Bank on this

RADIATION modified

If Canadian residential housing were to plop, would the big banks take a dive along with them?

That’s been a simplistic point of view held by some people who misunderstand the Canadian banking system, the depth of CMHC coverage for high-risk, high-ratio loans, or those just trying to scare the poop out of you so you’ll buy gold. Even smart people, like analyst Ben Rabidoux, have been known to make this error, when he hooked up with a metals-hawking, Van-based financial advisor a few years ago. Since then banks have scored record profits, quarter after quarter, and bullion has lost a third of its value. Oops.

Does that make banks impervious to a real state correction?

Definitely not. Shrinkage in the growth of mortgage portfolios is always a major worry for the bankers – something they’ve been dealing with for some time already (personal and real estate loans are both under pressure). In addition, low interest rates squeeze margins. But the banks have meanwhile been concentrating on diversifying into more international operations, while beefing up the wealth management, insurance and capital markets revenue streams.

In other words, consumers are drowning in debt, there have been virtually no new jobs created in 2014, and yet TD’s marking record money, Scotia profits are ahead 57%, and together the Big Six earned$7.37 billion in the second quarter alone. In other words, $80 million a day – in an economy with stagnant growth, tipped-out consumers and historically low rates. Meanwhile eight in 10 Canadian residential mortgages – and all of the ones with less than 20% equity – are backed not by the banks, but by the taxpayers. If you worry about risk, worry about that.

Of course, if real estate does tank, there will be a kneejerk reaction (thanks to the Chicken Little analysts and advisors), and bank common shares may decline in value. Yes, vultch time. But if you worry about such things, just buy bank preferreds which are immensely more stable, pay dividends approaching 5% and give you quarterly income which is taxed at 50% less than your paycheque. They lose capital value when rates rise, but we all know that will be a gradual event and fixed dividend payments continue unabated.

Here’s another view, from Morningstar equity analyst Dan Werner, FWIW.

Now, here’s something better to fret over. Back when the US housing market was at its frothiest, with the foam spilling over into Canada and HGTV pumping ‘Flip this House’, everybody wanted to be a flipper. Conversely, interest in specking in residential properties crashed in the years following the GFC, with HGTV turning to shows about renos and morphing your dank basement into a subterranean rental suite for poor people. Well, guess what?  It’s back. According to Google’s trending-thingy, people have been searching for flipping news and advice in growing numbers. Here’s the chart.  

Obviously we’re nowhere near at pre-crisis levels, but the line’s progress looks pretty convincing. Is this another sign of late-market madness?

Don’t you love rhetorical questions?

 

151 comments ↓

#1 crowdedelevatorfartz on 09.01.14 at 2:17 pm

Sell your house, put it all in Bitcoin, move to South America…….

Is there anything “Flawed” in that reasoning?

#2 Flawed on 09.01.14 at 2:27 pm

#1 crowdedelevatorfartz on 09.01.14 at 2:17 pm
Sell your house, put it all in Bitcoin, move to South America…….

Is there anything “Flawed” in that reasoning?
**********************

Yes……your idiocy.

#3 D. Wurldizbetr Widvyteomanainnus on 09.01.14 at 2:39 pm

#1 ”
Sell your house, put it all in Bitcoin, move to South America…….

Is there anything “Flawed” in that reasoning? end quote.

_____________________________________________

Canada is one of the best countries in the world to live in , and millions upon millions of foreign nationals are hopeful in landing permanent resident status in Canada.

#4 CPG on 09.01.14 at 2:41 pm

Finance Canada now sees middle-class families in rosy hue

http://www.cbc.ca/news/politics/finance-canada-now-sees-middle-class-families-in-rosy-hue-1.2752344

#5 Flawed on 09.01.14 at 2:48 pm

_____________________________________________

Canada is one of the best countries in the world to live in , and millions upon millions of foreign nationals are hopeful in landing permanent resident status in Canada.

*************************
Yes you are partly right. I have very high net worth friends who all say the same thing. It’s more about the reduction of bullets whizzing past their heads or laundering money made overseas than it has to do with living in “awesome cloudy wet weather in a moldy Vancouver house”. I believe rich guys more than some govt mouthpiece.

#6 -=jwk=- on 09.01.14 at 2:53 pm

#1 ”
Sell your house, put it all in Bitcoin, move to South America…….

Is there anything “Flawed” in that reasoning? end quote.

_____________________________________________

Canada is one of the best countries in the world to live in , and millions upon millions of foreign nationals are hopeful in landing permanent resident status in Canada.
————–

If they don’t get into USa or EU, or australia we are a good 4th option. next time you are talking to a recent immigrant, ask where they applied first. It likely wasn’t Canada.

We have easy entry and an easily foeld path to citizenship, but we are still mostly a back up plan…

#7 T.O. Bubble Boy on 09.01.14 at 3:00 pm

Here’s the chart I’d like to see:

Home Price Increases vs. Home Reno Spending

What % of house price increases are from people putting in granite & stainless and “adding value” to their home?

(you know, the kind of regular updates that used to be called “maintenance”)

#8 T.O. Bubble Boy on 09.01.14 at 3:01 pm

Just submitted this to the last post, but will re-ask here:

Tangerine (formerly ING, or “the orange guy’s shorts”) today announced 3% on high interest savings accounts until November 30th.
https://www.tangerine.ca/en/landing-page/backtoschool/index.html

Are these offers just a stealth way for banks to increase their cash position right before the end of the quarter?

Anyone?

#9 Victor V on 09.01.14 at 3:20 pm

PRICE DROP #3 FOR MILA AND BRIAN MULRONEY!!!

http://themashcanada.blogspot.ca/2014/08/price-drop-3-for-mila-and-brian-mulroney.html

Just under a year ago, I posted this 5+2 bedroom, 5+2 bathroom house at 47 Crois. Forden in Westmount, Montreal.

It is the home of former Prime Minister Brain Mulroney and his wife Mila Mulroney.

The interior wasn’t my style but there had to be someone else in Westmount that was into it.

Just not for $7,950,000!!!

Especially considering that according to the Globe and Mail, the Mulroneys bought the house in 1993 for $1,675,000 (according to the Huffington Post, they bought it for $1,000,000 and put in $700,000 in renos).

The house was evaluated at $4,100,000 (not sure by whom, but assuming it is the city) and that is probably closer to the rand of where the price should be, just a little higher.

So, there were going to be price drops.

And there were.

In June, the price was dropped to $6,900,000. Still too high and a couple of weeks later, the price was dropped to $6,499,999.

Still too high and the price has been dropped again.

The new asking price is…

$5,799,999.

Getting closer!!!

#10 crowdedelevatorfartz on 09.01.14 at 3:34 pm

@#2 Flawed
“Yes……your idiocy.”
++++++++++++++++++++++++++++++++++++
Succinct if somewhat lacking in eloquence, but amusing all the same…… :)

#11 Mr. Frugal on 09.01.14 at 3:34 pm

Thanks Garth! That was just the clarification I was looking for. I would agree that if the Canadian Banks take a hit it will be a good buying opportunity. Our banks are a solid long term investment.

#12 triplenet on 09.01.14 at 3:39 pm

Flawed –

You’ve never been to South America have you?
…..no you haven’t.

#13 Valyrian_Steel on 09.01.14 at 3:41 pm

#4 CPG…

Let me take this opportunity to thank you for the 8k in tax advantaged dividends you provide me (not to mention the sizeable capital gain since I bought in at $36 (now at $45). You have helped me retire in my early 40’s.

Again, thanks… (and feel free to raise dividend in the future)

Sorry for being off topic.

