The CMHC survey report confirms, Montreal buyers had less need to spend beyond their budget than the Vancouver and Toronto cohort.
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CMHC acknowledges via a closing reference to Robert Shiller's observation that "narrative economics"...
...sound prescient to describe what could be some influence happening in the local imaginary of homebuyers. The human brain has a natural draw toward stories whether they are factual or not... stories are powerful instruments to share information and reproduce narratives with economic impact. The echo chamber stories we bolster our decisions with are well known, oft repeated and have created FOMO (fear of missing out) via the memes of "foreign buyer competition, money laundering, growing immigration, dearth of available land, prices always rise, prices won't drop much now, let renters pay the mortgage, rents are rising, housing is always in demand, government needs low interest rates, government provides financing subsidies, government will protect the construction employment boom" etal. Executive Summary from CMHC June 2018
Really? Price acceleration and real estate overvaluation is moderate?
According to the data collected from real estate boards and CMHC to create the charts in this site, here are the price increases over the last 10 years of Single Family Detached houses to June 2017: The "peaks" in "moderation" over 10 years of Single Family Detached house prices were:
CMHC and the Bank of Canada as federal government agents along with provincial, municipal and the banking and finance industry agents have wrecked the Canadian housing market by permitting the wholesale flipping of properties and the entrance of off-shore speculators into the Canadian housing supply stock.
CLICK CHART TO ENLARGE
Paul Krugman - Patrimonial Capitalism
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CLICK IMAGE TO ENLARGE
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2017 kicks off with the BC Government helicoptering 2nd mortgages ONLY if you qualify and agree to take on a high ratio insured 1st mortgage. Welcome to late stage STATE SPONSORED SUBPRIME LENDING.
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In 1986 Bill Vander Zalm promised to lower the price of beer (page 3, 2nd bullet point, The Ubyssey October 24, 1986). It never happened but Bill caught 50% of the popular vote in that election with his "Fresh Start" campaign against the NDP.
Thirty years later the average price of a detached house in Vancouver has risen more than tenfold while average earnings have only gone up 2.5 to 3 times and the government plan now is to stoke a consumption mania with zero interest and principal 2nd mortgage money for 5 years as well as beer in your barbershop. The next BC provincial election is in May 2017 and the credit tap is wide open. Place your bets.
Changes to B.C. liquor rules allow barbershops, salons and other retail outlets to serve alcohol.
January 23, 2017, is when barbershops, salons, spas, cooking schools, art galleries, bookstores and other B.C. businesses that do not have bars and restaurants on their premises can apply for a liquor-primary licence so that liquor can be served to customers in these non-traditional establishments. All sorts of businesses will be able to apply for a liquor-primary licence as long as they do not operate from a motor vehicle, or target minors. And this may be of great interest to many small retail businesses that would like to provide, as a courtesy, a glass of wine, champagne or other alcoholic beverage to their customers without fear of breaking the law. Globe and Mail November 19, 2016
This "1st-time" homebuyers grant only serves the 'privileged,' says Nathanael Lauster UBC Associate Professor in Sociology
Inside 'House of Debt' with Amir Sufi
Canadian household debt levels continue to peak.
HARD EIGHT
CLICK CHART TO ENLARGE
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The Premier of BC Christy Clark is in the news again with her pre-election enticement of no interest loans for 60 months of up to $37,500 to wannabe buyers who need a bigger cash down payment to qualify for a mortgage to purchase real estate in BC's absurd housing market that has been on ice since the summer. BNN Dec 16, 2016
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The chart mashup above was prompted by an observation from a reader (S.B.) that the technical structure of the Vancouver housing market is now within momentum levels for a trend change to the downside as soon as the next retest and failure of the recent highs completes; the setup being the "anti-trade". S.B. made earlier observations here "3 Vancouver Views" Sept 2016 and "Simple as ABCD" May 2016; thanks SB.
The evidence of serious downward repricing has this provincial government attempting to goose the demand side of the market with free ZIRP money provided by you and me dear tax payer. Not only will we tax payers supply the down payments to people who don't qualify under the already sub prime CHMC lending standards, but we are additionally collectively subsidizing the banking and mortgage industry that has little or no lending risk and we are continuing to feed the provincial government tax collector via the property transfer tax. "In total the property transfer tax brought in $1.53 billion for the government, $605 million more than budgeted" said BC Finance Minister Mike de Jong CBC NEWS July 2016.
Ontario and Toronto are also implelled to goose the fence sitters into buying into the market:
Ontario land transfer tax rebate doubled to $4K for first-time homebuyers. City News November 2016.
