When the mortgage guys start running for cover, maybe you should, too. It’s going to be one helluva dramatic Spring. If you own a home and have been thinking about cashing out at the top in March of April, too late. If you’re horny to buy, keep your pants on. Too early.
Just weeks after BMO ignited realtor dreams of a torrid season with its 2.99 mortgage special, fear wafts through the air. Days ago CMHC announced it’s running out of room to insure more high-ratio, high-risk loans – the stuff which has fueled Canada’s housing bubble and swollen agency books to almost a trillion dollars. Warnings of over-valuations and impending danger have come from the Bank of Canada, the IMF and most credible economists.
Now the nation’s second-biggest mortgage lender has quietly moved to protect itself in the event of a housing meltdown. CIBC’s wholesale lending arm, FirstLine – which supplies a torrent of cash to mortgage brokers – is cutting off borrowers who can’t verify their incomes, including small-business owners, commission salespeople and immigrants. The company is also capping loans at $1 million, which is tough news in Vancouver.
This has sparked speculation CMHC will also nix mortgages to the self-employed, at the same time it’s believed F will murder 30-year home loans in his coming federal budget, making inflated houses more unaffordable. Coming after predictions of mayhem in the condo markets of Toronto and Vancouver and deteriorating markets in much of the country, it’s a clear signal real estate is turning prickish.
In fact, nowhere might this be happening faster than the nation’s most delusional city.
In recent hours the crumble of Vancouver real estate has become apparent. Or is it a crash?
Listings have exploded as sales tank. With 20% more houses on the market than a year ago, there’s now an eight-month supply, turning the region into a buyer’s market scant weeks after bidding wars were a daily occurrence. But falling sales clearly show buyers expect prices to be the next casualty.
Sales are near record lows of the last ten years. Deals for detached homes on the west side, in Richmond and West Van are down between a third and 45%. Overall, sales plunged 13% from 2011 and 18% from 2010. Prices have dropped since hitting a high in the summer. Flippers are being stuck with properties they can’t move. Half of condo owners now selling, who bought in the last four years, are losing money. Sales of detached properties across the region just crashed 16% from last January.
In other words, in a city where real estate’s a god, where families shell out an average of 70% of income on shelter, where the savings rate is negative, basement boarders are desperately needed to stay afloat and debt is over the top, an ugly truth emerges. It’s not different, after all. There is a limit to house porn and financial insanity. And this is it.
Vancouver, whether you have to live there or not, is a harbinger of the national housing market. It shows in extremis what happens when emotion trumps logic, lenders lose their marbles, the media fails and an entire population believes in unicorns. It’s impossible to sustain a SFH average of $1.1 million in a city where family income averages $83,130. Nothing – not planeloads of hot Asians, cheap mortgages or a new mountain range covered in chocolate – is going to save this market from itself.
Just imagine the exposure major lenders have in that city. A 20% correction would plunge tens of thousands of families into negative equity, just at a time when the overall economy is struggling. Unemployment’s rising, incomes are running behind inflation, the forestry is a mess and construction jobs are being shed daily.
BC – all of it now, including the Island and Lower Mainland, plus the Fraser and Okanagan valleys – is shaping up to be the Ground Zero for Canada’s housing crunch. The impact will not be contained there. Time will show this is as unstoppable here as it was in the US – where chi-chi towns like Seattle and Boston thought they were immune. Until they weren’t.
But here’s all you need to know. Lenders are hustling to protect themselves. Bankers are worried. The government’s poised.
With luck we’ll avoid what’s befallen Americans. But what looms will not be short nor trite. For too long this pathetic blog has urged you to take profits and get liquid. I hope you did.