#14 TheBarold on 09.01.14 at 3:44 pm

So maybe they’ll diversify into lending $ to small businesses? It’s kind of shocking how hard it is for small businesses to borrow to grow… Isn’t this the reason for dropping rates to near zero? (To spur investment – not consumption)

#15 crowdedelevatorfartz on 09.01.14 at 3:51 pm

@#9 Victor V
“……Mulroneys bought the house in 1993 for $1,675,000 (according to the Huffington Post, they bought it for $1,000,000 and put in $700,000 in renos)…….”

hmmmmm, apparently they paid 1.67 million and another estimated 600k-1 million in renos (page 416 of ‘On The Take” : Crime, Corruption and Greed in the Mulroney Years by Stevie Cameron).
Hopefully they get the reduced asking price. Mila has Bulgari watches to buy……….

#16 Flawed on 09.01.14 at 4:10 pm

#12 triplenet on 09.01.14 at 3:39 pm
Flawed –

You’ve never been to South America have you?
…..no you haven’t.

******************************

Your obviously NEW to this blog as I was not only there for a month visiting 4 different countries but was POSTING HERE while I was there. This folks is the definition of ignorance.

Not quite. — Garth

#17 Catalyst on 09.01.14 at 4:18 pm

A bet on canadian banks is a bet on the canadian economy. How can we cheer on loan growth if we know its people levering up and banks risk management turning a blind eye to increase volumes?

Right now is a very pricey point to buy into canadian banks. In my opinion, they have not fully priced in the risk of the over levered consumer.

#18 TEMPLE on 09.01.14 at 4:38 pm

If Canadian residential housing were to plop, would the big banks take a dive along with them?

That’s been a simplistic point of view held by some people who misunderstand the Canadian banking system…Since then banks have scored record profits, quarter after quarter, and bullion has lost a third of its value. Oops.

How is the bearish-on-Canadian banks opinion more wrong than your bearish-on-housing opinion? Beating up on Ben et al. for being cautious about Canadian banks is no different than the people who come here and crow to you that housing is still going up, despite your prognostications of doom. All it means is that you (and Ben) suck at timing the impending decline. He, like you, isn’t wrong. He’s early and possible prescient.

Anyways, you actually make a pretty solid case that when housing here eventually floats to the top of the fish tank, the banks are going to struggle. Of course they aren’t going to implode (with the exception of Genworth), but nobody is suggesting that. But, pressure on profits, revenue growth, etc? Seems likely.

Why risk the investment when there are so many better options at present?

TEMPLE

I am not forecasting ‘doom’ for real estate, but a correction which will be tough on the equity of those with too much in this single asset. My consistent message has been to diversify and understand the considerable risk a one-horse strategy brings. Fretting over bank profitability is a waste of time as they have had six years to prepare for a housing downturn. As I said, common shares may drop if enough fools decide to sell, but the dip will likely be short-lived. I hope those who dumped bank stocks and took up gold two years ago have found better advice. — Garth

#19 Nathan on 09.01.14 at 5:15 pm

#1 crowdedelevatorfartz on 09.01.14 at 2:17 pm
Sell your house, put it all in Bitcoin, move to South America…….

Is there anything “Flawed” in that reasoning?
**********************

Man some people do NOT GET sarcasm…

#20 Anson on 09.01.14 at 5:20 pm

I agree with Dan Werner, that house prices increased due to a 30 year slide in interest rates.
We are experiencing some of the lowest interst rates in history around the world, and at the same time are having one of the slowest recoveries on record.
As Dan Werner states in the video this has been a 30 year slide.
The problem is DEBT the whole world is awash in DEBT and the longer rates stay low the worst it will be for everyone.
Come on it has been 6 years and counting and around the world we are all still at emergency interest rate levels.

#21 Sidera on 09.01.14 at 5:44 pm

Of course the banks are going to get hit very hard.

What person would invest when the real estate market is going down, rapidly? Consumer sentiment will get crushed. No more increase in homes, mess less profit for the banks. Cdn dollar will revert back to 60 cents.

#22 Freedom First on 09.01.14 at 5:57 pm

#18 Temple

Love your comment here Garth.

It is amusing that you have been writing this Blog for years, and yet, people will take one item out of context, which is missing your often repeated main message: Balance, Re-balancing, liquidity, and diversification. This will keep a person as safe as humanly possible, while maximizing profits, and drastically reduce the effect that any one asset class will have on ones financial well being. I find this concept simple to understand, and entirely true. No exception.

Thanks for your solid advice over the years Garth, and the wit with which you deliver it. I think the best I have done to help spread your sane messages is to simply tell people who bring up financial matters that I have read your blog daily for years and I really like it.

#23 Bob Rice on 09.01.14 at 5:59 pm

“Tangerine (formerly ING, or “the orange guy’s shorts”) today announced 3% on high interest savings accounts until November 30th.”

Peoples Trust out of Vancouver offers 3% all the time… I’ve had a fair bit saved up there for some time… CDIC coverage… none of this BS “Until Nov 1”

#24 Smoking Man on 09.01.14 at 6:01 pm

Holy crap.

I walked into this store at square 1, we where short on a few groceries. It’s called whole foods.

Picture this, Mrs Smoking Man who comes from Scotland who has a heart attack any time she under estimates her bag requirements and has to fork out a nickel for a plastic bag.

Should have seen her face looking at the prices. Everything double.. Marketed as organic or healthy.

I go for the crab legs.. Not a chance in China she’s buying it.

I said, come on honey, it’s from the organic part of the sea.

We will never go into that store again, but I watched hundreds of idiots forking out huge loot for nothing.

I’ll buy shares if I can..

But kids Wana start a business. Do something in this area, it’s like a religion to these tree huggers.

You can’t fail…

#25 ozy -smart RE flipping goes as profitable as running a bank (% wise) on 09.01.14 at 6:01 pm

many have proven that smart RE flipping goes as profitable as running a bank (% wise in return on investment)

happy Flipping Kanata!

#26 ozy -smart RE flipping goes as profitable as running a bank (% wise) on 09.01.14 at 6:08 pm

o, yeah, and why not sell kanatian bank stock????

do they do something GOOD for the society????? haha

#27 SealTeam0 on 09.01.14 at 6:35 pm

#22 Freedom First on 09.01.14 at 5:57 pm
Couldn’t agree more I think the same thing everytime I read this stuff. The other ones I wonder about are those that think they know so much better than Garth does and just come daily to hopefully argue with him in the comments.

Who the hell is impersonating smoking fool. Structured sentences, proper spelling, stayed on track. I guess he just didn’t remember to go back and mess it up before hitting submit.

Your blog Garth but in my opinion disrepctfull mispellings of Canada deserve to be deleted. It’s the kind of stuff where I take the American point of view, carry on like that to my face and I’ll intoduce you to my fist. Then in a polite Canadian fashion call an ambulance for the offender.

God we need more national pride.

#28 Smoking Man on 09.01.14 at 6:36 pm

Get this, 5 minutes after my last post, my son(25)
And his girly walk in holding two bags of whole food bags.

After seeing that, I drop what I’m doing and off to the University of Google.

WFM whole food mart. Traded on the Naz

Five year high, at about 60 low at about 20 now at. About 40 with a nice camel toe.. Pays 1.23 div.

Got some lose change…

#29 Don on 09.01.14 at 6:41 pm

The Google trend chart is interesting, but this one is worldwide. The Canadian chart is perhaps more pertinent. Specifically interesting to me is the concentration of the searches in Ontario, Alberta, and British Columbia.

#30 Robbie Van Winkle on 09.01.14 at 7:04 pm

This is wrong. Of course banks will take a hit.

In 2008, BMO dropped over 60% from its peak. It shouldn’t have but it did. So did every other bank stock – they all got killed.

