Reading The Writing On The Wall
The Toronto Star reports from Canada. “Canada’s three major condo markets — Toronto, Vancouver and Montreal — are expected to face some ‘instability’ over the next two years, says a new report written on behalf of realtor Royal LePage. There have also been growing rumblings that high rental demand and record-high condo rental rates are set to soften, which could see many investors put their money-losing units up for sale. That assumes investors are just looking to make money on rents, says veteran economist Will Dunning. In fact, they are also looking for long-term capital gains and know that, thanks to low interest rates, they are seeing their equity grow faster than ever. ‘There is no bubble in Canadian condominium markets,’ says Dunning.”
Business News Network. “While the numbers suggest the country’s robust housing market is stabilizing, TD economics says the new housing market is overbuilt in many large urban centres. ‘Even with the monthly retrenchment, the pace of housing start activity remains greater than those supported by demographic fundamentals,’ TD economics said in a note to clients. ‘Weakness was registered in both the single and multi-categories in November. While concerns of overbuilding are typically discussed in the multi category (e.g., condos in Toronto), it is rare to see softness concentrated to just one part of the new housing market.’”
The Canadian Press. “Canada’s much-scrutinized housing market showed signs of softening last month, with starts falling a little further than expected but still to levels many analysts consider too strong to sustain. Benjamin Tal, deputy chief economist with CIBC World Markets, said he expects condo construction in Toronto has reached its limits. ‘The cranes you are seeing in the skyline now are decisions that were made two years ago, but if you look what’s in the pipeline, you see significant downscaling,’ he said. ‘Developers are realizing this market is already oversupplied and that you cannot just add to it if you want to maintain stability.’”
The Montreal Gazette. “The median price of a single family home declined five per cent on Montreal Island to $365,000, compared with a one per cent rise to $278,000 for a home in Greater Montreal. And the median price of a condo declined four per cent on Montreal Island to $270,000, compared with a three per cent decline to $233,000 for a condo in Greater Montreal. Projects are still moving forward, however.”
“In a research note Monday, National Bank Economist Marc Pinsonneault warned developers in Greater Toronto and Montreal to remain cautious because of unsold inventory. In Montreal ‘there is a large level of condos under construction compared to absorption, and … the resale market is favourable to buyers,’ he wrote.”
The Ottawa Citizen. “Shrinking demand for condominiums in November sapped any momentum in Ottawa’s resale homes market. Chris Scott, a Keller Williams VIP Realty sales representative, said he hasn’t seen any major price softening in the apartment-style condos in which he specializes. Still, with new condo developments stalled and as many as 1,000 existing condos listed for sale — ‘almost a year’s worth of inventory’ — he says pressure on sellers to reduce prices will only increase.”
The South China Morning Post. “Joy Mo, a Vancouver-area resident since 2002, says it is time to do something about the rich mainland Chinese she believes have priced locals like her out of the property market. Mo says she became aware of the extent of the problem as she mingled with fellow alumni of Shanghai Maritime University who had recently moved to Vancouver. ‘They thought that the prices of these houses were quite cheap,’ she said, referring to homes ranging up to C$2.4 million. ‘I just gasped. These numbers are just nothing to them and I don’t understand why they don’t pay income tax.’”
The Star Phoenix. “Once again Canada’s big five banks have delivered a record performance, despite the weak economy, slower consumer lending and other headwinds. The challenge for the sector going forward is finding places to grow without taking on excessive risk. After a decade-long binge on real estate, Canadian households are sitting on record debt, mostly in the form of mortgages. ‘The only time I would be weary (of bank performance) is heading into recession, where loans made in the past come could come home to roost,’ said said Ian Nakamoto, director of research at Mac-Dougall MacDougall & MacTier Inc. in Toronto.”
From The Spec. “With Canada’s housing market anticipated to cool, and consumers already carrying record amounts of debt, the banking sector faces challenges to find growth. ‘I think it is going to be pretty sluggish growth for loans here, especially if the housing market starts to slow down,’ said Ian Nakamoto, a portfolio manager at MacDougall Investment Counsel. Several of the banks trimmed staff in the fourth quarter. ‘They are probably reading the writing on the wall as to what is going to be happening over the next several years,’ Nakamoto said.”