Ontario’s land transfer tax rises from 0.5 per cent on the first $55,000 of a purchase price to two per cent for everything above $400,000. Toronto’s land transfer tax is one per cent on the first $55,000 and two per cent on the rest. Toronto offers rebates of up to $3,725 for first-time homebuyers.
Sousa also announced a freeze in the property tax on apartment buildings while the government reviews how the tax burden affects rental market affordability. (Will landlords pass this along to tenants?)
Taxation and picking electoral sectors to reward or punish has created overly complex bureaucracies that exist in their own bubbles far removed from those they claim to serve. Every election brings new promises of reform (kiss that recent electoral reform goodbye) and at some point in the election cycle we hear that tax reform is on the agenda but reform never seems to make the cut. We may have to wait for a new generation of engineers armed with big data and new algorithms to simplify the tax structure. My favoutite is The Automated Payment Transaction Tax. It would do away with the tax department and with having to pay for the accounting and filing of overly complicated annual tax filings. The problem in this country is not the absence or lack of money creation.
Political ideology at all levels of government since the post war "invention" of CMHC has destroyed any possibility of a social contract that includes affordable housing as a basic right of tax payers. It appears to me that governments at all levels in Canada will continue to promote and urge Canadians to add even more household debt to their balance sheets that are already at historic levels nationally and globally. Although the Federal Government appears on the surface to be more rational than the provincial governments by warning Canadians who already have high levels of debt, they are not concerned with Canadian Banks who continue to be sheltered by tax revenue from the private sector. What they are concerned with is a RECESSION and THEIR OWN FEDERAL CASH FLOW. Is it irony or finger wagging and buck passing? The government is hooked on the commodification of real estate; it's a cash cow with a golden udder of debt that we are all attached to.
Here is the Federal Government at work:
Political ideology at all levels of government since the post war "invention" of CMHC has destroyed any possibility of a social contract that includes affordable housing as a basic right of tax payers. It appears to me that governments at all levels in Canada will continue to promote and urge Canadians to add even more household debt to their balance sheets that are already at historic levels nationally and globally. Although the Federal Government appears on the surface to be more rational than the provincial governments by warning Canadians who already have high levels of debt, they are not concerned with Canadian Banks who continue to be sheltered by tax revenue from the private sector. What they are concerned with is a RECESSION and THEIR OWN FEDERAL CASH FLOW. Is it irony or finger wagging and buck passing? The government is hooked on the commodification of real estate; it's a cash cow with a golden udder of debt that we are all attached to.
Here is the Federal Government at work:
CHMC Promotions Oct 2016 by the Globe and Mail
- 1992 Allow RRSP withdrawals for home purchase.
- 1999 Allow purchase with only 5% down payment.
- 2003 Remove house price ceiling on insured mortgages.
- 2003 "Green" mortgage insurance premium reduction and environmental incentives.
- 2005 Self Employed can self declare a 15% gross up of income and access all mortgage insurance products.
- 2005 Amortization increased to 30 years on insured mortgages.
- 2006 Amortization increased to 35 and 40 years on insured mortgages.
Warning from the Bank of Canada:
Risk of household financial stress and a sharp correction in house prices.
Some notes from the Satyajit Das videos below:
- Real growth was produced from the Industrial Revolution.
- But since the 1980's, growth has been fuelled by debt.
- An asset's income should pay for its debt.
- In the 1950's $1 to $2 of debt paid for $1 of GDP.
- By 2007-2008, $4 to $5 of debt paid for $1 of GDP.
- China in 2016 needs $6 to $8 of debt to pay for $1 of GDP.
- In the 20th century, population doubled and was an organic driver of growth. Now population does not drive growth.
- Innovation contributes to growth but productivity is falling.
- Now we have a service economy not a productive one.
- Innovation rates are falling dues to lack of R&D funding.
- We cannot repay debt without growth.
Property is an illusion by Satyajit Das
The End of growth as we know it by Satyajit Das - Key themes of his new book "A Banquet of Consequences"
CLICK TABLE TO ENLARGE Inflationists need a Rally
The Economist ranks Canada's housing as the second most overvalued in relation to both rents and income. This is not news to the readers of these pages who have seen the various Demographia posts and have lived through the faux appraisals untethered from fundamentals.
Our only remaining question is why do high net worth individuals expose themselves to such great risk by continuing to swap cash for negative returns?
We know why the retail buyer has bought the farm; the government has been subsidizing credit to anyone via CMHC. Ironically that's us taxpayers; we have been blowing up the balloon. Cheap credit has masked the outrageous principal amount before interest that glib marketers tout as affordable. The granite and stainless steel may be fashionable at the moment, but at these prices when you look back from the future, you are buying a hovel.
My case study demonstrates the futility of Vancouver as a port in the storm and now that we have "real" yields breaking out, mortgage lenders are getting ahead of the curve by raising rates to mitigate term risk and not waiting around for the Bank of Canada who is still betting on shorting cash via ZIRP.