The banks didn’t get killed at all, and no dividends were missed. Investors who bought shares in the dip (everything went down, remember?) made out like bandits. Those who sold were the fools as valuations rapidly recovered. Besides, this is not 2008. — Garth

#31 Steve French on 09.01.14 at 7:16 pm

Sell the house. Sell the car. Sell the kids. Find someone else. Forget it. I’m never coming back. Forget it !

#32 Happy Renting on 09.01.14 at 7:19 pm

#24 Smoking Man on 09.01.14 at 6:01 pm

Smokey, the real name of that store is Whole Paycheck.

the organic part of the ocean
BAHAHAHA!

BTW, I am surprised you married a woman whose response to the voluntary $0.05 bag tax wasn’t to start a nonsense charity that corporations could make a perfunctory donation to in order to justify pocketing the charge for plastic bags, then pay herself a six-figure salary. Opposites attract?

#33 Entrepreneur on 09.01.14 at 7:20 pm

White Rabbit, first day of the month.
“…no new jobs created in 2014…economy with stagnate growth…”

Wonder how small business are doing? Just look in the yellow pages of the phone book from one year to the other. In my area: new phone book 2015, 177 pages; in 2014, 197 pages; in 2013, 224 pages. Small business are dropping in number.

Flawed, hope the best for you and your family in South America. Keep in touch.

#34 What about CMHC? on 09.01.14 at 7:23 pm

Banks: profit privatized, loss socialized. Tax-payer funded CMHC is a fantastic idea!

——————
Ask me why I cut the cord.

#35 Realties.ca » Bank on this on 09.01.14 at 7:29 pm

[…] Source: http://www.greaterfool.ca/2014/09/01/9820/ […]

#36 james on 09.01.14 at 7:30 pm

#3

“Canada is one of the best countries in the world to live in , and millions upon millions of foreign nationals are hopeful in landing permanent resident status in Canada.”

Sure, because they can avail themselves of a suicidally generous welfare state, and they can import their geriatric grandparents to soak up $500k each in end of life care. Take those away and you’d see a decrease.

I bet they don’t tell potential immigrants that what few jobs are available in Canada are taken by TFWs.

#37 OttawaGuyINGREENrenting on 09.01.14 at 7:31 pm

“For the moment, though, Americans are renting across the spectrum of the built environment, in cities (long skewed toward renters), suburbs (shifting in that direction) and exurbs. Wall Street has taken notice: The Blackstone Group, a private equity shop, now owns and rents some 45,000 homes. At one point, the firm’s housing division was spending $150 million a week buying houses to rent.”

http://www.alternet.org/economy/america-so-over-home-ownership-why-shift-renting-economy-might-actually-be-good

—————————-
Minto is ALL about this trend!

As I continue to watch Ottawa flail in real estate as houses sit and sit and sit and sit and sit … On the market

#38 Happy Renting on 09.01.14 at 7:31 pm

#22 Freedom First on 09.01.14 at 5:57 pm

I guess I’m a cynic. I am circumspect with who I’ll tell about being a daily reader of this blog. I think the average person is happy to follow the crowd and doesn’t want to hear dissenting opinions or proof. While the debt and RE bubble goes on they’ll think I’m a moron, and when the party ends I’ll be a pariah for not suffering the same catastrophe because I didn’t conform to conventional wisdom and “play by the rules”. I only really talk with reasonably-informed and similarly-affluent friends. I am most interested in discussion with people who know how to manage money and actually have some.

#39 Unknown Marketer on 09.01.14 at 7:39 pm

Unrelated but adding to a lot less cash flow is what you folks in Ontario are heading into. If this gets traction you bet the rest of us are close behind. Did not see this one coming.

Mitzie Hunter has no pension but will try to get one for all Ontario workers

http://bit.ly/1lF4OZZ

#40 Don Sanderson on 09.01.14 at 7:43 pm

To #8 T.o. BoY

People are not depositing money after summer time lala land spending.

Back to school promotion is more like back to reality promotion.

#41 Vicpaul on 09.01.14 at 7:45 pm

#28 Smokster – can you explain what a cameltoe is/ means – on a chart I mean….I’m familiar with
A yoga pant variety.

#42 shawn on 09.01.14 at 7:45 pm

#92 Shawn on 09.01.14 at 1:36 pm
Labour Day

A day off. A good day to reflect on how to get to the point of not being reliant on a “job”.

Working because you want to is fine. Working at a job you don’t enjoy because you have to is not so fine.

You have the day off? — Garth

*************************************
Yes, and I used the time to organize a union of the regular posters here demanding fair wages and more than just one day per week off. We will be in touch.

#43 Setting the Record Straight on 09.01.14 at 7:48 pm

@3
“Canada is one of the best countries in the world to live in , and millions upon millions of foreign nationals are hopeful in landing permanent resident status in Canada.”

Damning with faint praise ?

#44 triplenet on 09.01.14 at 7:51 pm

#16 Flawed

I have been to 9 countries in Central and South America over 20 times in the last 5 years. That’s why your smartphone works from there to here.
Please keep your ignorance to yourself.

#45 Smudgekin on 09.01.14 at 8:03 pm

Canada is one of the best countries in the world to live in , and millions upon millions of foreign nationals are hopeful in landing permanent resident status in Canada.

So why 7 million Quebecois and about 1.5 First Nation & Metis not yearn for your homogenized Canada?

I hear noise from the rock too. Just saying.

#46 T.O. Bubble Boy on 09.01.14 at 8:11 pm

@ #23 Bob Rice on 09.01.14 at 5:59 pm
“Tangerine (formerly ING, or “the orange guy’s shorts”) today announced 3% on high interest savings accounts until November 30th.”

Peoples Trust out of Vancouver offers 3% all the time… I’ve had a fair bit saved up there for some time… CDIC coverage… none of this BS “Until Nov 1″
—————–

That is only on TFSA accounts – high interest savings acct is only 1.8%.
http://www.peoplestrust.com/high-interest-accounts/todays-rates-2/

How can anyone get excited about this? — Garth

#47 Mister Obvious on 09.01.14 at 8:12 pm

#22 Freedom First

I agree. Its like the movie Groundhog Day for Garth.

But rather than re-living the same day over and over he must instead daily reiterate his consistent stance on the specific risks of residential real estate for both the naïve and the blind.

Sadly, I believe its largely a futile endeavor. It will never sway the ‘straw man’ crowd who will always cast him as a doomsayer. Indeed they must.

Perhaps that’s one reason why this blog is often described as ‘pathetic’ by its author.

You can say that again. — Garth

#48 Flawed on 09.01.14 at 8:18 pm

#44 triplenet on 09.01.14 at 7:51 pm
#16 Flawed

I have been to 9 countries in Central and South America over 20 times in the last 5 years. That’s why your smartphone works from there to here.
Please keep your ignorance to yourself.

**************

What the hell are you talking about? You are the one who was trying to convince the world that “I had never been” to S. America

Read yer own posts and put down the weed dude.

Be respectful or be gone. — Garth

#49 Daisy Mae on 09.01.14 at 8:18 pm

“According to Google’s trending-thingy, people have been searching for flipping news and advice in growing numbers.”

***************

Sheer panic. A last ditch effort to get out from under….

#50 Celebrity Photo Hackers on 09.01.14 at 8:24 pm

Dear Mr. Turner,

In reviewing the iCloud cache we have obtained recently, we have noticed that in addition to Jennifer Lawrence and Kate Upton, it appears that we also have obtained a collection of nude selfies in full bearded glory…

…of you.

Prior to determining what would be a suitable price for you to pay for our promise of non-disclosure, we have a few questions:

1.What’s the deal with the photos of wide-eyed Stephen Harper and Brad Lamb on your bathroom wall, appearing to leer at your butt?

