After A 10-Year Party There Will Be A Magnificent Hangover
Bloomberg reports on Canada. “The U.S. greenback broke above $1.40 vs. the Canadian dollar late last week in the wake of softer-than-expected inflation and wholesale sales prints north of the border. And according to Scotiabank Economist Derek Holt, the timing of the loonie’s slump is abysmal as it drains debt-laden households’ purchasing power precisely when big-ticket purchases, of such items as homes and autos, are running at all-time highs. And the higher they are, the farther they could potentially fall. ‘The currency’s plunge couldn’t have happened at a worse time for the country’s household sector,’ Holt lamented in a note. ‘When a currency declines as CAD has alongside a deep negative terms of trade shock, it is among the mechanisms through which markets price a large wealth transfer out of the country to the regions of the world that are large net importers of commodities.’”
“In some respects, the macroeconomic backdrop in Canada is similar to that of the mid-1990s. One major segment of the economy is overextended and in need of deleveraging. Back then it was the government; now it’s households. The loonie had softened, and external demand from a buoyant U.S. was—and is once again—required to help smooth the transition process. Unfortunately for Canada, the Boy Meets World era is over.”
“‘When judging the hit to the household sector there are two things to bear in mind: the starting point on the equilibrium matters enormously and that points to record highs across everything we can track by way of consumer and housing metrics,’ wrote Holt. ‘When your nation’s consumers have spent to the max because their purchasing power in world markets became so strong and then sharply weakened, the scope for significant downside risks cannot be ignored.’”
The Daily Herald Tribune. “The Canada Mortgage and Housing Corporation reported in their spring rental market survey earlier this year that the Swan City’s vacancy rate had risen to 2.6% in April compared to 1.3% the year before. In the CMHC’s fall 2015 report, the Grande Prairie vacancy rate had risen to 10.4% for October 2015. ‘If landlords didn’t adjust their rents in the last year, they’re going to be looking at a higher vacancy than a landlord who has adjusted their rent,’ said Bildson. ‘So I personally think that the CMHC’s numbers are skewed high because, perhaps, of the information they were given for that short blip. I would estimate that we are looking at closer to a 5-7% vacancy across the board here in Grande Prairie. Our tenants aren’t just in the exploration field here in Grande Prairie. They come from a much more diversified field than that so we’re a lot more sheltered than Fort McMurray for example.’”
Fort McMurray Today. “Apartment vacancy rates have soared to new heights in Wood Buffalo, according to the latest Canadian Housing and Mortgage Corporation report. About 30 per cent of units in apartment buildings were vacant in October, CMHC says, nearly triple October 2014’s total. At 29.4 per cent, Wood Buffalo’s vacancy rate is the highest in the country. Next highest is Estevan, Sask — another industry town — which comes in at 20.6 per cent. The Alberta average is 5.6 per cent.”
“Northview Apartments, a real-estate company that owns more than 800 units in Fort McMurray, says they’ve felt a hit due to the hard times in town. ‘Sustained low natural resource prices continue to negatively impact vacancy and financial results in (our) natural resource based markets,’ said Todd Cook, CEO of the group, in a press release. ‘Internal growth in (our) portfolio will remain constrained until there is a recovery.’”
“Rental prices have fallen about 13 per cent, according to CMHC, but they still remain the highest in the country. Average rent for a 2 bedroom apartment was $1,841, down from $2,118 in October of 2014, but still about $500 more than Vancouver, the next highest market.”
The Calgary Herald. “Calgary’s rental vacancy rate has more than tripled since October 2014, while prices have edged up slightly in the city, according to a new report from the Canada Mortgage and Housing Corp. Richard Cho, principal of market analysis in Calgary for the CMHC, said the slowdown in the economy has not only affected homeownership but the rental market as well. ‘We are seeing less rental demand in Calgary this year compared to last year,’ said Cho. ‘We’ve had some more units added to the market as well and that’s also putting some upward pressure on the vacancy rate.’”
“CMHC said the overall universe of purpose-built rental apartments increased by 3,890 units this year in Alberta. ‘This represents the second consecutive year the apartment universe increased following declines from 2004 to 2013,’ it said. ‘Low vacancies in the province over the past three years have contributed to more rental construction. By the third quarter of 2015, the total number of rental starts was already higher than any annual total since 1990.’”
