"Data on repeat sales reveal that women buy the same property for approximately 2% more and sell for 2% less."
THE GENDER GAP IN HOUSING RETURNS
I could not find a similar study focusing on the gender gap in Canadian housing wealth, but StatCan did release in October 2019 their "Gender Wage Gap in Canada" 1998 to 2018". Here is a chart and the highlights:
In 2018, female employees aged 25 to 54 earned $4.13 (or 13.3%) less per hour, on average, than their male counterparts. In other words, these women earned $0.87 for every dollar earned by men.
Also see my chart on Full Time and Part Time Workers in Canada by Age since 1976
BECAUSE: Older part time workers in Canada, 45 and older, both men and women want work. That trend accelerated for men after the equities crash of 2000 and for women after the 2008 housing crash. When balance sheets approach a negative state, additional income becomes a major household requirement and in 2019, household debt, both by loans and mortgages grew to record levels.
New Study Provides Clearer Look at Canada's Gender Pay Gap
While we wait for the October data to come in, the reminder of this chart is about cash flow yield and as Henry McVey, KKR's head of Global Macro & Asset Allocation says as we switch from monetary to fiscal policy...
...own more assets that have cash flowing yields...
Hat Tip to @carlquintanilla
It pays for hosting and domain blog costs; thanks.
...more than half of fund managers have never experienced a prolonged bear market... @Hipster_Trader
Millennials who did not 'catch' FOMO might be very relieved at this point in the business cycle.
Canada Has a Broken Housing System and It Has Fucked Over Millennials - Vice, Oct 2018
SNIPPET: In the 2017 edition of the Angus Reid-CIBC housing poll, many millennial homeowners expressed regret about buying a house because of the financial difficulties, and about half of them said they never expect housing prices to go down.) According to an April 2018 Angus Reid-CIBC poll, significantly fewer millennials own homes compared to the same age cohort in 1981.
While we wait for the September real estate sales, inventory and price data to be released next week, Chris Kimble today makes the observation that real estate proxies in the equity markets are behaving à la 2007.
Says Chris Kimble Sept 28, 2018:
"This 4-pack (chart above) compares the price action of today with the price action of the 2007 highs in the Dow Jones Home Construction Index, Bank Index & Real Estate.
Before the S&P peaked in 2007, Home Construction, Banks and Real Estate started creating a series of lower highs, diverging with the S&P.
Joe Friday Just The Facts Ma’am– Divergences similar to 2007 are taking place of late.
The long-term trend for each of these Stock indices reams up at this time! Stock market bulls hope that it’s different this time and that these divergences are just noise."
"In August 2018 Vancouver, Calgary and Toronto SFD price momentum hovered about the flat line while the TSX Real Estate Index cash buyer momentum ticked back up to the nearby highs."
Notice on my chart of August 2018 below, the July 2007 TSX Real Estate Index tested its highs yet on the ground in the physical world, the price momentum of Calgary Single Family Detached Prices plummeted, while Vancouver SFD prices coiled their way towards the eventual lows and while Toronto's SFD prices made their eventual way towards their 2008 lows to be followed by Vancouver and Calgary into their 2009 lows. Is it different this time? Stay tuned.
Hilliard MacBeth "When the Bubble Bursts"
Top 5 predictions for Canada's housing markets in 2018
BNN Interview September 28, 2018
Pictured here is Finland's first high-rise wooden apartment.
Hey Canada - we have lot's of trees and lots of land!
In this Finnish model, tenants have the right after a 20 year amortization to own their unit with a 7% down payment and a twenty year state backed loan.
Canadian housing should be affordable and this is an idea that we hewers of wood can do. The University of BC has one up now.
In 2010, Canada was the second-largest exporter of forestry products globally. WikiPedia
Instead of exporting to the highest bidder, why not add value and produce our own housing remedies?
Only Canadians will solve our housing mess. So lets get on with it.
Snippet from "What the U.S. wants from NAFTA talks"
Globe & Mail July 17, 2017
As part of changes to trade laws, the U.S. proposes to eliminate the NAFTA global safeguard exclusion as well as the Chapter 19 dispute settlement mechanism. These panels have regularly ruled in Canada's favour, including on the long-running softwood lumber dispute, and have been long disliked by some Americans who see them as an abdication of U.S. sovereignty.
