of asset mangers) when the others sold. Some people may have believed his price predictions, but there are plenty of houses in Tucson under 100k today.
And I can confirm what Ben’s reporting. All I have to do is hope on my bike and go for a ride.
Hopefully it’s been Canadian bank HELOCs that have been financing these “investments”………………….
Yes, it has. And their “PAPER” is as good as the FEDeERAL RESERVES Paper, too.
Printed Paper is amazing stuff. You can make the world rich by simply printing more……and changing some “accounting rules”.
Actually, you make a few people rich, and everyone else gets buried in the debt that is created as a byproduct of money creation.
“(e.g. the Phoenix town house market) ”
And you say I can’t let it go….. make note of who brought it up!
Just got to poke the rattle snake, don’t you.
Yes, the number of foreign buyers is a concern. Yes, they are already driving down rents. Yes, I would not be at all surprised to see house prices fall further.
And none of that effects that buying now is a good deal for me, since I do not plan on selling for a profit. Could I get a better deal later? Maybe, but the $25 a month lower payment is truly irrelevant, and I need a place now-ish.
You’re a liar Darryl.
Darrell, just do us all a favor and ignore the poke. We know where you stand, it’s OK.
“Just got to poke the rattle snake, don’t you.”
I couldn’t have come up with a better metaphor, and it is admittedly hard to resist, as often as I sit on my hands.
Just a few years ago, pundits and others would tisk-tisk about how and why interest rates were left ‘too low for too long.’ But here we are again, and the central banks can’t resist that good old juice:
‘The size of Asia’s local-currency bond market expanded nearly 9 percent in the first half of the year, but the Asian Development Bank (ADB) warns that increased capital flows from the West as central banks embark on easing measures, could lead to a surge in volatility and create asset bubbles.’
“Near-zero policy rates in mature markets and continuing hints from the U.S. Federal Reserve over the possibility of more stimulus should conditions warrant have sparked fears in emerging markets of a surge in capital inflows,” the Manila-based ADB said in its latest report on the bond market released Monday.’
“These inflows can cause large exchange rate fluctuations, affect trade, and ratchet credit growth - leading to asset price bubbles,” the bank said, adding that policymakers in the region should brace for the possibility that the money could pull out of the region as quickly as it entered.’
‘If that was to happen, bond yields would spike, as they did during the 2008/09 financial crisis, the ADB warned. During the crisis, for example, government bond yields in Indonesia rose as much as 9 percentage points, while in South Korea, Malaysia, and Thailand, the increase was 2 percentage points, the report said.’
‘It added that there are already signs of weakness in the market, with bond yields in China, Indonesia, and Vietnam edging up in July and August.’
We don’t have to keep doing this. We can get off the business cycle roller coaster. The central bankers won’t like it. Governments won’t like it. But there are other ways.
The central bankers won’t like it. Governments won’t like it.
Which is why they will defer it as long as possible. Get rid of ZIRP and most sovereign debt will default as the interest payments will break most budgets, especially in this tax averse age we live in.
It is not just governments that would fold under a return to historic normal interest rates of.. what? 7%?
Households, businesses, governments around the world would collapse like a house of cards.
You say that low interest rates encourages people to borrow and spend, but in the USA, the only people borrowing and spending is the federal government. People are maxed out even at zerp. Double rates, and half the debt collapses, poofing half the existing money back into the thin air from which it was borrowed into existence.
Then how do we fund our trade imbalances?
They are NOT wealthy.
They are using equity/cheap money from their Canadian house and banks.
Where do you think this will end when the Canadian Housing bubble implodes?
But no one saw this coming!
“‘There are a million things that could go wrong, but none seem to be highly likely,’ he said. ‘And regardless, for the wealthy, they’re pretty much immune to these things.’”
Maybe American taxpayer funds will be used to bail Canada, too. It seems American taxpayer funds are for use the world over.
And best of all, Canucks that used Canadian HELOCs to pay cash for their US homes will be able to keep them, free and clear.
There’s a few things wrong with that scenario. I found an article months back that had a UHS bragging that Canadians were using HELOC money for the down payment and getting an 80% loan to achieve ‘100% leverage’. Also, price don’t fall in a vacuum; there’s a recession that comes with it:
‘while Canada has managed to outperform other G7 countries since the recession it has been propped up by consumer spending, while exports continue to lag. With debt-to-income ratios at an all-time high around 150 per cent, Canadians have stretched themselves to the limit since the recession and have left little head room to buffer against another economic downturn, Moody’s suggests in the report.’
