April 23, 2015

Gravity Has Been Revealed

Business in Vancouver reports from Canada. “When more than 2,000 buyers crammed into a Surrey sales site April 18 they may have ended debate about the future of tiny condos in Metro Vancouver’s white-hot housing market. Buyers had lined up from four in the morning for a chance to buy a 316-square-foot micro-sized condo for $93,900. That single loss leader sold to an Edmonton investor minutes after the noon opening of the Evolve sales office. But, within 90 minutes, 300 of the 406 tower condos had sold, including nearly all of the 35 micro suites, at prices from around $134,000.”

“200 of the 361 condos will be micro units of around 304 square feet. These condos, which include built-in, fold-down beds that convert to a dining table, will start from $139,900, said Jon Stovell, head of acquisitions and development for Reliance. While developers tout the tiny condos as a solution for young first-time buyers, the majority of sales are to investors, Stovell confirmed. ‘Small condos can be a great investment,’ Stovell said.”

The National Post. “China’s massive Operation Skynet fraud squad is now rummaging through Vancouver’s real estate industry. Over its final decade or so, the Immigrant Investor Program drew more than 30,000 Chinese millionaires to British Columbia. Just one of the unseemly costs of Ottawa’s wheel-greasing for Beijing’s princelings is a sum that might well amount to billions of dollars in no-interest loans that should have gone to British Columbia’s provincial treasury. Instead, the money got spent on thousands of back-door keys the Canada-Quebec Accord made available with a wink and a nod to Chinese millionaires.”

“Nobody seems to even know where all these bigshot investors have gone. Surveys by the China Merchants Bank show that nearly a quarter of Mainland China’s millionaires had already emigrated by 2013, but vacancy rates in Vancouver’s posh new condo districts are perhaps 30 per cent.”

From Yale Global. “For years, the global community praised Canadian financial conservatism and the country’s success in skirting the global financial crisis. The country is today one of the world’s most vulnerable large economies, and there are three key reasons for this precarious position: First, Canadian household debt levels are extremely high by almost any measure. Second, housing prices are elevated and continue to rise, driven by both confident Canadians and foreigners. More debt accompanies these higher prices, further escalating the vulnerability. Lastly, the proverbial straw that may break the Canadian camel’s back is the recent collapse of crude oil prices.”

“Total household debt, C$1.82 trillion, now exceeds GDP, C$1.6 trillion, approximately C$1.3 trillion of which was for residential mortgages. Further, household debt is now more than 160 percent of disposable income. And then there’s the Canadian shadow-banking sector that is booming. As a result of regulatory efforts to contain the housing froth, mortgages insured by the Canadian government are no longer growing. Uninsured private mortgages are filling the void. This private uninsured mortgage market is a booming subprime industry, similar to the one that brought down US financial system in 2006-7.”

The Toronto Star. “Renters rejoice. So many new rental condos are now hitting the Toronto market that competition is mounting among landlords to keep rents in line and tenants from flocking to the newest glass-and-granite boxes in the sky. Total rental listings were up 21 per cent in the first quarter of this year alone as the number of new projects registering in the GTA skyrocketed by 42 per cent.”

“A stunning 22,500 units have been completed since last June, with thousands more on the way, many of which are likely to end up as rentals, says Urbanation. ‘We’ve seen a modest reduction in some key sectors of the rental market that have experienced rapid rent growth over the last five years,’ said Urbanation senior VP Shaun Hildebrand.”

From Metro News. “Eager renters looking for a space to call home may actually benefit from the oil bust, a market hiccup that according the the Canadian Mortgage and Housing Corporation is bringing up the vacancy rate and morphing the local rental environment. If trends continue, Calgary could be looking at a renters’ marketplace, escaping the landlords’ grip on space.”

“Darren Paddock of Rentfaster.ca, one of Calgary’s most popular rental listing pages, said they’ve seen available rentals rise over two years – from 2,300 listings in April 2013 to over 4,900 in April 2015 – and have also noticed rentals take longer to fill than in the past. The demand has waned considerably, considering the economy,’ said Paddock.”

From CBC News. “In light of a recent Economist magazine analysis that tracked Canada’s housing prices as being overvalued by 35 per cent, Hilliard MacBeth says it’s clear the world is forecasting grim tidings for Canadian real estate. ‘Our bubble is bigger,’ says MacBeth, author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash, noting U.S. investment in housing topped out at six per cent of GDP before the crash. ‘At seven per cent, our exposure as a percentage of total economic activity is higher, and then we’ve got this nationwide obsession with buying homes and condos,’ he said from Edmonton.”