From The Tyee. “If Canada’s banking regulations are not substantially toughened by the time the next global financial crisis hits — yes, there will be another crisis — our Big Six banks may very well find themselves in serious trouble. Again. The public is almost entirely unaware that our banking system, with just a couple of wrong moves or some bad luck, could go into a tailspin at any time. And when the next serious setback occurs, we could end up suffering even more than in 2008-2010.”
“Canadian banks remain extremely vulnerable for several reasons. For one, they are making loans and investments valued into the billions of dollars, without holding enough in reserve funds should disaster strike. Secondly, many of our banks’ activities are intertwined with the same U.S. and European financial institutions that are still gambling and taking risks as they did during the period leading up to the collapse. If a foreign bank crashes, or a European government goes broke, the reverberations will reach Canada.”
“‘Common wisdom in Canada has been that our banks have sufficient capital,’ said Jem Berkes, a business consultant who follows developments in the financial community. ‘Using their new improved measures — likely to be adopted by regulators in coming years — Canadian banks actually have some of the poorest capital levels in the world and that’s a cause for great concern. It suggests that our banks do not have enough capital to weather global storms.’”
“Game Over for Real Estate: Time to Short US Housing Market”
http://www.nomadiccapitalpartners.com/short-us-housing-market/
This is no great revelation but it’s good to see the media discussing the disaster that is housing.
Isn’t there a good chance the PTB will do all in their power to kill the shorts by further propping up prices?
“Get shorty.”
“In fact, they are also looking for long-term capital gains and know that, thanks to low interest rates, they are seeing their equity grow faster than ever.”
Let’s take a look at this:
“They are seeing their equity grows faster than ever” because the price is going up faster than ever. And the price is going up faster than ever because … well, because the price is going up faster than ever.
Price increases intices and increases interest in buying and this increase interest in buying causes prices to rise. Which is okay because the rental income from these rental properties will justify the higher prices.
Wait a minute! Maybe not! Lookie here …
“There also have been growing rumblings that high rental demand and record-high condo rates are set to soften, which could see many investors put their money-losing units up for sale.”
What originally sucked in buyers was the promise of high rental income and so these sucked-in buyers began to bid up prices up to the point - and past the point - of break-even. Now that the price is past the point of break even the “investors” - those who want a positive cash flow from rents - are leaving the scene and they are being replaced by “speculators” - those who do not care about rental income but only care about price increases.
What financial decisions that might have made sense at lower prices tend to stop making sense at higher prices in a normal, rational investment market, but these decisions start making sense in a abnormal, irrational, speculative market because in such an abnormal, irrational, speculative market value becomes disconnected from fundamentals (in this case positive cash flow from rents) and instead it, value, becomes connected to price.
IOW, in an abnormal, irrational, speculative market Price equals Value; The higher goes the price, the higher goes the value.
And so, once again, here we are.
The best cure for high prices is higher prices…….
(That’s behind us now as the correction is gaining steam once again)
I will MAKE house prices go higher. You can’t stop me.
blame canada !
at least they have oil
‘A mega-million dollar condo/office project planned for Old Montreal has fallen through. Developer DevMcGill president Stéphane Côté said his partners pulled out, one asking what he calls an unrealistic price for the land.’
“Which put too much pressure on the project to have that crazy, crazy price so this is when everything came to a halt,” Côté told CJAD 800 News.’
“Today, would you put up that project today in that busy market? It also depends on the price of land and this is where it kind of got out of control and this is what put everything on hold.”
‘One of the partners also got cold feet in the face of the oversaturated condo market. Terry Kilakos, CJAD contributor and chartered mortgage broker with North East Mortgages, said he’s not surprised.’
“There’s so much inventory and I just don’t think there’s enough purchasers right now that can warrant a project like this,” Kilakos said. “A lot of lenders are starting to be very reluctant as to whether or not they should be pursuing these condos.”
One thing that would kill the RE bubble in all emerging economies and Aus/Canada is Fed tapering. As soon as the taper is announced, their currencies will fall. Secondly the investors will start taking their money out of these countries from all Stock markets and other investments. This would cause a ripple effect in all these countries with a self fulfilling prophecy of bubble burst. RE would become really unaffordable and more inventory would pile up. It would be a slow process but in a years time after Fed tapering, it may correct by almost 40%.
Most important is Fed to Taper.
“As soon as the taper is announced, their currencies will fall.”
What a screwy world. Announcing a taper is the same as announcing a slowdown in the rate that the currency is being diluted. Such a slowdown should act to make the currency scarce and thus more valuable, but because the world has gone insane just the opposite is expected to occur.