The Economist ranks Canada's housing as the second most overvalued in relation to both rents and income. This is not news to the readers of these pages who have seen the various Demographia posts and have lived through the faux appraisals untethered from fundamentals.
Our only remaining question is why do high net worth individuals expose themselves to such great risk by continuing to swap cash for negative returns?
We know why the retail buyer has bought the farm; the government has been subsidizing credit to anyone via CMHC. Ironically that's us taxpayers; we have been blowing up the balloon. Cheap credit has masked the outrageous principal amount before interest that glib marketers tout as affordable. The granite and stainless steel may be fashionable at the moment, but at these prices when you look back from the future, you are buying a hovel.
My case study demonstrates the futility of Vancouver as a port in the storm and now that we have "real" yields breaking out, mortgage lenders are getting ahead of the curve by raising rates to mitigate term risk and not waiting around for the Bank of Canada who is still betting on shorting cash via ZIRP.
CLICK CHART TO ENLARGE CMHC is YOU Tax Payer
The Globe and Mail reported August 12, 2013 that "Three-quarters of all Canadian mortgages are insured by the federal government, up from only 30 per cent in 1988." ... "Ottawa guarantees a total of $900-billion worth of mortgage insurance." ... "It has been a no-brainer for the banks." Lenders have used up nearly 80% of this year’s available government guarantee by July 31, 2013.
In the Globe & Mail article, the author Barrie McKenna points out:
No Risk means No Due Diligence eh Canada?
Corporate bond manager Canso Investment Counsel Ltd. of Richmond Hill, Ontario estimates:
The Globe and Mail reported August 12, 2013 that "Three-quarters of all Canadian mortgages are insured by the federal government, up from only 30 per cent in 1988." ... "Ottawa guarantees a total of $900-billion worth of mortgage insurance." ... "It has been a no-brainer for the banks." Lenders have used up nearly 80% of this year’s available government guarantee by July 31, 2013.
In the Globe & Mail article, the author Barrie McKenna points out:
- 1990s, CMHC minimum down payment went from 10% to 5%
- 2006, CMHC introduced 0% down-payment and it extended mortgage insurance to cottages and second homes.
- Early 2000s, the creation of government-backed mortgage bonds and CMHC removes the $250,000 cap on the size of mortgage it would insure. (Ottawa would eventually reimpose a cap of $1-million).
- 2005 government lengthened maximum amortization period from 25 years to 30 years
- 2006 amortization period lengthened to 40 years (it has since been set back to 25 years).
- The final incentive to expand the availability of mortgage credit was the insured mortgage purchase program, which enabled banks to sell their government-backed mortgage bonds back to CMHC at a profit.
No Risk means No Due Diligence eh Canada?
Corporate bond manager Canso Investment Counsel Ltd. of Richmond Hill, Ontario estimates:
"...that the combined impact of successive federal programs may have added as much as 50 per cent to house prices in key markets, such as Toronto. Canso estimates that the “affordable” price of an average two-storey home in upscale North Toronto is $615,000 – well shy of the actual price of $900,000."
Subtract 50% off of average Vancouver SFD house prices from the peak and you get $532,499 which puts it right into the PLUNGE-O-METER target zone. 50% off of Toronto (GTA) peak average SFDs and you get $338,398. 50% off of Calgary peak average SFDs and you get $263,581.
In Canso's June Newsletter is a chart showing the comparison of housing as a percentage of GDP between Canada and the USA. Canada is overdependent on residential investment. So was Spain.
In Canso's June Newsletter is a chart showing the comparison of housing as a percentage of GDP between Canada and the USA. Canada is overdependent on residential investment. So was Spain.
CLICK CHART TO ENLARGE
Debt to Income Ratio 2011
CMHC has become a Tax Payer Liability by Mike 'Mish' Shedlock November 6, 2009
"I have certainly been wrong about when Canada's housing bubble would burst for good.
However, burst it will and when it does the pain will be no less than what has happened in the US."
"The largest sub-prime lender in the world is now the Canadian government." by Murray Dobbin October 22, 2009
"CMHC primary deliverables is mortgage insurance and mortgage backed securities." by Jonathan Tonge July 20, 2009 Think Fannie and Freddie.
"I have certainly been wrong about when Canada's housing bubble would burst for good.
However, burst it will and when it does the pain will be no less than what has happened in the US."
"The largest sub-prime lender in the world is now the Canadian government." by Murray Dobbin October 22, 2009
"CMHC primary deliverables is mortgage insurance and mortgage backed securities." by Jonathan Tonge July 20, 2009 Think Fannie and Freddie.
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