Snippet from "Freeland calls U.S. NAFTA demands 'troubling' and 'unconventional'" CBC News October 17, 2017
"You have to ask yourself whether the Americans are preparing the ground for an abrogation that will be triggered by someone other than them," "So they can blame someone for the collapse other than themselves, even though it's their outlandish proposals that may trigger the demise of the negotiation." Derek Burney, Canada's ambassador to the United States from 1989-93
Snippet from "What is Donald Trump's NAFTA plan? Canadian experts take their best guess" National Post Oct 16, 2017
“The White House says that it is focused on using trade policy to reduce bilateral trade deficits, but this goal is impossible to achieve through even radical rewrites of existing trade agreements,” House said. “The U.S. will continue running a trade deficit with the world so long as its people consume more than they save.” Brett House, Deputy Chief Economist at Scotiabank
The Lumberjack Song - Monty Python's Flying Circus
On the way up in price it was easy. Make an offer higher than list price with few conditions if any and provide the vendor with everything they wanted and voilà, you own the asset if you managed to out-guess the competitive bidders lined up on their phones.
Liabilities were an unimportant consideration because in a few days, a similar property would sell for even more and your balance sheet then became even more credit worthy; check and check.
On the way down, guessing the price that a vendor will agree to is still a requirement; is the vendor holding a property with too little of his own equity and perhaps reluctant to take a loss at this time, or is the property being offered for the first time in let's say the last decade? A single family detached house in Vancouver has increased in price by over 120% in the last 10 years (over 160% in Toronto). The vendor's equity position is an important clue in the guessing game.
Is the vendor attempting to sell in order to repurchase in the same market? That would suggest an end price is required similar to the current snapshot of market comparable sales if trading sideways is the objective. Is the vendor an estate looking to settle accounts for multiple parties? That implies that the end price is not as "sticky" because VALUE can be defined outside the parameters of "comps".
At some point definitions of value might again include an appraiser's use of the "income" approach. Investment real estate cap rates in a city like Vancouver are among the lowest in Canada and so a buyer must determine if there is value in the price. Potential investment capital can dry up and move very rapidly out of a declining market and seek out better (lower risk) returns elsewhere. Low cap rates are tolerated in a rising market but not so much when price momentum shifts to the down side. Vancouver prices peaked July 2016
A declining market requires more work on the buy side and exposes the potential purchaser with risk not seen on the way up.
The CBRE in their 2016 Report list cap rates for "A" class apartment buildings in Vancouver at 2.5-3% (in Toronto 3.25-3.75%, in Calgary 4.5-5%). This week the Bank of Canada benchmark 10 year yield is 1.76% similar to the full month of February plot on my yield curve chart.
What we don't see in the CBRE report is what expense items are used in the developing a theoretical cap rate (Net Income / Asset Purchase Price). I suspect that only the minimum data of property tax, insurance, maintenance and actual expenses paid out are used for a given year in these surveys. Is a vacancy allowance included? Not all tenancies are reliable. Is a management fee included? Someone has to spend time taking care of the asset. Is the asset subject to sudden strata fee spikes or revelations of past due maintenance? These are important questions that any real estate investor who has been playing the game for at least one cycle trend change will ask.
In my 2013 case study, I had to lower the purchase price by 25% to get a return that piqued my interest because I included vacancy and management.
With a 25% drop in sale price, the GRM has dropped nearly 6 points (lower is better) and the CAP Rate has gone up 40 basis points (higher is better) which not a huge move but the yield on investment (ROI) has increased to more than twice the 10 year bond return and that provides an investor the incentive in a ZIRP environment to buy and hold and allow other people's money (the tenant's) to turn debt into equity.
(2013 Case Study)
Thanks to Steve Saretsky, Realtor for his
Vancouver Real Estate Market Update February 2017
While we wait for the October data from the real estate boards; I caught an interview on BNN yesterday with Mark Cashin, a Toronto mortgage broker who was being interviewed on the subject of "shadow lending" in Canada, ie: the non government insured mortgage lenders who have to actually assess risk when lending.
After the 1.30 minute mark in the interview, Mr Cashin remarked that a conventional 1st mortgage rate in the private market would be set at 6%.