“CREA’s president, Pauline Aunger characterized the recent bout of low mortgage rates as ‘good news for affordability,’ but these low rates are also driving up demand and pushing up housing values, analysts say. Current promotional rates are as low as 2.74 per cent on a five-year fixed mortgage.”

“Toronto real-estate broker Barry Lebow believes a market correction now would be traumatic. ‘I’m in the business and it scares me,’ he said. ‘We’ve got a huge percentage of the population that has never seen a downturn in real estate, including a good percentage of real estate agents. When a downturn comes, it’ll be like gravity has been revealed.’”




RSS feed

30 Comments »

Comment by Housing Analyst
2015-04-23 03:22:00

Mountain View, CA Sale Prices Crater 5% YOY; Foreclosures Ramp Higher

http://www.zillow.com/mountain-view-ca/home-values/

Comment by redmondjp
2015-04-23 13:04:45

Seriously? 5% down is cratering? A bit dramatic, don’t you think?

Comment by Housing Analyst
2015-04-23 13:10:45

Falling housing prices my friend.

 
 
 
Comment by Ben Jones
2015-04-23 06:27:14

From the National Post piece:

‘If the Economist Intelligence Unit’s annual top-ten world cities rankings are what you’ve been relying on you probably weren’t surprised last month when the global human resources outfit Mercer tagged Vancouver on its Quality of Living index as the best city in North America. But you might have been surprised this week when Statistics Canada released a study showing that by a variety of indices, Vancouverites are the unhappiest people in Canada, falling dead last among 33 cities across the country on the happiness scale.’

‘StatsCan’s annual survey of median household income in Canadian cities routinely puts Vancouver close to the bottom of the heap on that same list of 33 cities, and in January the Demographia International research institute ranked Vancouver second to last in a global survey of 378 cities on its Housing Affordability Survey.’

‘Vancouver’s median household income in 2014 was $66,400, while the city’s median home price was 10.6 times higher: $704,800. Only Hong Kong fared worse, and just barely. Hong Kong also tops Vancouver, again only barely, as the property investment bolt-hole most favoured by Mainland China’s loot-laden millionaires. For years, we’ve been instructed to pretend that this is somehow mere coincidence. You can’t get away with talking to Hong Kongers like that, but Vancouverites take it sitting down.’

‘In happier places like Saguenay, Sudbury and Thunder Bay, there’s manufacturing, dairy farming, forestry and mining, and there’s a high degree of neighborliness and civility. But Vancouverites make most of their money from increases in the real estate value of whatever property they might be lucky to own. This tends to skew any real sense of hometown belonging, and nothing so rattles the cages as loose talk about the elaborate, federally-sanctioned swindle that has been keeping the bubble inflated all these years.’

‘Thus the unhappiness, all occurring right under Parliament’s nose. To give you a sense of how absurdly the taboo had throttled Canadian debates it’s instructive to recall the rubbish that was uttered when Harper finally got around to shutting it all down last year with a resolve to start from scratch. Vancouver MP Don Davies, the New Democrats’ international trade critic, accused the government of “damaging Canada’s economy and trade relationships.” Then there was Liberal warhorse John McCallum (Markham—Unionville): “Are Conservatives inadvertently picking on Chinese people?”

Comment by snake charmer
2015-04-23 10:30:32

‘Vancouver’s median household income in 2014 was $66,400, while the city’s median home price was 10.6 times higher: $704,800. Only Hong Kong fared worse, and just barely. Hong Kong also tops Vancouver, again only barely, as the property investment bolt-hole most favoured by Mainland China’s loot-laden millionaires. For years, we’ve been instructed to pretend that this is somehow mere coincidence. You can’t get away with talking to Hong Kongers like that, but Vancouverites take it sitting down.’
___________________________/

It could be said that Vancouverites are “taking it” in another position, such is the duplicity and fecklessness of their leaders.

As for Toronto “renters rejoicing,” one of my in-laws, who rented, recently left Toronto, complaining that it had become too expensive to live there.

 
Comment by GuillotineRenovator
2015-04-23 11:52:44

Vancouver real estate prices seem to be able to remain in a suspended state of eye-poppingness.