2.Did you take an extremely cold shower before taking your selfies, or are we perhaps looking at them upside down?

3.You appear to be wearing a necklace of little blue pills. Please explain?

We anticipate your quick response, and trust you still have access to brown postage paid envelopes.

Thank you for using Apple products!

#51 DELETED IDIOT on 09.01.14 at 8:24 pm

DELETED

#52 Detalumis on 09.01.14 at 8:24 pm

#24 It’s not smart to say you will never go into Whole Foods again. You need to go back with your eyes open and be more discriminating. Some of their stuff is worth it, like their baguettes taste like the real thing and aren’t expensive. If you need to visit anyone and bring cut flowers, their stuff is great, lots of unusual varieties at half the cost of a florist. Their in-store bakery products are better than many stand alone bakeries and not out of line to other places. They had in-house smoked Andouille sausage the last time I went, also excellent. I can’t find Andouille in many places.

Don’t go there for your main shop but hey for your special occasions or unusual products go for it. If you are satisfied with living on Wonder Bread and baloney then don’t bother.

They also have lots of free samples by the way, go back and keep your eyes open for those, you can make a lunch out of them and they don’t charge for those nice brown paper bags.

#53 Dean on 09.01.14 at 8:31 pm

Actually “Pathetic and spoonable”
That’s a quote, and also very funny.

#54 TEMPORARY® Foreign Prime Minister on 09.01.14 at 8:33 pm

#9 Victor V on 09.01.14 at 3:20 pm
PRICE DROP #3 FOR MILA AND BRIAN MULRONEY!!!
The new asking price is…$5,799,999
=========================

I’m sure there are brown envelopes full of cash to cover the shortfall.

Then again, how do you get rid of the smell…….?

#55 bigtown on 09.01.14 at 8:38 pm

Still looking for a decent rental which is bigger than our Jr. one bedroom here in Etobicoke next to the 27…would prefer Milton or Burlington as they have less retail and more normal. Noticed Burlington has a lot more two bedrooms listed for rent now. Problem is they are on average 15 percent above the family budget. Oh well we have to be flexible and accept the better and cheaper alternative ….moving to St. Kits. We are now grown up boomers and refuse to carry credit card debt as it is a very HEAVY BURDEN to the meek.

#56 Smoking Man on 09.01.14 at 8:44 pm

#32 Happy Renting on 09.01.14 at 7:19 pmthe organic part of the ocean 
BAHAHAHA!

BTW, I am surprised you married a woman whose response to the voluntary $0.05 bag tax wasn’t to start a nonsense charity that corporations could make a
perfunctory donation to in order to justify pocketing the charge for plastic bags, then pay herself a six-figure salary. Opposites attract
…….

Ha the human mind, see I was being polite, I didn’t say
female mind, even thought that’s what I was thinking, but don’t tell anyone.

Her bag pipes deflate at dropping the 5 cents, yet she can pump 100 dollars and hour into a slot machine sing Scottish songs… Giggling and laughing..

That’s why I’m studying psychology….

#57 Spectacle on 09.01.14 at 8:53 pm

I’ll give it a swing:

Re: #7 T.O. Bubble Boy on 09.01.14 at 3:00 pm
Here’s the chart I’d like to see:

Home Price Increases vs. Home Reno Spending

What % of house price increases are from people putting in granite & stainless and “adding value” to their home?

#8 T.O. Bubble Boy on 09.01.14 at 3:01 pm
Just submitted this to the last post, but will re-ask here:

Tangerine (formerly ING, or “the orange guy’s shorts”) today announced 3% on high interest savings accounts until November 30th.
Are these offers just a stealth way for banks to increase their cash position right before the end of the quarter?
Anyone?
********************
First, #7 comment, any renovation on a tear-down piece of property , or useless upgrades on an investment dump will go nowhere for resale or value. Chart or not. (sweeping generalization , I know ).

Renovations on a solid residence May go further to Help sell in a Competitive ( read crumbling..) market. No chart, in order of but the kitchen, then the bathrooms, then the other room upgrades trend as more value added. Location is location because it is useful to someone.

In a ” crumbling ” real estate market, as Garth indicates factually and with graphs on here regularly, cheap attempts at upgrades to any class of property may do nothing special to value comparisons! Real estate is so location/geography related, that such a graph may prove misleading if one exists.

Re: bank interest rates ( a scorching 3% ) by the orange guys. Sometimes it’s a strategy to ” buy a block of business”. Doubt HSBC and others are interested in fighting over clients that feel 3% is important, for such a block of business. Others like the orange guys, seek to lure such a client.

As Mr Turner notes repeatedly, placing any significant monies into an interest bearing bank account at a rocking 3%, is not balanced, or a wise strategy. What is that, 2-4% under CPI, or a loss of value compared to what Mr Turner can do in a balanced portfolio, 7%-11% proven track record. And remember, a) the Excellent Tax Benefits to Garth’s strategies, and b) your personal earned income retention.

That’s two strikes for me….

Regards all….

#58 Piccaso on 09.01.14 at 9:17 pm

If you had to choose between your significant other and a million dollars, what is the first thing you would buy?

#59 X on 09.01.14 at 9:21 pm

With the average down at 8%, gov’t should slowly increase the minimum dp, 6% in 2015, 7% in 2016, etc up to 10% down. It sounds like the first few years it wouldn’t affect too many, and would give the RE cartels annual ammo to push the buy now marketing before the increased next year.

5% down isn’t working for the average Canadian who is on the hook for the CMHC coverage as a tax payer.

#60 kate on 09.01.14 at 9:25 pm

I have said this for years, home prices are going to freeze, maybe a 5-10% drop but that’s it. I was price out waiting for a big correction but it won’t happen. For now keep renting and save money. good night.

#61 omg on 09.01.14 at 9:28 pm

Bank Stocks and RE decline

My bet is that nobody will even notice a housing decline of 10-15% or more.

I live in Victoria where we have lost about 15% over that past 5 years.

But each month the local MSM reports happy RE news brought to us by the press releases of the real estate board.

There is always something you can manufacture positive news from. Either sales are up year over year or month over month, or prices in some area are up month over month.

Most people I talked to do not even understand that an increase in “sales” is not an increase in “price”!

If all else fails and there is no good news to cobble together out of the dubious RE boards stats then they can simply say they forecast a healthy market over the next year. The local MSM will just report it without question.

People in Victoria are totally oblivious to the price decline until they try to sell. Likely why we have so many properties 20-30% overpriced.

So I think we can have a nice 10-15% or even more of a correction with out anyone even noticing.

So unless there is blood in the streets bank shares will be OK.

#62 eddy on 09.01.14 at 9:30 pm

On this day, Sept 1, in 1939, German forces bombard Poland on land and from the air, as Adolf Shitler seeks to regain lost territory and ultimately rule Poland. World War II had begun.

#63 Celebrity Photo Hackers on 09.01.14 at 9:31 pm

Dear Mr. Turner,

A followup to our earlier message.

We have now reviewed all 1949 nude selfies of yourself posted on the iCloud since Joe Oliver was appointed Finance Minister (some deep psychological competition going on, perhaps?).

Frankly, if there is anything of any value in all of these, it would appear to be the revelation that Canadian real estate is apparently not alone in entering into a pathetic, flaccid period.

We’re not sure anyone else will pay us for these.

How about you send us some Groupons and we’ll forget the whole thing?

#64 Smoking Man on 09.01.14 at 9:35 pm

#58 Piccaso on 09.01.14 at 9:17 pm

If you had to choose between your significant other and a million dollars, what is the first thing you would buy?
…..

My significant other…..

Hounest….