RateHub quotes fixed 5 year term rates at 2.12 to 2.19% in Toronto and 10 year fixed rates at 3.59 to 4.69%.
If we had a primary banking industry that had to actually do their job of assessing risk and lend money out at market rates, the interest charged to offset that risk would probably be twice today's government "too big to fail" ZIRP and NIRP model.
Canadians are being kept in a subsidized credit market bubble apparently immune from the shadows of reality of the risk of over leverage. It's all good of course if the borrowers with weak hands can hang on to their cash flow and service their debt.
I suggest that if one is still willing to leverage up to buy real estate at this time in Canada, one should match their mortgage amortization with their employment contract amortization. I doubt if many employers have a 25 year horizon when looking at the labour pool.
Canada’s Housing Bubble Makes America’s Look Tiny
"OSFI tells some banks to test for sharp drops in Vancouver, Toronto housing markets" July 26, 2016 CBC News
“B.C.’s 15% tax on foreign homebuyers could drive money to other parts of Canada” July 26, 2016 Financial Post
"Tory won't rule out a tax on foreign real estate buyers in Toronto" July 28, 2016 Toronto Sun
"Chinese-language media up in arms over B.C. foreign buyer tax" July 28, 2016 Globe & Mail
“Does this set a dangerous precedent in the minds of foreign investors across Canada?" July 29, 2016 Mortgage Broker News
It must be my age, but when I see politicians trying to solve problems via blunt taxation, I move even closer towards being a grumpy old man - death and taxes - they suck, literally. Here are a few ideas while we wait for the July housing numbers to come out next month.
In November 2011, I came across the idea of the APT, the ‘Automated Payment Transaction Tax’ which eliminates the need to file tax or information returns. A year later I posted links to the APT and since then I have continued to encourage media, politicians and potential influencers to at least look at the thesis.
To my dismay I have had insignificant response. I think this is because we have too much tax and are immersed in its complexity and we have not enough death of tired old ideas that should be retired with every generation.
The Automated Payment Transaction Tax
In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/payments system.
The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly skewed than the conventional income or consumption tax base.
The wealthy carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure.
The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost.
Think about the desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction tax.
Implementation of this elegant and simple idea in Canada would allow Canadians to create an original, authentic social organization that would eventually be copied by other nations. Let's apply the power of the internet to get this Automated Payments Transaction Tax idea into the public square of discussion and then into application.
Canadians, write your Member of Parliament." Foreign readers take this idea back to your jurisdiction and spark the conversation there. Some country will be first in the implementation of the APT thesis.
In my opinion the APT or a variant of it will happen one day as sure as Uber, Airbnb and Torrents have arrived and driverless freeways will eventually emerge. It’s a peer to peer thing; it’s the internet, it’s inevitable. “Software is eating the world.” Marc Andreessen.
A micro tax on all financial transactions reduces the burden on all individuals and allows our governors to manage our spending requirements in a transparent progressive way. The APT thesis calculations were based on U.S. taxation revenues and expenditures from the late 1990’s. The potential tax base has increased significantly since then; think of the machine initiated equity, fixed income and commodity exchange transactions that go on day and night. Here is a snippet from the 41 Page PDF authored by Edgar L. Feige, Professor of Economic Emeritus, University of Wisconsin-Madison:
The APT tax rate from the original study publication in 2000 achieved the goals of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction tax of only 0.15% on each side of the transaction for a total of 0.3% on any financial transaction.
The APT tax proposed is designed as a revenue neutral replacement for the present tax system. It is emphatically not intended as an additional source of revenue. It proposes to broaden the tax base by eliminating all implicit tax expenditures, all exemptions, deductions and credits while adding to the tax base the enormous volume of transactions representing exchanges of property rights to real and financial assets and liabilities. The flat rate tax required to maintain revenue neutrality is estimated to be in the neighborhood of 0.6 percent if total transactions volumes fall to half of their current levels.
PART II - The Need for Policy Reform
Clearly, a 15% provincial tax on Vancouver housing purchases by foreign buyers will simply move what little demand there is from this sector to other jurisdictions. Hot speculative money whether clean or dirty is transnational.