Comment by Ben Jones
2015-04-23 11:58:42

The reporting out of Vancouver isn’t very good. Every once in a while, they’ll slip out, ‘oh the market hasn’t been very good the past couple of years.’ Then it’s back to the gee-whiz of what some dump sold for or how fast. I’m pretty sure the condo market has problems; you’ll even see glut associated with it from time to time. And the areas just outside of Vancouver have seen price declines.

But with the money laundering/visa selling, who knows? I think it’s funny that the poor, unhappy Vancouverites are just now discovering this scam. Many here on the HBB have been saying this for years.

 
 
 
Comment by Ben Jones
2015-04-23 06:32:20

From the Yale report:

‘Detached single-family homes in Toronto now average more than C$1 million, and Vancouver is now deemed the second least affordable city in the world – thanks in large part to Chinese buyers who are also facing a slower economy…One of the main reasons that Canada weathered the last financial storm was due to a strong oil price and the corresponding jobs created for Canadian workers. Collapsing oil prices have dramatically altered the situation.’

‘A Statistics Canada report issued in March highlighted that Alberta was responsible for almost 90 percent of all new jobs created in Canada in 2014. That trend is now in reverse. According to construction industry association BuildForce, Alberta is likely to see sustained job losses for the next three years at a minimum. Further, because Alberta drew workers from all over the country, any slowdown will have national impact on unemployment. Not surprisingly, Calgary and Edmonton real estate markets have been rapidly weakening.’

‘Sadly, Canadian leaders have very little in their control at this point. The global credit and crude markets defy local control. Even housing in Canada is more global than traditionally assumed – just ask any Vancouver real estate agent. Dan Scarrow of Macdonald Realty last month bluntly described the impact of Chinese buyers: “Our analysis last year indicated that roughly one-third of buyers in Vancouver had some connection to mainland China.”

‘Excessive household debt, an overvalued housing market, lower oil prices and a weak employment outlook have Canada teetering on the verge of an economic bust. In fact, it may not take a home price drop for chaos to ensue. Individual debt levels now need growth in prices to keep the system working. Prices plateauing may be sufficient for the house of cards to collapse.’

‘China’s economic slowdown and the strong US dollar have affected crude oil and other commodity prices negatively. Bank of Canada Governor Stephen Poloz reduced interest rates this January, clinging to a global trend of government stimulus spending, in a quest to mitigate the negative economic impact of plummeting oil prices. Lower interest rates fuel uninsured lending, but higher rates would crush the consumer and make debt unmanageable.’

Comment by snake charmer
2015-04-23 10:55:10

What gets me is the extent to which none of this appeared to be foreseen, despite obvious vulnerabilities and a front-row seat watching a neighboring country’s housing bust. Or if it was foreseen, rational thought was shouted down by people who stood to benefit financially or politically from its opposite.

I don’t know if any country is making good economic decisions right now. There was concern that Ebola might circle the globe, but what really happened was that greed, stupidity, and truly poisonous doctrines circled the globe.

Comment by Ben Jones
2015-04-23 11:43:43

Note that the Toronto condo market is rolling over despite little to no connection to the oil field woes.

Comment by Blue Skye
2015-04-23 15:16:02

The job situation isn’t pretty in other areas of Canada. Having the currency slide with the price of oil isn’t fun at the grocery store either.

(Comments wont nest below this level)
 
 
 
 
Comment by Housing Analyst
2015-04-23 07:10:41

Redmond, WA List Prices NoseDive 11% YoY; Inventory Balloons 90%

http://www.movoto.com/redmond-wa/market-trends/

Comment by redmondjp
2015-04-23 13:16:52

Oh, so that must be why my neighbor’s house sold for $56K over asking in just over four days on the market.

Comment by redmondjp
2015-04-23 13:18:12

Oh, and was just last month.

Comment by Puggs
2015-04-23 15:07:27

Ouch, talk about buying high!

(Comments wont nest below this level)
 
 
Comment by Housing Analyst
2015-04-23 13:21:13

Stick with the data my friend.

Seattle, WA Sale Prices Crater 10% YoY

http://www.zillow.com/seattle-wa-98119/home-values/

 
 
 
Comment by Ben Jones
2015-04-23 07:29:58

‘The Bank of Mom and Dad has become such an integral part of the Canadian housing market that almost half of today’s first-time and move-up buyers actually expect to be backstopped on the biggest purchase of their lives by their real-estate rich parents , according to a new BMO survey.’