“Lai Sing Louie, regional economist for the Prairie and Territories for the CMHC, said the ‘oil shock’ has impacted the economy in the province ‘especially when you look at oil-centred markets like for example Wood Buffalo.’ ‘That’s a very, very large vacancy rate,’ he said. ‘So what happens now is that landlords are trying to attract tenants and so the same sample rents in Wood Buffalo are almost down 13 per cent. It’s quite a reduction. In Cold Lake, the same sample rents there are down almost 37 per cent. So that’s a huge savings for renters there.’”
The National Post. “Landlord Michael Stringer used to have potential tenants fighting over his southwest Calgary condo. He’d have to remove online ads within an hour of posting them, lest he be bombarded with emails. But with vacancy rates rising and Alberta’s economy struggling, that’s no longer a problem. Stringer’s unit has been empty for nearly three months. ‘Maybe two or three people emailed me that they’re interested,’ Stringer said. ‘I just don’t think those renters are out there right now … this past year’s been a disaster for me compared to how it’s been.’”
“Stringer tried a free month of rent. When that didn’t work, he included all utilities in the price. Then he offered to give the place a fresh coat of paint in a colour of the tenant’s choosing. Although he says people seemed to value those bonuses, the condo remains unoccupied. Now, he says he’s considering cutting his losses. ‘It’s to the point where I don’t really want the headache anymore,’ Stringer said. ‘If it’s empty, I’ve got nothing to lose by selling it. I don’t know what’s next.’”
The Province. “Debacle. Moral hazard. Outspoken U.S. short-seller Marc Cohodes uses frightening words to describe his outlook for Vancouver real estate in 2016. Since The Province’s story in June featuring Cohodes — a prominent investor who bets on the collapse of speculative bubbles — the stock price of the Canadian subprime lender he is targeting has been cut in half. And that loss was despite double-digit price gains in Vancouver and Toronto homes.”
“But for several reasons Cohodes and a group of U.S. investors believe a rot of bad loans will spread and drag home prices down in 2016. They believe their Canadian housing research was validated in December when the federal government announced policy changes aimed at reducing excessive borrowing and fraudulent loans.”
“Cohodes believes Ottawa’s unstated intent is to remove ‘moral hazard’ — meaning risky financial behaviour encouraged by easy money and government-backed mortgages — from Canadian housing. ‘What all this means to me is Canada is putting the risk back in the market,’ Cohodes said in an interview. ‘But when you take the booze away after a 10-year party there will be a magnificent hangover. So I think 2016 will be a debacle. The speculators and money launderers will get burnt. But it will be good for younger people and the economy in the long-term.’”
“Bankruptcy trustee Blair Mantin of Sands & Associates says in the Fraser Valley he sees foreclosures rising quickly among condo speculators. ‘For me the horse is already out of the barn,’ Mantin said. ‘It’s too late, but I hope (CHMC mortgage tightening) will stop some people from jumping on the property ladder simply because they think they’ll be priced out.’”
Vancouver has been a very lofty real estate market for a long time. It sort of reminds me of Las Vegas or Miami in 2006!
It’s very fortunate some Canadians bought housing in Phoenix a few years ago, so they can sell now and plow their 40% currency gains into their 10% (so far) Canadian RE losses.
And just who are they going to sell to Jingle_Fraud?
US Housing Demand Plummets To 20-Year Low
http://4.bp.blogspot.com/-qRBemWyulY0/VNGrDCBXzOI/AAAAAAAAiMA/jdA2RQkiNDc/s1600/MBAFeb42014.PNG
’so they can sell now’
Yes, no one ever gets stuck with a house they can’t sell.
The Market May Not Be As Strong As Most People Think
Back to the real world, Canadians are the most indebted consumers on the planet. If this was Mexico swirling the bowl, everybody in the US would be talking about it. But Canada.Who cares?
Yes, if you need to sell, it can be a problem sometimes.
“I Know Of No One Who Predicted This”: Russian Oil Production Hits Record As Saudi Gambit Fails
http://www.zerohedge.com/news/2015-12-21/i-know-no-one-who-predicted-russian-oil-production-hits-record-saudi-gambit-fails
Remember…. Nothing accelerates the economy like falling housing and oil prices to dramatically lower and more affordable levels. Nothing.
‘If it’s empty, I’ve got nothing to lose by selling it.’
I follow you so far Mike, but one thing occurs to me; if it’s empty, and it’s a headache, and the economy is in the tank - what do I have to gain by buying it?