It is indeed a screwy world now days. When good data hits Wall Street, the stocks fall and when bad data hits, the stocks gain. And you know why? I wonder if we really need Ron Paul to fix this mess.
We used to have a poster here named Cote. Any connection?
That dude was from CA as I recall….(before I was banned for forever and a day)
Exeter was banned from this blog? When?
I don’t keep a log or anything, but it seems like it was 2005-2009.
‘Vancouver’s sky-high real estate prices and the influence of offshore investors has come under fire again, in a controversial article on the South China Morning Post website. “I’m not saying they shouldn’t buy,” said Mo in an interview with the CBC. “I mean, nobody can stop them from buying. I’m saying for international buyers, shouldn’t we set a different tax standard like a lot of other countries do?”
“Vancouver Mayor Gregor Roberston says the market is nowhere near as hot as Hong Kong’s, but that his task force on housing affordability is checking out options.”
“We don’t want to take any rash actions that might impact investment in the city,” said Robertson.”
Of course. Don’t do anything rash to impact investment. Your entire city is becoming neighborhoods of investments rather than people, and you can’t do anything about it or won’t. Keep checking out those options. I’m sure it will be fruitful.
He said this:
‘We’re not Hong Kong. They saw real estate prices rise 26 per cent last year, which is unbelievable – they had to take rash actions to deal with that.’
Hong Kong slammed the door on what they call mainland investors. But off in Vancouver, no way Sensei!
Another interesting this about all this; when people first raised this subject a couple years ago, the REIC immediately cried, racism! And Canadians are so PC, they cringed. I did find one letter to the editor that said, “we all know what’s going on here, so stop pretending.” This time it only got so far because it was an Asian making the point.
. Your entire city is becoming neighborhoods of investments rather than people
The little people can live in the far flung suburbs and commute into town to serve their foreign overlords.
That state of affairs is going to have a real short life span. What bothers me the most is that money is being used in a way that completely trivializes both democracy and real work — that vast sums of money are being created or loaned into existence, and then essentially given to politically-connected persons and entities, who proceed to buy up the world’s desireable cities and places for themselves.
“I’m saying for international buyers, shouldn’t we set a different tax standard like a lot of other countries do?”
Yes.
“We don’t want to take any rash actions that might impact investment in the city,” said Robertson.”
Why not look out for your city’s residential housing needs, instead of pandering to international investors who have more money than they know how to spend wisely?
“We don’t want to take any rash actions that might impact investment in the city,” said Robertson.”
Translation: We aren’t going to do a damn thing to stop this. We love it.
Yeah, and off the top of my head, I’d say the top three bubble markets in North America are Vancouver, New York City and Boston. Of the 3, wages are way lower in Vancouver.
Do Canadians pay property taxes?
Nope. They don’t poop, either.
Just found this link. Prices in New Delhi for apartments are more than Manhattan prices. And New Delhi doesn’t provide even fraction of infrastructure that NYC has. 1 Crore in Indian rupees is roughly US$200K. Most properties that are listed are in USD millions. And these are not really posh areas of Delhi as far as I can tell from my research.
India is also riding a major RE bubble unlike China and many other countries as Dr. Doom mentioned a week back.
http://www.99acres.com/residential-apartments-in-south-delhi-ffid?orig_property_type=1&class=O,A,B&search_type=QS&pageid=QS&lstAcn=SEARCH&lstAcnId=6686816086080384&src=CLUSTER&Refine_Budget=1&price_min=50000000
Looking closely I found the prices are like $550 to $1000 per square feet. Insanity. i’ll check Mumbai also later today.
Dr. Doom is about 2 years behind this blog. Just put Mumbai in the search bar to the right and you’ll be up to speed.
Looking closely I found the prices are like $550 to $1000 per square feet. Insanity.
That’s what’s scary. From their perspective, American real estate is “low cost” (my brother actually heard this in China)
Scary?
Homeland Sec detail and loca para-cops blowing your doors in at 3am is scary.
Now how large of a buyer pool is there at $500/sq?
Hint: it’s miniscule to non-existent
I don’t find it scary, I find it despicable. It is 100% greed by all parties involved.
California Rental Rates Crumble 9% Year Over Year
http://picpaste.com/pics/1a062646356820810ad09b89f0335436.1386687372.png
Washington DC Rental Rates Crater 11% Year Over Year
http://picpaste.com/pics/f729bd070c1f358272cdf3184d4ad676.1386687485.png
Still very high, though. They’d have to fall another 50% to be in line with an average metro area.