Look at Canada’s record of Federal Direct Investment; in full year 2015 there was a huge spike in FDI OUT such that for every $1 of FDI coming into Canada there is $1.31 going out to get a better return on Capital and Labour. In short, our Canadian investor class, like most other global players, looks for leverage and arbitrage opportunities outside of Canada. This is a trend that has been widening and unbroken since 1997 throughout the last five federal governments (4 Liberal, 1 Conservative).
Meanwhile after seven years of nitro-fueled Zero Interest Rate Policy, we have only increased our consumption habits and widened our debt load across both private and public sectors. While the private sector binges on low cost credit, our multi-level governance is shifting more to fiscal policy since monetary policy has not worked as promoted. Yes - CPI remains muted, No - we have no control over what consumers will do with easy credit especially since competing governmental departments encourage minimum equity positions when borrowing. After seven years, the Bank of Canada is still trying to figure it out:
With the next renewal (of the “Inflation Control Target”) approaching in 2016, the Bank is focusing its review and research in the following three areas:
1) The Level of the Inflation Target
2) Financial Stability Considerations in the Formulation of Monetary Policy
3) Measuring Core Inflation
We have a failed Canadian central bank policy of ZIRP and NIRP threats that ape the U.S. Fed policy as well mirroring many other central banks since the pit of gloom in March 2009. It’s been a race to the bottom, and here we are.
We have the outdated 20th Century wild west mortgage insurance liability of CMHC which was created in 1946 as an elaboration of previous housing incentives beginning in 1919 (Wikipedia).
We have an irresponsible overpriced exclusionary and predatory real estate industry that obfuscates, monopolizes and fails at basic fiduciary behaviour.
This combination of patchwork policy has failed to get capital investment into productive employment. Instead we have asset valuations that exceed the worst possible, measured globally, and we have settled for consumption and waste. Asset values may look good on a balance sheet in terms of credit worthiness, but the social contract does not serve our collective needs.
Nowhere is there public debate or care about tomorrow except in the tedium of blogs and anonymity. Governance has clearly failed and the media is busy chasing sirens and shootouts. It’s shameful. It’s time for reform and modernization using the tools we already have.
PART III - The Need for Land Entitlement Reform
“The social state is advantageous only when all have something and none too much.” A paraphrase of Jean-Jacques Rousseau from his Du Contrat Social ou Principes du Droit Politique of 1762.
The APT does not solve the problem of the current historic asset valuations in Canadian housing prices which are at crisis proportions and which cannot now be easily solved with ZIRP, NIRP or a revolving door of political ambitions.
Let’s consider the end to private fee simple land ownership and move all our land and territorial limits into the hands of all of us.
Here’s how I see it:
- All land and territorial space inside the jurisdiction of Canada (the Land) would be owned by the Canadian Government (the State) on behalf of Canadian taxpayers (the Tenants).
- The land would be leased to the tenants.
- The state would set the value of the land lease and term according to use.
- Only the improvements allowed on the land are owned by the tenant or transferable to another tenant in an open and free market place.
This simple idea would put an end to the endless inflation of the cost of land since the value of the land would be set by the central organizing body of the state which would assess the needs of the community of tenants and the responsibilities of all of us towards the wellbeing of our health and environment.
The improvements on the land would by definition be valued by their utility and composition of materials all of which are readily assigned value by an open marketplace and would be more prone to deflation than inflation because improvements have to be maintained to retain value.
Valuations would be rational, transparent and immediate. Affordability would be easily controlled. Tenancy agreements on the land would be available to both domestic and foreign users and when combined with the ‘Automated Payment Transaction Tax’ outlined in PART I above, all land lease revenue and all improvement transactions would trigger APT revenue to the state for reinvestment.
How economic inequality harms societies - Richard Wilkinson
"If you want to live the American dream, go to Denmark.”
We humans have accomplished a lot of ambitious and technically challenging projects and have expanded our knowledge base to a degree that suggests we should be able to transform our puny little financial problems in a politically impartial way free of ideology to the benefit of the greater good.
I don’t expect that this post will trigger any change during my remaining lifetime to the status quo of 20th century and older ideas that we remain wedded to, but I publish this because ideas precede action and I am not the only one thinking about this.
According to this December 2015 study by Azoulay, Fons-Rosen & Zivin “Does Science Advance One Funeral at a Time?”, Max Planck’s observation is indeed the way our knowledge base and idea implementation grows.