#65 Cici on 09.01.14 at 9:36 pm

#20 Anson

I think you’re right about that one. Markets are not necessarily a reflection of real life, and deflation is starting to rear its ugly head the world over. I’m not saying run to gold, and the banks will probably be fine (they always seem to make money), but we are living in risky times.

#66 45north on 09.01.14 at 9:53 pm

If Canadian residential housing were to plop, would the big banks take a dive along with them?

here are two reasons the Canadian banks should be in a better position than the US banks

– the Canadian banks didn’t adopt MERS

http://en.wikipedia.org/wiki/Mortgage_Electronic_Registration_Systems

– the Canadian banks don’t do robo-signing
http://en.wikipedia.org/wiki/2010_United_States_foreclosure_crisis

the Canadian banks have had a lot of time make sure that their i’s are dotted and there t’s are crossed.

#67 Tiger on 09.01.14 at 9:55 pm

Now that’s different smoking man is actually trying to learn something !

#68 Kenchie on 09.01.14 at 10:05 pm

#59 X on 09.01.14 at 9:21 pm
“With the average down at 8%, gov’t should slowly increase the minimum dp, 6% in 2015, 7% in 2016, etc up to 10% down. It sounds like the first few years it wouldn’t affect too many, and would give the RE cartels annual ammo to push the buy now marketing before the increased next year.

5% down isn’t working for the average Canadian who is on the hook for the CMHC coverage as a tax payer.”

This is a very good idea. Gradual changes allow for the market to adjust expectations before it causes too many problems.

Personally, I wouldn’t bother with anything less than 25% down. But that’s me, and I come from a family of prudent small business owners.

#69 Piccaso on 09.01.14 at 10:18 pm

#64 Smoking Man

… thought you’d have already bought and paid for that long ago

#70 Bob Rice on 09.01.14 at 10:23 pm

@ #23 Bob Rice on 09.01.14 at 5:59 pm
“Tangerine (formerly ING, or “the orange guy’s shorts”) today announced 3% on high interest savings accounts until November 30th.”

Peoples Trust out of Vancouver offers 3% all the time… I’ve had a fair bit saved up there for some time… CDIC coverage… none of this BS “Until Nov 1″
—————–

That is only on TFSA accounts – high interest savings acct is only 1.8%.
http://www.peoplestrust.com/high-interest-accounts/todays-rates-2/

How can anyone get excited about this? — Garth

Aware of this… wife and I combined in the TFSA 3%

@ Garth, sometimes, some cash needs to be protected/secure.. preferreds, div, ETFs… great products but only a fool would not shore up a good chunk a cash in guaranteed accounts… and 3 % is very good by today’s savings standards…

You are squandering the best money-growing vehicle available to you. TFSAs are not for interest-bearing cash. — Garth

#71 Happy Renting on 09.01.14 at 10:30 pm

#58 Piccaso on 09.01.14 at 9:17 pm

For the blog dogs here, a more relevant figure might be $5 million. Surprising if most/all the blog dog spouses aren’t “worth” at least $1M PV in lifetime earnings, assets, and quantifiable services/benefits (people pair up with similarly educated and wealthy partners, and as per the GF census, the commenters here are loaded.) You may tempt quite a few with a $5M figure, though.

As for me, I won the spousal lottery and I know it. I am the one who works hard to remain above the $1M swap value. ;)

#72 Piccaso on 09.01.14 at 10:38 pm

Ok… for you blog dogs that have never cracked a smile?

It’s a friggen joke!

Sheesh

#73 45north on 09.01.14 at 10:41 pm

Eddy : On this day, Sept 1, in 1939, German forces bombard Poland on land and from the air, as Adolf Hitler seeks to regain lost territory and ultimately rule Poland. World War II had begun.

http://www.cnn.com/2014/08/29/world/gallery/world-war-ii-timeline/index.html?hpt=hp_c4

#74 T.O. Bubble Boy on 09.01.14 at 10:41 pm

@ #57 Spectacle on 09.01.14 at 8:53 pm

Re: bank interest rates ( a scorching 3% ) by the orange guys. Sometimes it’s a strategy to ” buy a block of business”. Doubt HSBC and others are interested in fighting over clients that feel 3% is important, for such a block of business. Others like the orange guys, seek to lure such a client.

As Mr Turner notes repeatedly, placing any significant monies into an interest bearing bank account at a rocking 3%, is not balanced, or a wise strategy. What is that, 2-4% under CPI, or a loss of value compared to what Mr Turner can do in a balanced portfolio, 7%-11% proven track record. And remember, a) the Excellent Tax Benefits to Garth’s strategies, and b) your personal earned income retention.
——————-

Thanks for the response.

By no means am I trying to focus on the 3% number here… wanted to highlight that these promos seem to happen during the last month of a fiscal quarter (there were similar ones in June from Tangerine/Scotia and others).

I think that this is likely just another promo to try and get a few more $$$ sitting in “High Interest” accounts and away from competitors.

#75 CPG on 09.01.14 at 11:10 pm

Canadians expose foreign worker ‘mess’ in oilsands

https://ca.news.yahoo.com/canadians-expose-foreign-worker-mess-090000055.html

#76 Rainmaker on 09.01.14 at 11:13 pm

#23 Bob Rice

Peoples Trust out of Vancouver offers 3% all the time… I’ve had a fair bit saved up there for some time… CDIC coverage… none of this BS “Until Nov 1″

——————————————————–

I just checked out People’s Trust website.

http://www.peoplestrust.com/

Their TFSA does offer 3%, but a non-registered savings account “only” offers 1.8% which is in line with Oaken Financial at 1.75%.

#77 BigDaddy on 09.01.14 at 11:20 pm

Gott luv those bankers making money off your labour while you sweat and suffer. They are the pinnacle of society.

#78 Garth's Favourite Amazon on 09.01.14 at 11:29 pm

As a happy renter in North Toronto, one of my favourite ‘hobbies’ is surfing the foolishness that is MLS. I checked in over the weekend, and after surfing a few listings in my area I picked up on a curious pattern… I zoomed out a little bit around the C10 area, to include a search bounded roughly by Laird, Mt. Pleasant Cemetary, Oriole Parkway and Mt. Hope Cemetary to the north. I set the search parameters to listings from $0 to $1,000,000. This returned few enough listings overall that I could confirm that they were ALL condo or coop units!

Yes, that’s right, I don’t think there is even one single family home currently being offered for less than one million dollars over a large swath of middle class North Toronto! Obviously that doesn’t mean that there are no homes in the area that would sell for less than $1M, there are plenty. It’s just that, right now at least, ALL those folks are staying put.

I’m no expert, so I’m not going to attempt too much analysis of ‘what this means’, suffice it to say, it raised a whole bunch of red flags for me! My non-scientific survey of the listings that do exist shows that most single family homes listed in the area are detached, and listing in the vicinity of $1.8M. There are certainly a few ‘flips’ among them…

I’m so curious about this sketchy pattern, where the pool of listings is not representative of the distribution of homes in the area, that I’m probably going to continue this little ‘research project’ over the fall. I’ll keep you posted…!

#79 Burnabybillions on 09.01.14 at 11:52 pm

Flawed=troll

#80 Snowboid on 09.02.14 at 12:00 am

#33 Entrepreneur on 09.01.14 at 7:20 pm…

What’s a phone book?

#81 [email protected]!t on 09.02.14 at 12:02 am

We actually caught up to Vancouver. 1.2 mil for his piece of junk.

http://themashcanada.blogspot.ca/2014/08/7-allen-avenue-south-riverdale.html

#82 JohnSaccy on 09.02.14 at 12:03 am

The Canadian Real Estate – PLUNGE-O-METER

http://www.chpc.biz/plunge-o-meter.html

Great work by Brian on an monthly basis to cover price movements across major Canadian cities.

