The Housing Bubble

The Globe and Mail reports on Canada. “A Vancouver MLA is demanding that the B.C. government appoint an independent investigator to hold an inquiry into how the real estate industry is regulated after a Globe and Mail report outlined a technique in which Vancouver-area properties flip one or more times before a deal closes. The technique, which brings profits for speculators but higher prices for buyers, has sparked a torrent of criticism in the province. ‘The investigation needs to be independent because the government has already said it doesn’t think there is a problem,’ said MLA David Eby.”

“In one example before the courts, a West Vancouver homeowner alleges that a real estate agent and a buyer devised a scheme to buy his home for $5-million, then sold that contract to other speculators – during the six-month closing period – until an end buyer agreed to pay $7-million for the property. The $2-million ‘lift’ would be shared between the middlemen.”

“‘There is a lot of speculation in this market – but lack of government intervention is as responsible as the speculators themselves,’ said Vancouver real estate agent Allyson Brooke of Macdonald Realty. Ms. Brooke said Vancouver homeowners should reverse the saying ‘buyer beware’ to ’seller beware.’ She said agents should not be allowed to act for both sellers and buyers, as was the case with some of the deals in question. ‘Lawyers and notaries do not act for a buyer and seller in the same transaction; neither should realtors. The scenario is fraught with potential for unprofessional behaviour, I am very sorry to say.’”

The Canadian Press. “Allegations of fraudulent practices and insider trading by some Metro Vancouver real estate agents have prompted the provincial New Democrats to call on the British Columbia government to investigate. NDP housing critic David Eby alleges some realtors have been avoiding property transfer and capital gains taxes while exploiting a clause in contracts that allows for a series of home flips.”

“He also alleges real estate agents have been assisting clients to hide foreign origins of money used in transactions by putting the broker’s address instead of the purchaser’s address on federal anti-money laundering forms.”

The Ottawa Citizen. “When the National Capital Commission set out its vision for LeBreton Flats in 2014, it said it wanted to see the vacant lands developed ‘for primarily non-residential animating uses, such as museums, galleries, special attractions hospitality and office space.’ Even so, residential uses are significant in the two proposals submitted by the Devcore Canderel DLS Group and the RendezVous LeBreton Group. The latter’s plan calls for nearly 4,400 housing units, while DCDLS envisions at least 2,500 units and possibly as many as 4,000.”

“DCDLS’s plan calls for 2,500 units, ‘based on how we see the market right now,’ says Daniel Peritz, a senior VP at Canderel. All but 200 of the 1,100 units planned for DCDLS’s first phase would be rental. That’s largely because there’s a glut of condos in Ottawa at present, Peritz says. ‘If the condo market comes back, it’s certainly something we would consider.’”

The Calgary Herald. “Single-family home buyers saw a downtick in selection and the lowest prices in 16 months through Calgary’s resale market last month. The benchmark price for single-family homes in Calgary was $509,300 in January, sinking 2.6 per cent from $522,900 a year earlier, says the Calgary Real Estate Board. A $505,600 benchmark in April 2014 was the last time the price was lower.”

“The market for single-family homes expanded by 1,488 listings in January. Single-family home sales also cooled off in January. There were 465 transactions last month in Calgary, easing 67 sales from activity a month earlier. Year-over-year, sales dipped 13 per cent from 534 in January 2015. ‘The recent slide in energy prices has raised concerns about near-term recovery prospects for the city,’ says CREB chief economist Ann-Marie Lurie. ‘Energy market uncertainty and a soft labour market are weighing on many aspects of our economy, including the housing sector.’”

From Metronews. “The word among oil executives who pass through town on their way to the mine sites is the slump could last until late 2017, early 2018, she says. The plunge in the world price of oil, from a high of $100 (U.S.) a barrel to $30 in just 18 months, has already taken a huge toll on the country. It has wiped out 40,000 direct industry jobs and an estimated 150,000 indirect ones. Canada’s economy has lost $50 billion in national income — roughly $1,500 per person, according to the Bank of Canada.”

“It has taken a big toll on Alberta, which is now in recession and it is magnified in communities like Fort McMurray. Hotel worker Mary Anne Guray’s husband lost his job as a janitor in May 2015. He worked cleaning executive offices at the oil industry sites outside the city, she explained. As the price of oil plummeted, those companies slashed expansion plans, and some of the work camps closed.”

“Now she’s worried they won’t be able to hang on to the home they bought last year. A modest row house built in the ’70s costs $500,000 in Fort McMurray, where sky-high wages also brought sky high inflation during the boom. Average house prices, at $560,000, are the highest in the province, higher even than Calgary, where the oil industry is headquartered. ‘Maybe we’ll just have to surrender the keys,’ Guray says, echoing a popular phrase in town that refers to handing the house back to the bank for resale and sucking up the loss on your down payment. ‘A lot of people already did that.’”

From CBC News. “One of the big bads from the 1980s is starting to emerge again in Alberta. Jingle mail — the act of walking away from an underwater mortgage by mailing your keys back to the bank — is a peculiarity of the Alberta residential market and an act of desperation. However, a combination of high debt and lost jobs make it an option in a province going through a significant economic reckoning.”

“‘We’re slowly starting to see it in Grande Prairie and Fort Mac,’ said Don Campbell, senior analyst with the Real Estate Investment Network. ‘People saying that we can’t make a go of it and mail the keys to the bank. In the big cities, not so much because the average sale prices haven’t really dropped much, we haven’t seen the pain yet. But Calgary is getting pretty tight.’”

“Bruce Alger, an insolvency trustee at Grant Thornton in Calgary, said he is dealing with one such case and has heard of more. ‘It’s when you see high-end home prices drop 20 per cent below the peak,’ said Alger. ‘I think there are people considering walking away and I’ve talked to one or two myself.’”

“Alberta is the only Canadian province to broadly offer non-recourse residential mortgages. Those are loans with at least a 20 per cent down payment and thus are not insured by the Canada Mortgage and Housing Corporation (CMHC). If you walk away, you lose your home, but otherwise have no personal liability. Elsewhere in Canada, your lender can take you to court and seize other assets, such as RRSPs, vehicles, and even garnishee your wages. ‘These non-recourse mortgages could create incentives for some homeowners facing an income shock to pursue a strategic default and thus place further downward pressure on prices,’ read one of the reports obtained by CBC News.”

“Joel Semmons, a realtor in Calgary with Re/Max, said that while the average home price in Calgary is only down by a few per cent, homes worth more than $1 million have seen their value drop by much more. ‘In the million-dollar plus markets, I was quite active in January,’ said Semmons. ‘I had four higher end sales last month, all four transactions, the values were off 20 per cent to get a buyer to the table, in order to get a deal to stick. If you took out your mortgage say the summer of 2014, just before everything started to come unglued, you would have purchased right at the peak,’ said Alger.”
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“He uses the example of a home bought for $1.8 million, with 20 per cent down and a roughly $1.4-million mortgage. ‘There are lots of houses in that price range in the newer, higher end suburbs and the appraisals have been coming in at less than the $1.4 million on the mortgage.’”