“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it."
Real Time with Bill Maher
Michael Moore – Where to Invade Next
2008-09 FINTRAC disclosed 197 cases out of 556 involving transactions through the MSB (Money Service Business) sector.
Businesses suspected of being involved in ML/TF (Money Laundering and Terrorist Financing):
Of the case disclosures involving the use of an MSB, FINTRAC identified and focused on 126 cases from 2008-2009, which were the most illustrative of how MSBs could be exploited for money laundering and terrorist financing purposes. Complete 2010 Fintrac Study
COOLING OFF THE BC REAL ESTATE MARKET
FROM THE TOP DOWN
June 10, 2016 at linkedin.com/pulse
Hat Tip to BenRabidoux @BenRabidoux
In our real estate law practice we have seen houses steadily rise over the past seven or eight years and jump drastically since January of this year.
For example, homes in Vancouver on Connaught Drive which were selling for $3-4,000,000 a few years ago are now on the block for $10-15,000,000 (a client of mine recently turned down an offer on her home in this area at $15.8M. The home was purchased for $6M!)
Correspondingly, homes which were $1-2,000,000 are now $4-5,000,000.
Even condominiums which were valued at a half a million dollars a last summer are now worth $800K to $1M.
Prices are rising so fast, one has to buy a property BEFORE putting one's own property up for sale, for fear of being priced out of the market!
Before the completion date occurred, another client of mine who bought a home in North Vancouver for $1.5M was offered $250,000 by the seller NOT to complete the purchase!
In my view, this lunacy is being fueled to a large extent by foreign money which is pouring into the Lower Mainland at an unprecedented rate and pulling the prices UPWARDS from the top end.
This inflow of money (Chinese principally, but there is also a lot of Iranian, Indian and American capital coming in, as there is still a very substantial discount on the Canadian dollar for those who deal in USD), is destabilizing the BC real estate market for everyone who lives and works here.
Tragically, the only people who can't seem to see this are the provincial and federal politicians and the many pundits who make a living commenting on things they t know nothing about (newspaper columnists, economists, business school profs and other so-called experts).
They remind me of the referees at a World Wrestling Entertainment match. Everyone in the stands is screaming that the bad guy has a concealed weapon and the only one in the building who can't see it is the referee!
However in the WWE the refs are paid to look clueless.
Our politicians are paid to govern in the interests of Canadian citizens, not foreign speculators -but looking at their behavior, one would never guess that.
While it is reported that foreign ownership may be as little as 3-5% of the housing stock that is more than enough to affect the entire market adversely -and it has done so in spades as few can now afford to own a house in Vancouver and even condominium ownership is becoming a stretch.
WHAT TO DO?
1. Make foreign buyers confirm the source of their funds
Right now any foreign buyers can wire any amount of money into their lawyers' or notaries' trust accounts from any bank in the world to buy a property in BC with no questions asked.
Realtors and mortgage brokers are required to fill in a bunch of useless FINTRAC forms and obtain client identification documents, but NO ONE is asking where the money came from in the first place!
I have heard many stories from realtors of bidding wars where a property is listed at a certain price and then a half a dozen or more offers come in steadily bidding up the price by fifty or one hundred thousand dollar increments and then the final offer comes in at a half a million dollars over everybody else's!
A lawyer in our office recently had the same experience in BC Supreme court on a foreclosure sale. The offer the court was asked to approve was $1.5M and a six or seven other buyers showed up at the hearing. As is the court's practice, everyone was advised of price of the original offer and given the opportunity to bid or re-bid in a sealed envelope. The Master opened the sealed bids at $1,55M, $1.65M, $1.725M, $1.9M and the WINNER was $3.1M!
It would appear that the winner wanted to pay AS MUCH AS POSSIBLE.
It has been our experience that much like locals, foreign buyers usually don't want to pay a penny more than is necessary to purchase a property here (much less an extra million dollars on a foreclosure purchase).
As most foreign buyers have local realtors who are well aware of the market prices, the only explanation which seems to make any sense is that some foreign purchasers are using the Canadian real estate system to launder their money.