#83 will on 09.02.14 at 12:19 am

to #17 Catalyst:

“A bet on canadian banks is a bet on the canadian economy.”

ok, but let’s try to qualify that. I think the big five are all trying to diversify. we read about this every day in the msm. they are all trying to diversify revenues by expanding into other markets like the usa, south america and into financial markets that are non-real estate. i’m not a bank analyst, but we blog dogs should all be bank analysts by now. i guess the question is what percentage value do we give to the canadian re mortgage portfolio for a given bank and what percentage to the rest of it. thanx for raising the question, Catalyst. it’s obviously on people’s minds – i mean the exposure our banks have to mortgages.

#84 ham on 09.02.14 at 12:46 am

Garth,

Buying the dip will eventually stop working. 5 years now into this stock market rally, “nothing goes up forever”. Your own words Garth.

Where is the greatest risks? Higher eh?

#85 Mr Stats on 09.02.14 at 1:07 am

1) Yesterday’s post mentioned CMHC insured average mortgage was a little over $200,000.

Wow! So who is buying those million dollar homes? Plus if interest rates go up, its not going to hurt people with only a $200,000 mortgage. So no crash…

2) No new jobs in Canada in 2014? So why have close to 150,000 Temporary Foreign Workers entered Canada since the start of the year?

#86 Mr Stats on 09.02.14 at 1:11 am

3) Average new CMHC mortgage a little over $200K COMBINED with an average 8% downpayment means localas are buying condos or townhouses. HAM, move-up buyers, and foreign money are buying SFD without CMHC!

#87 @Anson and Don Werner on 09.02.14 at 1:18 am

The world is awash in DEBT?

Then someone is owed…so “the world can be awash in MONEY” at the same time!

This is the age of the great divergence. You will have trans-generational HAVE families and HAVE NOT families.

#88 Mark on 09.02.14 at 1:47 am

In fact, bank profits should accelerate during a housing crash as they will be able to increase the risk premia charged on housing-related loans. Subprime lending is a heck of a lot more profitable than collecting a few bp of spread on Prime (after CMHC subprime insurance) loans.

The recent acceleration in bank profits hence can be taken as prima facie evidence that the housing downturn is underway.

As in the 1990s, sit back, and enjoy the record-breaking banking profits. A decade from now, bank stocks likely will be 3-5X higher, although it is doubtful that banks will be the ‘headline’ sector of the next leg of economic growth.

#89 MarmotManor on 09.02.14 at 3:10 am

Before you get stuck into gold, have a read of the “The Gold Cartel” by Dimitri Speck. All markets abhor suppression and the result will be a massive reset higher at some time in the future. Youve been a politician. You know how the game works, or you should.

China and Russia and BRICS stacking up on it at record levels to bring them into line with USA Germany France and Italy. Demand for gold massively exceeding supply and yet it continues to be knocked down in the futures market day after day after day.

You are fully aware of how markets are manipulated, so it shouldn’t surprise you that in the area of gold, there is also massive manipulations going on. And these are suppressions

USA as sole reserve currency is coming to an end. It may end up in the new basket of currencies for the world reserve currency – but what has gone before wont continue into the future.

USA cant afford for gold to rise as that would reflect inflation, which should mean interest rate rises. That sends the USA broke. So they will smash it down for as long as they can, until they can do it no more.

Then its game over for all the asset bubbles, Real estate, bonds, stock prices –

No armageddon, No squirrel stew – but lots of people very broke.

A small exposure to gold outside the banking system amounting to around 10% of your assets would be very prudent.

Far more prudent is to get rid of debt with these low interest rates as quickly as you can.

Preservation of capital will be the name of the game.

Keep up the warnings Garth – somebody needs to explain what these real estate manipulators are up to.

#90 RAL on 09.02.14 at 3:30 am

I don’t understand the value of a ‘bitcoin’. I always thought a currency was backed by the taxpayers in the country it was from. I recognize the ability to print more money and the risk this poses to a currency but what backs a bitcoin. I always thought this was a scam when I saw it and thought it would end poorly. Is there something I am missing?

http://www.timescolonist.com/news/b-c/growing-number-of-workers-choosing-to-be-paid-with-bitcoin-payroll-firm-1.1336955

#91 earthboundmisfit on 09.02.14 at 6:59 am

Re: Whole Foods
Went into the one in Oakville on a lark. Almost died laughing at the hoi polloi getting goosed for 3X-4X the normal price of things. Then discovered Trader Joe’s in Tonawanda. Niagara Falls Blvd. just before Maple Ave.

#92 Sean on 09.02.14 at 7:57 am

The banks don’t have to hold loads of residential real estate on their books to get hurt… they will be hurt by an overall decrease in economic activity. Especially important given the reliance on credit in the Canadian economy. Add in a fall in real estate values, then subtract out HELOC issuance, add in lower consumption… Of course the banks will be hurt by the grinding to a halt of the economy. Their international operations will help somewhat.

Actually economic activity will eventually increase, not decrease, regardless of what happens to Canadian housing. — Garth

#93 Sean on 09.02.14 at 8:05 am

As I said, common shares may drop if enough fools decide to sell, but the dip will likely be short-lived. I hope those who dumped bank stocks and took up gold two years ago have found better advice. — Garth

—————–

Garth, their shares will fall b/c earnings will fall! Sure, if enough fools will panic, prices will overshoot to the downside. To suggest that banks are completely immune to what will amount to the destruction of middle class wealth is ridiculous!

No stocks are immune from economic movements or (especailly) the capriciousness of retail investors. However, this is a good reason why small fry should not own common stocks, If you want to share in the bank’s success, buy preferreds and sleep more soundly. — Garth

#94 LL on 09.02.14 at 8:30 am

# 89

Don’t loose your time MarmotManor.

Garth will comment to you that it’s “conspirancy theory, propaganda” and if you read Zero Edge…(which one is referred by the way by lots of economic writers) ben t’es un con!

#95 Dave in Kincardine on 09.02.14 at 9:00 am

Garth, I think you got it wrong this time. All over the world when residential real estate dropped hard, it took the banks with them, USA, Ireland, Britain, Spain, Greece, Italy, even emerging markets in 1997 (it started with Thailand). I always hear our banks are different but really, we just had a resource holiday for 5 extra years.

A quick scan of the markets: China real estate down 30%, oil very soft, corn, soy, wheat hitting dramatic lows, copper weak, negative interest rates returns in Europe. Choking debt everywhere. This smells like a fairly big drop off in demand.

Cash is King sometimes. Economics is my game and passion.

No, I do not have it wrong. All high-ratio mortgages in Canada are government-insured, which transfers risk from the banks to the taxpayers. Second, the banks have been preparing for a housing correction since 2009. Third, they have diversified and expanded other income streams, as well as increased capital reserves. Lastly, we will have a slow housing melt, not a collapse. Stop being a drama queen. — Garth

#96 maxx on 09.02.14 at 9:14 am

So many Canadians are tapped out, living on the good ol’ LOC and CC when the paycheck to paycheck thingy isn’t quite enough……

You know that people are really scraping the bottom of the barrel when they are willing to compromise quality of life and introduce a stranger into their living space. Sometimes works out, but largely an unknown result and definitely creepy. Not for everyone.

When interest rates begin to rise, those with cash will spend again, businesses and manufacturers WILL BE OK (there’s nothing as creative as business that wants to survive and thrive) and the economy will begin to percolate once again. On real money.

Those who borrowed to overspend will need to pucker up, use the jars and PAY BACK their debt.

All of it.