‘The situation that Canada faces is much riskier than in 2007-2008 when the first global financial crisis occurred,’ said Mark Hopkins, a senior economist at Moody’s Analytics and one of the authors of the report. With Canadians so deep in debt, it would be extremely difficult for domestic spending to pick up slack in the economy if things started to go downhill. That could result in a serious downward spiral in employment levels, household spending and the quantity and quality of credit outstanding’
If only to keep their standards of living up, or to pay other bills, they may seek to sell these US houses. And then there’s the old speculation effect:
‘Canadians are…banking on future appreciation’
We know what happens when speculators realize that future appreciation isn’t gonna happen.
There’s a few things wrong with that scenario. I found an article months back that had a UHS bragging that Canadians were using HELOC money for the down payment and getting an 80% loan to achieve ‘100% leverage’.
Well, I was just talking about the Canucks who extract $150K from their $800,000 Calgary property to buy an Arizona house for cash. Obviously, not all them do that.
What I do wonder is how does a Canadian get a US based mortgage? Don’t you need a US based income and US based credit score to get a mortgage these days? Or has the NINJA loan made a ferocious comeback?
‘We bring the bank to you. Whether you’re a seasonal visitor, student, professional or retiree living in the United States, RBC Bank makes it easy for those with close ties to Canada to manage finances on both sides of the border.’
‘With a variety of safe and convenient ways to bank with us, along with practical advice specific to the needs of Canadian citizens or expatriates living in the U.S., you’ll have everything you need to achieve your financial goals.’
http://www.rbcbank.com/
‘Generally speaking, if you are a Canadian citizen who is interested in purchasing a second home in the US, you will need to do a little bit of digging to actually find a lender who will lend to Canadian citizens. Many lenders will not, but a small handful will. The best way to find a lender who will lend to a Canadian citizen when buying a property in the US is to ask the Realtor you are working with.
From time to time, banks will offer loans to Canadian citizens and then stop for whatever reason – so the list of available lenders tends to change frequently.
Generally speaking however, here are some general guidelines that you can expect from a lender when borrowing money for a US property:
Mortgages For Canadian Citizens: Guidelines
Must be a second home
Will loan up to 75% loan-to-value
International credit report required
Verification of mortgage on primary residence
Last 2 pay stubs and 2 years of T4′s required
2 months bank statements
Drivers license and copy of passport
If self employed, last two years of Canadian tax returns along with a profit/loss statement and balance sheet.
Each lender will have their own guidelines, but generally speaking – the above list is what you can generally expect. As with other loan programs, these loans can dissappear at any time, so if you are in the market for a second home in a warmer climate and are a Canadian citizen, be sure to act fast – or risk being stuck out in the cold.
http://www.biggerpockets.com/mortgage/canadian-mortgages/mortgages-for-canadian-citizens/
LOL! So now Canadian banks are financing US home purchases for savvy Canucks! I guess the only question left is who will be bailing out the Canadian banks when the moose poop hits the fan?
‘Eventually he lined up financing from the U.S. division of the Royal Bank of Canada’
Could still be a US bank.
But can they resell those loans to Freddie or Fannie? I suppose that it might not matter if they hold onto their own loans.
But yeah, if they’re “US Banks” then they could stick the US taxpayer with the bill.
‘can they resell those loans to Freddie or Fannie’
I was thinking the same thing.
“But can they resell those loans to Freddie or Fannie?”
I do not see why not. If it is a conforming loan against US real estate, I assume the GSEs would buy it regardless of the citizenship status of the purchaser.
I’m going to be in Ontario next week. I’ll be sure to come back with reports of any changes. I am very familiar with the area I am visiting, but I haven’t been there in three years. The changes, if they are visible, should be striking.
Polly - in Toronto ?
The area is actually very prosperous right now. Lots of high rise construction cranes - and all of them busy - for now.
Expect a condo meltdown soon though.
“Expect a condo meltdown soon though.”
It never really happens “soon.” This thing moves at a glacial place. In a few years time, we will likely see some real, real pain in Canada. I would imagine, too, that this echo bubble in the US just put off recovery another 5 years.