‘ I don’t know what’s next’
Get this guys name Mike:
‘Bankruptcy trustee Blair Mantin of Sands & Associates says in the Fraser Valley he sees foreclosures rising quickly among condo speculators. ‘For me the horse is already out of the barn,’ Mantin said. ‘It’s too late’
” I’ve got nothing to lose by selling it”
Maybe like some of our posters here, he’s had it for a couple of years and it’s already paid for itself.
Sing it Janice:
“Renting’s just another word for nothing left to lose! Rentin’ don’t mean rentin’ honey if it ain’t free…..”
Renting from the back at twice the market rental rate isn’t exactly Nirvana Jingle_Fraud.
‘By the third quarter of 2015, the total number of rental starts was already higher than any annual total since 1990′
Don’t ya hate it when that happens. Same in Houston; oops! Miami; opps, way too many condos, who knew? We had a shortage 3 months ago.
From the Calgary piece: “They can charge just as much..rent the same place for $1500 a month to a family of 5 Syrians, paid for by taxpayers this year, versus the young (now unemployed) oil company Geology gad they had living there last year.. Socialism at work..”
Looks like someone witty has noticed the disconnect between income and expenses. Hehe.
My DEM rep wants 100,000 Syrians
An easy way to fix the housing decline, bring in 100,000 new people into the area, and get an automatic increase in housing demand.
Political thinking in the extreme, and as they have no income the government will have to provide the rental funds which will increase the demand for low income housing, which will force prices higher!
Win, win, win for the politicos.
“Cohodes believes Ottawa’s unstated intent is to remove ‘moral hazard’ — meaning risky financial behaviour encouraged by easy money and government-backed mortgages — from Canadian housing. ‘What all this means to me is Canada is putting the risk back in the market,’ Cohodes said in an interview.”
Any chance of the U.S. financial authorities following suit and taking away the housing market punch bowl any time soon?
‘Oil and iron ore have had a shocker of a year and National Australia Bank says the two commodities may fall further in 2016. “Risks remain tilted to the downside amidst stubborn oversupply and weak demand conditions,” the bank said.’
‘For iron ore, NAB expects a sharper slowdown in global steel production, particularly in China where the economy — and construction — continues to slow, might push the metal’s price toward $30 a tonne, around Australian miners’ breakeven. Spot iron ore for China delivery was at $39.40 a ton on Monday after touching a low of $37 earlier in the month, the lowest since late 2008 when data began to be compiled.’
“Chinese iron ore production will also remain the swing factor - while production has fallen 8.5 percent so far in 2015, this remains stronger than previously anticipated despite its lower grade and higher cost of production (above the current spot price),” it said.’
‘The picture isn’t much better for oil, the bank said. “The global oil glut is also expected to continue into 2017 as market competition becomes more decentralized, with major producers from the U.S. and Middle East continuing to supply at a robust rate in a bid to defend market share and sustain revenue,” NAB said. It sees a “significant downside risk” to its forecast that oil prices will range from $40-$50 a barrel in the first half of the new year.’
“Significant upside risks to production from OPEC, accompanied by further expected appreciation in the U.S. dollar, suggest that oil prices could go as low as in the $20s in 2016 under a worst case scenario,” it said.’
‘ANZ is also skeptical that either oil or iron ore will rebound soon. “Iron ore prices have found a base near term, but crude oil has yet to find a bottom. Both markets are at risk of making new lows in the first quarter of 2016,” the bank said.’
As long as there is easy money to keep these operations alive, finding a base will be elusive.
‘Oil and iron ore have had a shocker of a year ??
This morning I saw a chart on these two going back to 1950…The downward trend line is a eye opener…
“finding a base will be elusive”
Shocking that the price of iron ore has collapsed from $180 to $40? What is shocking is that it ever went from $10 to $180 between 2004 and 2011.
Still in bubble territory with lots to fall.
‘One major segment of the economy is overextended and in need of deleveraging. Back then it was the government; now it’s households. The loonie had softened, and external demand from a buoyant U.S. was—and is once again—required to help smooth the transition process. Unfortunately for Canada, the Boy Meets World era is over.’
‘When judging the hit to the household sector there are two things to bear in mind: the starting point on the equilibrium matters enormously and that points to record highs across everything we can track by way of consumer and housing metrics,’ wrote Holt. ‘When your nation’s consumers have spent to the max because their purchasing power in world markets became so strong and then sharply weakened, the scope for significant downside risks cannot be ignored.’
You said a mouthful there Derek. And you mentioned Canada doesn’t produce much end product, meaning you have to buy it with your unfortunately named, worth less every day, loonie.