Once a house is purchased in BC the seller has effectively washed it and it can be moved anywhere in the world easily by selling the property (as the seller then has the contract of sale and all the documents necessary from the lawyer's office to "prove" that his funds came from the legitimate sale of Canadian real estate). No foreign country will look past the most recent transaction to confirm the legitimacy of the funds.
In the criminal world, the fee to launder money can be 50% or more. In Canada, it seems to be NIL.
I believe that many foreign buyers when confronted with a requirement to show where their funds came front would balk and refuse to complete the purchase.
Stemming the flow of dirty money into Canadian real estate would terminate a number of high end purchases, which may push down some of the prices at the $10M - $15M range which would in turn push down the medium high end prices and so on.
2. Increase taxes significantly on those who purchase property in Canada but do not live here or pay taxes here.
It is commonplace for foreigner investors to park some of their money in Canada (as they do not trust their own governments). They typically put the title of a property into the names of their wives or children (it is always interesting to look at the occupation listed on the titles to high end real estate like "worker," "student" or "home maker"). The wife and kids live in the property as their principal residence and pay no taxes as they have no income.
The father, who is a non-resident, continues to make money in a foreign state at a much lower tax rate. Canada taxes income on the basis of RESIDENCY, so the father pays NO CANADIAN TAX. The family enjoys the benefits of the Canadian health care system, school system etc. while paying nothing other than property taxes.
The misguided view of the premier of this province is that the above situation constitutes FOREIGN INVESTMENT IN BC, to be encouraged at every step.
With all due respect, that is nonsense.
As the BC government is perpetually short of money for every worthwhile endeavor (hospitals, schools, pubic housing, seniors, homeless shelters, transit, mental health, child poverty -the list is endless), it would seem obvious that one source of revenue which would be virtually unopposed by BC taxpayers would be to increase Property Transfer Tax and municipal property taxes on foreign buyers who are simply taking advantage of the laxity of the current legal and regulatory framework in BC.
An appropriate rate would be perhaps 20% Property Transfer Tax and triple current property taxes for those who choose to evade paying Canadian income tax (or pay only a token amount for appearance purposes) or simply leave their BC homes vacant.
A sale of a residence so occupied (or unoccupied as the case may be) should also attract income tax on any increase in value (not capital gains tax).
A capital gains exemption for a principal residence should also be disallowed for such owners (these two changes would of course require an amendment to the Income Tax Act which is a federal statute).
These even for so-called "legitimate" off-shore funds would also dampen foreign demand for Canadian real estate, however to the extent that it does not, then at least there is SOME benefit flowing back to the Canadian tax system.
Are these measures discriminatory? Absolutely! They discriminate against foreign buyers who are simply seeking to take advantage of the Canadian real estate system, while parking or washing their funds.
These changes should apply to ANY foreign buyer of any nationality (US, Europe, Britain and Australia included).
UBC already does this with foreign students who are required to pay much higher annual tuition than local students -and no one is complaining!
Will this "fix" the real estate affordability problem? Maybe not, but you have to start somewhere and you might as well start with the most obvious cause.
Are either of these measures likely to come to come to pass? I would not hold my breath.
Generally, by the time the government gets around to doing anything of consequence "the proverbial horses are already out of the barn and the farm has been sold off to a foreign syndicate."
Better Call Saul Explains Money Laundering
- In the U.S. for the past 55+ years the average NRoI has been +/- 2.5% and in the Eurozone has been +/- 1.7% (MonetaryRealism.com). In Canada, the "real" Bank of Canada bank rate (rate less CPI) was approaching 5% in 2007 before the 2008 crash and as well after the dot.com bust in 2001. It's flirting with zero now.
At street level in Canada earnings have been topping with the commodity crash but in many cases, earnings reliability are not even necessary to use in the calculus of risk analysis when granting a mortgage or consumer loan. We should be ashamed of ourselves, but instead we blame others.
As CIBC economist Benjamin Tal said, he is concerned that subprime lending is “driving the bus.”
Subprime borrowers’ debt loads will continue to grow as long as interest rates are low. Benjamin Tal
- Average debt levels up nearly 3% in the first quarter of 2016.
- Non-mortgage debt rose to $21,348 in 1Q 2016, up 2.7% Y/Y.
- Subprime average credit card balance grew by 5.7% Y/Y to $6,601.
- High interest installment loans grew 4.8% Y/Y to an average $23,591.
