Entries Tagged 'Book Updates' ↓

A year ago it sat like a blemish on a silken face. Its broken and boarded windows beckoning yet more vandals. A dab of inner-city badass in a manicured land. This non-descript 4-bedroom, garage-pasted-on-the-front, face-brick home in a respectable tract of Mississauga was abandoned and decaying last March when a blog dog snapped the picture below (left) and neighbours gossiped about a foreclosure.

Of course, there are literally thousands of identical houses here, in a land of undulating streets devoid of stores or culture, where minivans swim upstram to breed. It also yields a nice insight into the real estate mess we’ve created, thanks to flippers, speckers and unbridled HGTV house lust.

5304 Glen Erin Drive is now for sale, spruced up with shiny hardwood and granite. Asking price: $834,800. Which begs the question – is an utterly unremarkable house on a street of clones in a burb 40 minutes from downtown Toronto worth most of a million dollars?

Increasingly, the world says no.

So far this week the alarm has sounded in many quarters. CMHC running up against its allowable lending ceiling, threatening the entire market. The second-largest mortgage lender cutting off commission salesguys and business owners, plus capping loans. The federal bank regulator warning of Canadian subprimes and a dangerous condo market. F muttering about all this being a ‘matter of concern.’ And now the banks (led by TD) moving to further protect themselves from potential losses by massive increasing rates on unsecured variable LOCs, from 5.5% to 8.5%.

The IMF has warned. So has the Bank of Canada. Plus analysts like Capital Economics (“We’re  not confident we can dodge the bullet and that there won’t be a correction in the Canadian housing market in the not too distant future.”). Bloomberg moved a worrisome piece on the Canadian housing bubble three days ago. And now The Economist, also read globally, has a column headlined: “After years of lecturing America about loose lending, Canada must now confront a bubble of its own.”

As the mag reminds us, there are 173 condo towers being built in Toronto. In New York (population 8,008,000), only 96. Worse, condo insiders estimated up to 80% of all new units in the GTA are gobbled by speculators, convinced prices will rise without end, regardless of supply overwhelming demand.

House prices have doubled since 2002. Household debt has swollen 40% in a decade. Regulators, economists, central bankers and politicians are worried. Lenders are moving quickly to cover their assets. Some markets are already showing signs of severe stress, like Vancouver – as I detailed yesterday, with sales down a sharp 16% and listings popping. And look at this chart of home prices in Victoria – one of the most expensive places in the country to live – at least for now.

So, what comes next? More real estate angst, even as mortgage rates stay at historic lows in the middle of a non-existent winter with the Spring market beckoning. I hear it’s unlikely CMHC will be granted an increase in its already-obese mortgage default insurance activities, once it hits the $600 billion ceiling.

The consequences: A rationing of mortgages to all those horny young couples swimming in hormones rather than cash. Expect fewer loans and higher rates on high-ratio borrowings. This is how Ron Swift, CEO of Pacific Mortgage, puts it to Canadian Mortgage Trends this week: “The result of these restrictions ultimately means there will be an impact on liquidity in the market place. I think this will first impact products that have the higher insurance costs, such as stated income and self-employed. They will either be stopped or the rates charged to these clients will have to be significantly increased. Either way, tightening liquidity, reducing mortgage options or increasing the costs will take some buyers out of the market, which will affect all of us.”

Now, tell me you didn’t see this coming.

When houses here cost twice as much in the US, when Vancouver’s the second least-affordable place on the planet, when icy Toronto becomes the condo capital of the world, when growth in debt swamps gains in income, when lenders get scared, and a flipper wants $834,800 for a Mississauga rescue, how is this a surprise?

Tomorrow: Pity the wrinkled ones.

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.