“We know what happens when speculators realize that future appreciation isn’t gonna happen.”
The government steps up in a futile attempt to make future appreciation happen again?
If this is actually happening, it would be a great wedge issue for Romney and Ryan. Imagine if they publicized that taxpayers in Wisconsin are insuring Canadian real estate investors against loosing money?
‘Royal Bank of Canada says the Canadian housing market is in good shape but, just the same, it is taken the precaution of stress testing its Toronto and Vancouver mortgage portfolios for a 40% drop in prices and remains “relatively comfortable” with the result. Despite concern about a potential bubble developing, Mr. Nixon said RBC remains “extremely comfortable” with its home loan portfolio.’
Then from the comments:
‘RBC has stress-tested its domestic portfolio for various scenarios
including a 40% price decline in Toronto and Vancouver with 13-14%
unemployment, and it feels “relatively comfortable” with the result.’ Thanks to CHMC and taxpayers. This lack of moral hazard is bad.’
And another:
‘funny, you same idiots…leave the same poop…obviously you got out-bid, OR you live in your mom’s basement’
I am constantly reminded how foolish and immature adults are when reading the comments. If someone does not want to grotesquely overpay for shelter, and calls it like it is, they are automatically bitter and living in their mom’s basement. Unbelievable.
BINGO
It’s like I’ve said, people around the world have been brainwashed into believing that housing is supposed to be unaffordable.
I live in Florida. We don’t have basements. I would gladly live in my Mom’s basement if she had one. It would be like welfare for the working poor (though I am currently not working, so am getting poor fast). We do have trailers and cracker shacks as alternative housing.
Has there been a single bank stress test in the last five years, anywhere, that hasn’t turned out to be a joke? Maybe high finance can hire the students who cheated at Harvard to run these tests in the future. And the course in which the cheating occurred? “Introduction to Congress.” Of course.
Good article Ben. Scary how short other peoples memory is. It seems as though the Canadians can watch someone put their hand on a hot stove top and get burned but have to see for themselves by repeating the behavior.
““Last week, William White, the Canadian economist who correctly predicted that the U.S. housing boom was a harbinger of trouble, published a new paper that argues ultra-low interest rates risk a lengthy list of ‘unintended consequences,’ including stoking inflation, inflating new asset-price bubbles and exacerbating income disparity. ‘None of these ‘unintended consequences’ could be remotely described as desirable,’ wrote Mr. White.” I think that Mr. White’s paper would make a good read. To understand the unintended consequences is vital to preservation of capital going forward.
It’s not just Canadians:
‘He faced the usual challenges of sticker shock and a competitive market’
Ah yes, the ‘usual’ challenges. I asked a year or two ago; what if there were a button, that if pushed would bring back everything about the bubble. Ridiculous prices, bad loans, all the attendant problems and weaknesses. Wouldn’t a great many people push that button? This is why it’s still the same bubble IMO. The masses have to be so scalded by that stove you mentioned that they dare not repeat the mistakes.
Think back a bit; didn’t we hear from countless REIC people that the peak prices were an illusion, they weren’t real? Look how quickly they shifted back into telling us this is normal.
Part of the problem here is words we use. A bubble, like a bath bubble, pops only once, then it’s gone. But a mania lingers much longer, struggling to catch on in the minds of market participants. Recall the many months of up and down for the internet/tech stocks before the dream of easy money died. This isn’t even unusual (though it is disappointing on a policy standpoint). It happened in Australia, most of Asia and Canada. Their manias seemingly ‘popped’ years ago, only to reemerge, spurred on by government and central bank policies. So if absurd prices, speculation, subprime loans and letters to sellers looks familiar, it’s because it is.
“Think back a bit; didn’t we hear from countless REIC people that the peak prices were an illusion, they weren’t real? Look how quickly they shifted back into telling us this is normal.”
That’s a primary objective of the serial bottom caller brigade: To convince everyone that this was a normal cycle, that a bottom has been reached, and that real estate has already started always going up again. Convincing your marks of these fallacies sets them up for catching falling knife real estate investments. ‘Buy now or get priced out forever.’
Which is why there’s an HBB.
I think the difference here, in terms of Manias, is that most manias are limited by amount of “capital” that can be directed toward them.