‘Some 42 per cent of first-time and move-up buyers expect their parents or relatives to help pay for their home, according to the annual survey, released Thursday. That’s up about 12 percentage points from last year’s Home Buying Report.’

‘Last spring, Canada’s federal housing agency, the Canada Mortgage and Housing Corporation warned that part of the reason the country’s housing market is “modestly” overvalued is at least in part because of “gifting” from baby boomer parents who are using their own real estate gains from the almost two-decade long housing boom to help finance homes their children otherwise couldn’t afford.’

‘That backstopping by Mom and Dad is widely seen as part of the reason bidding wars have become so frantic in the GTA market, where even first-time buyers are bidding tens of thousands – sometimes hundreds of thousands – over asking price on properties that even bank appraisers say aren’t worth the price.’

‘the almost two-decade long housing boom’

 
Comment by Ben Jones
2015-04-23 07:32:38

‘Calgary’s new condo market has been facing huge headwinds since the start of 2015 with sales plunging by 61 per cent in the first quarter compared with the same period a year ago, says a new report by Altus Group Limited.’

‘The report said there have been 523 transactions in the first three months of 2015, which is also 53 per cent lower than the average of the past five years.’

‘The report said projects not finding the same levels of success at launch combined with weakened absorption at existing projects resulted in the available inventory of new condominium supplies increasing to over 2,700 units, the highest level since 2008.’

 
Comment by Ben Jones
2015-04-23 07:35:35

‘China has secured 100 “red notices” for corruption suspects from the international police agency Interpol as part of the country’s campaign to pursue fugitives that have sought sanctuary in foreign countries. Released by the Interpol National Central Bureau for China on April 22, the list is aimed at appealing to foreign law enforcement authorities in the repatriation of the suspects.’

‘The 100 “red notices” offer case details for each fugitive including a list of alleged crimes, a passport-sized photo of the individual and information on their Chinese resident identity card. The list also provides the fugitives’ former positions of employment, date of departure from China and the countries they are believed to have escaped to.’

‘Among those on the list, 12 left China in 2013 when the new Chinese leadership under President Xi Jinping took power, according to the country’s top anti-graft agency, the Central Commission for Discipline Inspection (CCDI). The Interpol notice included some that fled the Chinese mainland as early as 1996. Forty of the suspects are believed to be in the United States while 26 are in Canada. New Zealand, Australia, Thailand and Singapore are also presumed to be major destinations for the fugitives.’

 
Comment by Ben Jones
2015-04-23 07:47:27

‘Winnipeg’s resale-homes market remains healthy despite a plunging sales-to-new-listings ratio, a senior Bank of Montreal economist said Monday. In his latest monthly housing market report, Robert Kavcic describes the “historical market balance” in Winnipeg and seven other major Canadian cities as “very weak.”

“Prices have levelled off over the past year or so, but you’re not seeing any sign of the type of correction you’re getting in places like Calgary, for example, or even Regina,” he said.’

‘He also noted Winnipeg’s sales-to-new-listings ratio is down because of a 27 per cent increase in the past year in the number of listings coming onto the market, not because fewer people are buying homes. “The demand side has held up pretty well. That’s evident on the sales side, and it does partly reflect mortgage rates being at historical lows,” he added.’

‘Peter Squire, residential market analyst for the Winnipeg Realtors Association (WRA), agreed Winnipeg’s resale-homes market is not overpriced. Squire said there’s no question sales-to-listings ratios have dropped because of a big increase in the number of new listings coming onto the market over the past two years.’

‘Kavcic said there’s also been an influx of new condominiums coming onto the market.’

 
Comment by Ben Jones
2015-04-23 07:51:52

‘Higher-than-normal levels of homes listed on the market going into 2015 have caused the average residential sale price in Regina to fall by six per cent in the first quarter compared with the same period last year, according to the ReMax spring market trends report.’

‘The average residential sale price in Regina in the first quarter of 2015 was down to $308,355 from $326,363 in the first quarter of 2014, said the report. Listings are also up six per cent compared to the first quarter of last year, and are expected to rise moderately over the next few months, ReMax added.’

“While low oil prices could put downward pressure on prices in this market, the impact is expected to be minimal,’’ the report said.’