#97 LL on 09.02.14 at 9:21 am

DELETED

#98 Daisy Mae on 09.02.14 at 9:59 am

CBC: “EY (the consulting firm formerly known as Ernst and Young) was predicting earlier in the summer that spending on traditional back-to-school items such as clothing, shoes and stationery this year would be flat compared to 2013.

That projection was based particularly on the expectation that higher food and gas prices, inflation and investment in new homes would leave price-conscious Canadian consumers with less money to spend on classroom stuff…”

#99 Holy Crap Wheres The Tylenol on 09.02.14 at 10:14 am

#73 45north on 09.01.14 at 10:41 pm

Eddy : On this day, Sept 1, in 1939, German forces bombard Poland on land and from the air, as Adolf Hitler seeks to regain lost territory and ultimately rule Poland. World War II had begun.

http://www.cnn.com/2014/08/29/world/gallery/world-war-ii-timeline/index.html?hpt=hp_c4

____________________________________________

And on September 10th, 1939 Canada declared war on Germany. My mother cried that day as my father was in the RCAF she said. He was immediately transferred to a base in England and attached to No 6 Squadron. I recall pictures of him standing on his Spitfire. Sad day but proud of his courage!

Did your father survive the war? — Garth

#100 Nuke on 09.02.14 at 10:20 am

Banks will do just fine. Risk of holding depreciating assets against offsetting debts has been externalized through CMHC to taxpayers, not shareholders.

Bank revenue is a lot of fee based not just on the spread. Bank owned trust companies use to manage their internal pooled funds. Trust company kept their trustee fees but hived off investment management with its own fees. They had to fight this double dipping in court and won.

Keep the transactions going and intermediaries will profit. Think how big dollar stores have become. Consumers need to consume whether it is small or big tickets. Banks make money regardless.

#101 Mark on 09.02.14 at 10:31 am

“Garth, their shares will fall b/c earnings will fall! Sure, if enough fools will panic, prices will overshoot to the downside. To suggest that banks are completely immune to what will amount to the destruction of middle class wealth is ridiculous!”

Banks are positioned with an effective ‘short’ on the Canadian residential housing market. As they mostly hold government-guaranteed bonds (CMHC insured subprime mortgages) rather than houses. So a slowdown in the economy would actually benefit the banks as government debt tends to increase in value. And the BoC is likely to lower policy rates and engage in all sorts of reflation-ist efforts to keep the economy from completely plunging.

The investment banking side of the banks should do well additionally as much needed capital starts flowing towards things other than housing. There are many large-cap and mid-cap companies in Canada that are significantly under-leveraged and could be recapitalized by the banks at a significant profit. The future is extremely bright for Canadian banks, and will be increasingly so as housing continues the decline that’s been in progress for the past year and a half.

#102 Holy Crap Wheres The Tylenol on 09.02.14 at 10:34 am

#24 Smoking Man on 09.01.14 at 6:01 pm

Holy crap.

I walked into this store at square 1, we where short on a few groceries. It’s called whole foods.
______________________________________________

Smoking Man you’ve never heard of Whole Foods?
Its the way our food used to be before chemical mass produced, genetically engineered growth hormone implanted shit we eat today used to be! Didn’t your parents have a garden?
Don’t be alarmed that good clean naturally grown food costs more than the crap we get at supermarkets today. But then again do you want to live forever?

#103 Mark on 09.02.14 at 10:38 am

“it’s obviously on people’s minds – i mean the exposure our banks have to mortgages.”

The really neat thing about Canada’s banks and mortgages is that the entire portfolio is very short-term and they could have nearly 100% of it liquidated in under 5 years. Most of it at 100 cents on the dollar thanks to the CMHC subprime mortgage insurance previously purchased. Contrast this with the foreign banking systems that are often sitting on loans that have remaining terms of decades, and no guarantees of notional value.

#104 Nuke on 09.02.14 at 10:40 am

Also don’t forget about the almost non-existent reserved requirements canadian banks have. When I was trading on a bond desk in late 70’s early 80’s banks would be freaking at month end to get their liquidity up. Overnight money rates, especially on weekends was almost usury. Now not so much.

Capital reserves are far greater than in the past. — Garth

#105 Mr. Tim on 09.02.14 at 10:47 am

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices?fsrc=nlw%7Cnewe%7C2-09-2014%7C538c5f99a256ab190b001075%7CNA

Picked this up tonight from the Economis; you guys may have seen it already. An interactive chart on global house prices. It concludes with a challenge to see if you can spot the next bubble to pop.

#106 pbrasseur on 09.02.14 at 11:25 am

Preferred stocks according to Ben Graham, author of the Intelligent Investor (the best book ever written on investing), and mentor to Warren Buffet:

“Experience teaches that the time to buy preferred stocks is when their price is unduly depressed by temporary adversity… in other words, they should be bought on bargain basis or not at all.”

http://www.narrowroadcapital.com/memos/perils-preference-shares/

As for Canadian banks I would stay away from their stocks, preferred or otherwise, at least until the market acknowledges the numerous problems with the Canadian credit market. As risk has been socialized it is clear that the banks are protected in Canada and will most likely all survive a downturn but to say they are “shielded” id a gross overstatement.

Besides there were and still are so many better opportunities outside Canada I see no reason to take chances on Canadian banks when it is so obvious a RE correction is coming!

#107 Casual Observer on 09.02.14 at 11:46 am

If house prices drift lower, bank shares can still do OK (this is what happened during most of the 90’s).

If house prices plunge quickly, then share prices will most likely follow suit.

Having said that, I think the biggest risk to Canadian banks is if there’s a liquidity crisis along with falling house prices.

With no liquidity, the banks can’t securitize their mortgages. Securitization is how most banks replenish their capital so they can create additional mortgages.

Liquidity dried up during the GFC and the market for securitized mortgages froze, which is why CMHC stepped in and “bailed-out” the Canadian banks by purchasing billions of dollars worth of mortgages from them.

This allowed the banks to re-capitalize and continue lending during the 2008-09 crash.

In the event of a crisis, would CMHC be able to do that again? I’m not so sure they would have the will or the means.

I think that’s why the gov’t came up with their “bail-in” legislation, so taxpayers wouldn’t be on the hook any more than they already are.

#108 High Plains Drifter on 09.02.14 at 12:17 pm

Seems one thing in common here, the need to spin straw into gold. Gold is redefined by our esteemed host but most will get my meaning. Those who want to lie down in the straw do not conform to the spirit of this ongoing effort. Making the right rate call along with the right derivative to profit from said correct rate call is half of the game. That is why housing gets the most attention because it is the most widely used rate derivative. We have the most inequality in our lifetime so with a higher interest rate, this disparity will grow. That is why, you’s with straw will need bigger piles to spin less gold if your doing a straight, rising rate, prayer. The really big piles of straw may disengage the mom and pop piles as undesirable company in the pursuit of real tangible wealth. The big boys do not like uninvited company, so best to ask ,”who loves ya”? My favourite good night story was about a curious fellow named Rumplestiltskin.

#109 Holy Crap Wheres The Tylenol on 09.02.14 at 12:28 pm

#99 Holy Crap Wheres The Tylenol on 09.02.14 at 10:14 am

#73 45north on 09.01.14 at 10:41 pm

Eddy : On this day, Sept 1, in 1939, German forces bombard Poland on land and from the air, as Adolf Hitler seeks to regain lost territory and ultimately rule Poland. World War II had begun.

http://www.cnn.com/2014/08/29/world/gallery/world-war-ii-timeline/index.html?hpt=hp_c4

____________________________________________

And on September 10th, 1939 Canada declared war on Germany. My mother cried that day as my father was in the RCAF she said. He was immediately transferred to a base in England and attached to No 6 Squadron. I recall pictures of him standing on his Spitfire. Sad day but proud of his courage!