Stock market manias are somewhat limited since only the “annointed” traders can “leverage” 30 times holdings and are able to continually push prices with supposedly borrowed money. There is a smaller limit, excluding the accounting fraud such as trading Naked shorts, that can be achieved by available “capital”.
With all the world-wide housing madness, the BAnksters simply start more printing. They claim the Asset they are supporting is worth the “investment” and print up the available “money”. There is no limit to the money they can conjure, until the time comes when the Prices start to go the other way. Then, ALL their asset collateral collapses. They are broke and the “people” get the Bill in the form of diminished value of the paper they are holding and the increased Tax burden of Bankster Bailouts.
Marx was a proponent of a Central Bank.
It is the way to keep people poor and working, while the Politburo (Banksters) lives a wealthy life of ease.
It seems as though the Canadians can watch someone put their hand on a hot stove top and get burned but have to see for themselves by repeating the behavior.
It is an interesting case study on how almost everybody, deep down, really does believe that where they live is fundamentally different from everywhere else.
Well, flyover is different than the Bay Area. There are no 500K condos in Topeka, KS that I know of.
I’ll bet there would be if they raised the conforming loan limit in Topeka to $729,750.
WASTE MONEY WHEN TIMES ARE GOOD… CRY WHEN TIMES ARE BAD. IT’S THE AMERICAN WAY. I LAUGH AT THESE LOSERS.
http://economywatch.nbcnews.com/_news/2012/08/31/13590963-economys-long-slump-pushing-many-down-the-ladder?lite
Michael Scarbrough, 47, made a six-figure salary for years, selling heavy construction equipment in the Atlanta area. Sales dried up in early 2009 as the housing and commercial construction market plummeted.
That’s when the family’s finances slowly began to slip. He and his wife, who have a 6-year-old son, lost their 3,200-square-foot home, their Hummer, their Corvette and most other vestiges of their more affluent life. They eventually were forced to turn to food stamps and government–subsidized housing.
So they drove a Hummer and a Corvette. Well, he was a salesman after all, he had to project an image of being a “winner”, even if the cars were most likely leased.
I’d love to get a new car, but given the prices and the scary economy, I don’t dare to do that.
Tell me about it.
My household has 3 cars… A 2002, a 2004 and a 2007… or is it 2008?
Interview with Ford CEO on CNBC this AM, he claimed that the average car on the road is 11 years old… I’m sure the number of registered “collectors” cars that are 40+ years old brings that up a lot. I still see 1960s muscle cars, and rarely take note unless it is from the ’50s or before. I wonder what the median age of cars is? My guess is something between 8 and 9 years old.
I used to see truck loads of older cars (10 years old or so) heading down I17 toward Mexico. Haven’t seen that in 5 years.
I bet the cars in Mexico are getting even older since they are no longer getting our hand-me-downs.
Was in Mexico not long ago. When it comes to keeping old cars running, they rival the Cubans.
Some of these economic systems designed by Wall Street and the politicians simply ignore the possibilities of adverse conditions (housing going down, interest rates going up, etc). It’s like a ship designer saying, “We’ve had calm water for months. This ship will speed across the waters like no other. HOWEVER… if it becomes windy or rainy, this ship will sink.”
“Oh, don’t worry about that.”
I don’t expect Wall Street to have social concerns any more than any other business. The people who really sold us out are the politicians. The ones who are supposed to look out for the citizenry’s interests. Instead, they now belong to the highest bidder.
This us why we, as a nation, need to hit the ‘reset’ button:
1) All public unions made illegal. Any attempt to fight this leads to immediate arrest. No more gauging taxpayers
2) Eliminate minimum wage - we need to compete worldwide now
3) Fed only has 1 mandate - control inflation / protect currency value
4) Drop all public wages across board 20%…Eliminating unemployment
5) all campaign contributions - illegal. No more money infecting politics
6) any politician taking ‘donations’ or any other type of payoff.. Immediately arrested & tried on treason charges. Politician’s & Donor’s assets (personal & business) all SEIZED by gov’t
This would just be the beginning of what is necessary.
Goonie?
Question - when the Canadian Housing Mania pops and the home debtors go underwater are the loans no recourse like most of the U.S.? I.e can they walk away from the loan and allow either a foreclosure or short sale and not have the bank come after their other assets? Or is it a recourse system in which case they could be stuck in debt until death do they part assuming they have assets worth taking.