‘In Saskatoon, by contrast, average home prices were flat in the first quarter compared with the same period in 2014; the average price remained stable at $352,900, ReMax said. However, sales are down 16 per cent in the first quarter and listings are up 15 per cent to 2,269 compared with 1,978 at the end of March 2014. Average prices are expected to remain flat at $351,849 in 2015, with an increase of one to two per cent forecast.’

Comment by Combotechie
2015-04-23 19:26:48

“While low oil prices could put downward pressure on prices in this market, the impact is expected to be minimal,’’ the report said.’

Minimal, huh.

From Wikipedia:

“Oil and natural gas, potash, kaolin, sodium sulphite and bentonite contribute a great part of Regina and area’s economy.”

But Regina has other economic stuff going for it …

“The farm and agricultural component is still a significant part of the economy – the Saskatchewan Wheat Pool (now Viterra Inc., “the world’s largest grain-handling co-operative” has its headquarters in Regina”

However …

” — but it is no longer the major driver; provincially it has slipped to eighth overall, well behind the natural resources sectors.”

So the natural resources sector is the main driver for the economy of Regina and natural resource sectors are tanking all over the globe but nevertheless “the impact is expected to be minimal”.

Got it.

 
 
Comment by Housing Analyst
2015-04-23 09:57:24

Frisco, TX(Dallas/FTW) Sale Prices Crater 5% YoY On Oil Bust

http://www.zillow.com/frisco-tx/home-values/

 
Comment by rj chicago
2015-04-23 10:03:05

This just in from the Chicago Tribune…..

1 in 4 Chicago-area mortgages still deeply underwater

Comment by Housing Analyst
2015-04-23 10:06:17

Frankly I’m surprised it’s that low. It’s likely understated by half.

 
 
Comment by Ben Jones
2015-04-23 11:47:58

‘U.S. and British authorities fined Deutsche Bank (DBKGn.DE) $2.5 billion, accused Germany’s largest lender of obstructing regulators and ordered it to fire seven employees in the eighth global settlement of alleged benchmark interest rate rigging.’

‘The penalty - the biggest in a seven-year investigation that has shredded the banking industry’s reputation - takes the total fines imposed on some of the world’s top financial institutions to around $8.5 billion. Twenty-one people face criminal charges.’

‘Bank staff also bragged about the power of Deutsche Bank’s Frankfurt and London offices. In an email to the head of Deutsche Bank’s Global Finance Unit, one wrote: “HAVE U SEEN THE 3MK FIXING TODAY? THAT WAS AN EXCELLENT CONCERTED ACTION FFT/LDN. CHEERS.”

http://www.reuters.com/article/2015/04/23/us-deutschebank-libor-settlement-idUSKBN0NE12U20150423

HBB additional: It is unclear if or when the global central banks will face charges for the massively larger rate fixing which continues to this day.

Comment by snake charmer
2015-04-23 12:36:10

What surprises me is that the idea of abolishing paper money, and thereby allowing ourselves to be controlled even more by the world’s central bankers, is starting to break into mainstream economic thought. We’re really entering “destroy the village in order to save it” territory.

 
Comment by Mr. Banker
2015-04-23 19:14:39

“It is unclear if or when the global central banks will face charges for the massively larger rate fixing which continues to this day.”

Perhaps it is unclear to you but it remains very clear to me.

Rev Ike: “You cannot lose with the stuff I use.”

 
 
Comment by Professor Bear
2015-04-24 00:15:38

Is a Great Wall of Chinese debt about to crumble and collapse on the global financial economy?

Comment by Professor Bear
2015-04-24 00:18:39

We’re Just Learning the True Cost of China’s Debt
by Christopher Langner and Lianting Tu
9:00 AM PDT April 22, 2015
China Defaults Are Just Tip of Iceberg: Kowalczyk

The true cost of the debt that China’s real estate developers peddled to eager international investors during a five-year property boom is now becoming clear.

Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four — Kaisa Group Holdings Ltd., Fantasia Holdings Group Co., Renhe Commercial Holdings Co., Glorious Property Holdings Ltd. — raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted.

China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble. Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years.

“It was an unintended consequence of the Chinese government that property developers are selling equity and debt to offshore investors,” said Ben Sy, a Hong Kong-based managing director in JPMorgan Chase & Co.’s private banking division. “There happened to be huge demand from international investors in the past few years driven by the intense search for yield.”

 
 
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