“Canada doesn’t produce at home many of the consumer goodies that are desired especially on the bigger ticket side of the equation,” he wrote. “It is also unlikely to start doing so.”
Quite the pickle, I must say. So this is where we might look back and wonder, is letting these bubbles run their course and cleaning up afterward the way to go?
Driving to Watertown or Syracuse to do Christmas shopping didn’t appeal much to my Canadian friends this year.
BTW, gas is still $4/gal up there. The Loonie really is a commodity currency.
Irving, TX Housing Craters 12% YoY; Builders Slash Prices To Exit Submerging Flippers And Speculators
http://www.movoto.com/irving-tx/market-trends/
‘Overseas investors looking to park their money in Canadian real estate could soon be donning headsets and touring upcoming condo developments in virtual reality, according to the founder of a Toronto-based technology firm.’
‘David Payne, the company’s founder and CEO, says he’s been getting tremendous interest from the Chinese community. “They are very excited about the potential,” he said, noting that in the past week alone he has received three media inquiries from Chinese news outlets.’
‘A number of Toronto-based brokers with Sotheby’s International Realty Canada, which works with a large proportion of overseas buyers, started using the technology earlier this year. Ara Mamourian says his brokerage, SpringRealty.ca, has been using online virtual tours for all of its listings since 2013. One of the things that prompted Mamourian to start offering the service was a high number of calls from overseas buyers.’
‘Mamourian says some foreign investors are willing to purchase properties such as condos without visiting them in person first. ‘
I remember back in 2005, watching a newsmagazine program, it might have been 60 Minutes, where some ordinary guy in Atlanta bought a house in another state over the internet, without ever seeing the property in person or having a traditional real estate closing around a table. He was quite pleased with himself, moving his mouse around and clicking. The interviewer did not judge him in any way, choosing instead to express amazement that it was so easy.
I can’t get last week’s image of houses in China, with electrical cables running at waist height through the middle of the room, out of my head. With the right set of photos, the wires wouldn’t be visible and the houses could be presented on the internet as luxury.
Yun blames paper work for home sales tanking in Nov.
lol. Sounds like R.Fraud and J.Fraud.
‘The “sustained low interest-rate environment” has caused a “significant minority” of Canadians to take on more mortgage debt than they can comfortably manage. That was the conclusion from a recent study by C.D. Howe.’
‘Out of all the study’s findings, the one garnering the most headlines was the percentage of homeowners with a mortgage debt-to-disposable income ratio in excess of 500%. That number has rocketed from 3% in 1999 to 11% in 2012 (the latest data available). That’s upwards of half a million households.’
‘That led the study authors, Craig Alexander and Paul Jacobson, to suggest that the federal government “may want to consider further policy actions to lean against the shift towards significantly higher mortgage burdens.” This is despite their conclusion that “the majority of Canadians have been responsible in their borrowing.”
‘Coincidentally, this study came out right before the Finance Department raised minimum down payments. That measure addressed some of Alexander and Jacobson’s concerns, but not all. They note that highly mortgage-indebted households are more likely to be:
-in the lower-income quintiles i.e., not buying the $500,000+ homes targeted by the new down payment rules.
-younger Canadians who have recently entered the housing market the average first-time buyer’s purchase price is $293,000, says the DoF, again, less than $500,000 from provinces with the biggest housing booms.
‘Also concerning is the fact that roughly 1 in 5 mortgage-indebted households have less than $5,000 in financial assets to draw upon if they lose their job or face surging interest rates. Worse yet, 1 in 10 have less than $1,500 in financial assets and are considered “extremely vulnerable to a negative economic or financial shock.”
“This represents an inadequate financial buffer,” say the study’s authors, “as the Statistics Canada Survey of Household Spending indicates that average mortgage payments are more than $1,000 a month, before taxes and operating costs.”
One thing nobody talks about in Canada (or very little) is the private mortgage industry. I have seen a few of these mortgages come across my desk in the last year, and I can’t believe that this isn’t going to blow up at some point. Our very own subprime market. There are people out there with money, willing to lend large sums to “high-risk” borrowers (the ones the banks won’t touch) for a period of one year, with rates about double the rate the bank offers. These are usually second or third mortgages. I can’t believe how much interest these people are paying per year, to keep their heads above water (just barely) and hold onto their houses. What happens when the year is up, and the lender sees more risk in the real estate market and decides not to renew the private mortgage? Bloodbath.
http://www.youtube.com/watch?v=A6LbPLzJCxw - 193k -