All in good time Liberace.
goin up in my hood- bama b hirin,yo
16,000 irs agents coming
“Household Formation Is Cratering”
http://realmoney.thestreet.com/articles/08/21/2013/household-formation-cratering
This isn’t really news as household formation is already at 60 year lows….. but the declines are accelerating.
Just the facts sir:
Higher Interest rates not always bad for gold. There have been periods when gold steeply climbed when rates went up and steeply fell when rates went down.
http://blogs.barrons.com/focusonfunds/2013/09/06/higher-interest-rates-not-always-bad-for-gold/
Moral: Don’t look to interest rates as a reason to buy or sell gold. Look to 1) fundamentals and 2) the likelihood of a one time 10% electronic asset tax in the USA as has been done in Cyprus.
Other news today: Americans’ wealth increased by $1.9 trillion during the recovery. - That is over 10% of the federal debt. Most of that electronically. It will be gone “poof” by the end of Hillary’s term of President when she gets elected by the FSA in 2016.
the likelihood of a one time 10% electronic asset tax in the USA as has been done in Cyprus.
If that happens don’t you think that the PTB will do everything they can to confiscate your gold too? Sure, you can hide it in a paint can in the basement, but how do you easily convert it into cash when its possession is outlawed? How do you get it out of the country?
Current Housing Bubble Stages
http://img266.imageshack.us/img266/8180/stagesbubble.png
Sucker’s rally 2013. Despair lies ahead.
“Canada’s three major condo markets — Toronto, Vancouver and Montreal — are expected to face some ‘instability’ over the next two years, says a new report written on behalf of realtor Royal LePage.”
Translation: ‘instability’ = tumbling prices?
Rolling Stones perform Tumbling
DicePriceThose guys have been to hell and back in self destruction, like smoking, yet live longer lives than some people who ake health too seriously. How about compared to those who practice moderation?
I have a bit of familiarity with the Toronto market. Existing Condo prices have been going down for almost two years now and the length of time on market has increased. Neither are dramatic changes though. Yet.
If you ever saw the Toronto skyline you would be amazed at all the high rise development being completed. But very little new ones.
http://realestate.msn.com/blogs/listed-loans.aspx?post=8c77555e-dc1f-4fd5-83a7-99d57f13631f
(Reuters) - Government-run Fannie Mae and Freddie Mac will raise the fees they charge mortgage lenders for guaranteeing new loans in March to encourage private firms to wade back into the housing finance market.
The so-called guarantee fees that the two taxpayer-owned companies charge lenders will increase by an average of 10 basis points, or one-tenth of one percent, their regulator said in a statement.
Increasing the fees will make loans backed by Fannie Mae and Freddie Mac more expensive, making it easier for private sources of capital to compete.
The government wants to reduce the burden on taxpayers of running the two companies and have private companies take their place in a market they largely abandoned during the financial crisis.
sorry about the bad link
Interesting part of all Reuters article:
The FHFA said Fannie Mae and Freddie Mac will also alter pricing frameworks used to assess credit risk and, in most markets, eliminate an up-front 25 basis point “adverse market” fee they have been charging since 2008. They would still charge the fee in New York, Florida, New Jersey and Connecticut, where foreclosure costs remain elevated.
Taken together, all the steps would produce an average fee increase of about 11 basis points, it said.
This link works:
http://blogs.wsj.com/developments/2013/12/09/fannie-freddie-to-raise-loan-fees/
http://www.bloomberg.com/news/2013-12-10/swedish-housing-surges-to-unsafe-value-as-debt-soars.html
Aww, this is terrible:
‘Luxury home builder Toll Brothers Inc., whose financial results are closely watched by housing observers as a gauge of the high-end market, on Tuesday reported a 10% decline in sales contracts in recent weeks, which analysts and even the company partly attributed to sticker-shock on the part of consumers. Over the past year, Toll has pushed up its average selling price 21% to $703,000.’
“Toll’s buyers have more discretionary income, but even they have decided that the pricing pace has been too aggressive,” said Vicki Bryan, a senior analyst with credit-rating service Gimme Credit LLC. “This sets the tone for the next two quarters in terms of pricing.”
Wait a minute:
‘credit-rating service Gimme Credit LLC’