- Serious delinquency rates (90+ days late) increased 3% in 1Q 2016.
At the national level it's worse; net Federal Direct Investment widened dramatically in 2015 Y/Y meaning that Canadian investment capital would rather look for yield offshore than on. We can't even invest in ourselves (Net FDI has been negative for the last nearly 20 years); we continue to increase our borrowing so that we can consume to 'maintain' our lifestyle.
Even people without money via savings and low employment earnings are buying property - how would they know the value of money? Well they will find out along with their extended families the difference between equity and debt in an aging speculative triumph.
BMO Millennial Home Buyer Survey (March 2016)
According to the survey, millennials expect they will have to spend $350,000, on average, to buy their first home. These amounts range from about $235,000 in Quebec to more than $478,000 in British Columbia... To make such a purchase, respondents indicated that they expected to raise about 15 per cent of the purchase price for their down payment - or, roughly, an average of $53,000. Most (65%) indicated that they would rely, to some extent, on parents or other family members for financial assistance for as much as 10% of the purchase price, although most don't know.
A probability sample of this size would yield results accurate to ± 2.2 percent, 19 times out of 20.
Ipsos Reid - BDO Poll (May 2016)
55% of Canadian would have trouble paying bills if interest rates rise.
46% say rising cost of living is limiting the money they put toward paying off debts.
37% say the rising cost of living hasn’t impacted their debt payments at all, suggesting its having some impact on most people.
58% think the value of their home will increase.
The poll is accurate to within +/ - 3.5 percentage points, 19 times out of 20, had all Canadian adults been polled.
Condo Construction Subject To Red Alert From Royal Bank
HuffingtonPost.ca (May 30, 2016)
RBC isn't the only organization that has presented concerning statistics regarding the housing market recently.
Sales activity in Toronto and Vancouver may have "topped out," Canadian Real Estate Association (CREA) president Cliff Iverson said earlier this month.
Sales didn't grow in Toronto at all in April after dropping 1.8 per cent in March.
They were also down one per cent in Vancouver, after a drop of 0.3 per cent the previous month.
Gregor Robertson Mayor of Vancouver, May 30, 2016
Yes, housing prices are high in Vancouver, and global capital plays a part in that. If prices keep increasing, many of the things we love about Vancouver are at risk, and many will not be able to put down roots in a city bound together by a rich, multicultural history that has a lot to offer geographically and culturally.
Magic Bus - The Who 1968
I don't care how much I pay
I wanna drive my bus
to my baby each day
I want it
I want it
I want it
I want it
Price is what you pay, value is what you get.
I'm waiting for the Ottawa Real Estate Board to publish their March housing data (their data supplier is having a problem) before I update the balance of my charts that include Ottawa data, probably in the 3rd week of April. There's no rush; lunacy still prevails. The top half of today's chart came from my Twitter Feed via @theemilyjackson
"One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that's changing very rapidly," said Hilliard MacBeth "One of the things that was supporting Alberta home prices was the fact that our incomes were 40 to 50 per cent higher than the rest of Canada, and that's changing very rapidly," (CBC NEWS April 18, 2016)
The ratios of average housing prices to average incomes are 13.2 in Vancouver and 7.7 in Toronto. These can only be the result of demand from external purchasers much wealthier than domestic residents. They far exceed the historical average ratio of three, and are well above the ratio of five, at which housing is considered “seriously unaffordable.” Financial Post, April 13, 2016
Just as surely as prices can and do temporarily defy the gravitational tug of value, in the end the hard laws of physics trump the soft science of crowd psychology. The farther prices rise above or fall below their fundamental value, the greater the store of potential energy to be released in the resulting disequilibrium. Once the reversal process begins, momentum develops and markets generally overreact.
Encouragement can be found in Warren Buffett’s admonition in the Berkshire 2006 annual report, which I (Frank Martin) paraphrase only slightly: Being aware that a single, big mistake can wipe out a lifetime of successes, a wealth manager must be hardwired to recognize and avoid grave risks, including those never experienced before. Buffett went on to add that, “…fierce independence of thought and action, equanimity of temperament, abiding rationality and a keen understanding of human nature are essential.” Frank Martin, CFA September 2014
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
Balance Of Trade
Rent Or Buy