We, as a nation, need to hit the ‘reset’ button:
1) All public unions made illegal. Any attempt to fight this leads to immediate arrest. No more gauging taxpayers
2) Eliminate minimum wage - we need to compete worldwide now
3) Fed only has 1 mandate - control inflation / protect currency value
4) Drop all public wages across board 20%…Eliminating unemployment
5) all campaign contributions - illegal. No more money infecting politics
6) any politician taking ‘donations’ or any other type of payoff.. Immediately arrested & tried on treason charges. Politician’s & Donor’s assets (personal & business) all SEIZED by gov’t
This would just be the beginning of what is necessary.
“Another Canadian. Canadian buyers now account for about 85 percent of Horton’s business, up from two or three transactions per year a decade ago. ‘Everybody and their mother has a place down here,’ he said.””
And when the golden Canadian goose is cooked?
I think our northern neighbors should have a little talk with some Japanese investors from the ’90’s if they’d like an idea of what I think is gonna happen.
Oh, wait. “This time it’s different.” I keep forgetting.
Love HBB,
And I have noticed that there is much concern(rightly so) for the day of reckoning when the central banks´ inflating pressures over the last couple decades and the politicians inflating pressures( debt and other more nefarious measures) cannot be continued without courting disaster( if we haven´t passed that point already). But what I think needs to be added into the equation are some variables that a couple of good articles I have read recently have pointed out.
The first,
http://pjmedia.com/victordavishanson/the-terrifying-new-normal/?singlepage=true
Mr. Hanson brings us some of the same concerns that are voiced here but he delves into new territory that is problematic also…
¨The Really Lost Generation
Few seem to note that those who receive nothing on their retirement savings don’t retire so easily. And when they don’t retire, jobs don’t open up — which brings us to my next observation: the lost generation of those between 21 and 30, who at various ages and periods came into the workplace the last four years. Many have 8% plus student loans. I doubt half of those will ever be paid off, given the epidemic of unemployment in this cohort.
Unemployment rates of those 16-24 are now officially over 50%. Even the cohort between 16 and 29 suffers from 45% unemployment. In short, in four years we have become Europeanized: young people with no jobs who are living at home and putting off marriage and child raising — a “lost” generation in “limbo,” etc. etc. They may have a car, borrow their parents’ nicer car for special occasions, watch their parents’ big screen TV, and have pocket change for a cell phone and laptop by enjoying free rent, food, and laundry, but beneath that thinning technological veneer there is really little hope that they will ever be able to maintain that lifestyle on their own in this present day and age…¨
Now with the above ¨youth crises¨ pointed out, we can segue into the following more controversial piece,
http://pjmedia.com/drhelen/2012/09/07/why-is-the-participation-rate-of-men-in-the-workforce-so-low/
“The 69.9 per cent labor force participation rate for men is at lowest level ever recorded.”
Dr. Helen asks the questions and her readers try to answer.
Then the following celebration of the ¨End of Men¨ can´t help but have a few party poopers,
http://online.wsj.com/article/SB10000872396390443686004577633320434651682.html?mod=googlenews_wsj
¨Ms. Rosin makes us face the uncomfortable evidence that many men are engaging in a sit-down strike. In macho cultures, such as those of Spain, men import poorer, more traditional women from other countries to marry. In Japan, Ms. Rosin reports, men are causing something of a national crisis because of their indifference to dating, marrying and even having sex.
Here in America, many men have dialed down their ambitions, and not simply in response to a loss of job opportunities. Although three-fourths of the jobs lost in the recent recession were in fields that are overwhelmingly male (including construction, manufacturing and finance), the same number of new ones emerged in health fields, service industries and teaching. Yet surprisingly few men are entering these areas or seeking the education they would need to do so…¨
I would have to spoil the party by saying that I don´t think it is the ¨End of men¨ but more likely the reduction of investment( in society) by men.
The above trends seem to be at least as impacting on real estate and the greater economy than monetary or fiscal policy. Any thoughts?
Was invited to a drink by a friend of mine this evening.
Her firm (RBC) was throwing a grand party.
I hd a few drinks on them (via her, I suppose.)
Party on, Garth! The good times are rollin’ in Canada.
That brings back great memories of life at Berkeley during the dot com era. I used to hang out with friends in the CS department in order to get in on all the free food the Silicon Valley firms used to cater in to woo prospects. Good times indeed!