Did your father survive the war? — Garth
____________________________________________

Yes sir he survived to come home and raise his family. Hardly ever talked about the war though whenever I would ask him until we moved to the USA in the sixties. When I joined the USAF he would open up to me about some of the stuff he had experienced. He was mad at me for joining the USAF during Vietnam, especially since I had a university degree.

My respect to him for his service. — Garth

#110 Balmuto on 09.02.14 at 12:30 pm

Garth, what about the $250 Billion in HELOCs that the banks hold? As you know, none of this debt is CMHC insured. Won’t this be a big problem for the banks in the event of a severe correction? Especially if it’s brought about by higher rates, as most of the HELOCs have variable-rate structures?

All demand loans, backed by 65% equity. Not the banks’ problem. Yours. — Garth

#111 Bottoms_Up on 09.02.14 at 12:38 pm

#6 -=jwk=- on 09.01.14 at 2:53 pm
—————————————
agree -chinese nationals put canada fairly well down the list, even after britain and some european countries. its the weather eh?

#112 Nuke on 09.02.14 at 12:46 pm

Sorry, I was referring to the liquidity reserves, the pocket change cash as opposed to capital investments. My take was that this lack of liquidity called for infusion of fed funds during the GFC. Cap reserves worldwide got buttressed. However I still think liquidity reserves are no longer a requirement under the Bank Act? Haven’t kept up on the regs.

#113 Future Expatriate on 09.02.14 at 12:47 pm

Don’t you just hate it when people never learn?

We’re getting too old for this crap. Where’s that Jetson’s vacation on the moons of Saturn we were promised in ’61?

#114 Shawn on 09.02.14 at 1:02 pm

Two important Bank ratios – Never the twain shall meet

From 104 Nuke

Also don’t forget about the almost non-existent reserved requirements canadian banks have. When I was trading on a bond desk in late 70′s early 80′s banks would be freaking at month end to get their liquidity up. Overnight money rates, especially on weekends was almost usury. Now not so much.

Capital reserves are far greater than in the past. — Garth

***************************************
Nuke speaks of the cash reserve on upper left hand side of balance sheet.

Garth refers to capital (equity and invested debt) on lower right hand side of balance sheet.

Completely different

Capital requirements are up (solvency safety)

Cash reserve is left to banks to manage. (this is day to day liquidity)

#115 LL on 09.02.14 at 1:04 pm

http://www.ctvnews.ca/business/s-p-downgrades-canada-s-biggest-banks-to-negative-rating-1.1954789

I am also interested to buy some banks shares but I am wondering if the banks downgraded decision could affect banks shares in the future?

Anyone having a crystal ball?

#116 Flawed on 09.02.14 at 1:27 pm

I don’t understand the value of a ‘bitcoin’. I always thought a currency was backed by the taxpayers in the country it was from. I recognize the ability to print more money and the risk this poses to a currency but what backs a bitcoin. I always thought this was a scam when I saw it and thought it would end poorly. Is there something I am missing?

http://www.timescolonist.com/news/b-c/growing-number-of-workers-choosing-to-be-paid-with-bitcoin-payroll-firm-1.1336955
*****************************

Currencies are backed by confidence. Not US warships, or gold or oil or labor. Those are products of currency. That’s why people are moving to bitcoin.

#117 Tony on 09.02.14 at 1:31 pm

Re #110 Balmuto on 09.02.14 at 12:30 pm

Of course when the housing market tanks and everyone starts declaring personal bankruptcy the banks will be on the hook for all that money (HELOCs). Also credit will dry up dryer than the Gobi desert and banks will close up wholesale in Canada.

Someone left the cage door open again. — Garth

#118 Daniel on 09.02.14 at 1:41 pm

“I don’t understand the value of a ‘bitcoin’. I always thought a currency was backed by the taxpayers in the country it was from.”

Bitcoin like pretty much all other ‘electronic’ currencies are widely considered Assets (aka things) by governments. As things, they can be traded between them and the value is determined as such. Because Bitcoin is not a currency, there is NO backing by any factor. The only hard-limit in Bitcoin is that the ‘production’ of new coins are increasingly hard to produce (more machines/electricity) so that artificially raises the value of producing a new coin. But regardless of how expensive it is to make new coins (which anyone can do) the price like any asset is determined by the buyer and seller. If a buyer thinks the current market value of the coin will go up, they may pay more than current price to buy it. Or, if the seller thinks the market’s soft, they may try to sell at a small loss (vs cutrrent market conditions).

Bitcoin has many issues, of which I’ve defamed it many times on Slashdot instead of a real-estate & finance blog.

#119 Son of Ponzi on 09.02.14 at 1:56 pm

#110 Balmuto on 09.02.14 at 12:30 pm
Garth, what about the $250 Billion in HELOCs that the banks hold? As you know, none of this debt is CMHC insured. Won’t this be a big problem for the banks in the event of a severe correction? Especially if it’s brought about by higher rates, as most of the HELOCs have variable-rate structures?

All demand loans, backed by 65% equity. Not the banks’ problem. Yours. — Garth
————————
Imagine, in the extreme, all these 250 billion being taken out of the economy by the banks.
Also, most cars are purchased with long term financing.
You can see the Dominoes lining up.

Such silly talk. If there was a 2% default rate, it would be gargantuan, and without meaningful impact on the banks. — Garth

#120 Son of Ponzi on 09.02.14 at 2:04 pm

Yes sir he survived to come home and raise his family. Hardly ever talked about the war though whenever I would ask him until we moved to the USA in the sixties. When I joined the USAF he would open up to me about some of the stuff he had experienced. He was mad at me for joining the USAF during Vietnam, especially since I had a university degree.
————————–
It’s my experience, that, contrary to what Hollywood likes us to believe, most WWII veterans are reluctant to embellish their actions in the war. Or just even just talk about it.
The horror. The horror.
However, we continue to fight the “good wars”.

#121 Mark on 09.02.14 at 2:08 pm

Garth, what about the $250 Billion in HELOCs that the banks hold? As you know, none of this debt is CMHC insured. Won’t this be a big problem for the banks in the event of a severe correction? Especially if it’s brought about by higher rates, as most of the HELOCs have variable-rate structures?

Some HELOCs are CMHC-insured (there was a big deal about the CMHC stopping this practice a couple years ago!). Additionally they are demand loans, so as house prices continue to recede, banks can call them and/or increase the interest rates on them on account of greater risk.

Yes, ultimately, the banks will have to repo a few houses because of HELOCs, but such pales in comparison to the sort of subprime that the CMHC will be dealing with for their guarantees.

#122 Mark on 09.02.14 at 2:16 pm

“Imagine, in the extreme, all these 250 billion being taken out of the economy by the banks.”

Of course, housing prices going down, debt deflating, is profoundly deflationary for the economy. Which means that we’re heading to a low policy rate, but high risk premia environment.

Which, to the point of this thread, means that bank profits will likely continue to accelerate, at least until another sector in the Canadian economy grows some wings and provides for enough economic activity to get people out of debt.

#123 Kris on 09.02.14 at 2:17 pm

That’s a _worldwide_ Google search chart. Big leap of faith to draw conclusions about individual countries from it.

#124 happity on 09.02.14 at 2:45 pm

The 100’s billions in off balance sheet derivatives at the banks is what one should worry about, along with the unprecedented global integration between banks.

Not to mention the bail in plan. But that might not happen if the central banks decide to print like banshees, then all you have to worry about is daily tangibles price inflation.

Mortgages? They will gave little to no effect on the banks in comparison.

How about that $22-per-ounce drop in gold today? I think you have better things to fret over than rock-solid banks. — Garth

#125 Happy Renting on 09.02.14 at 2:54 pm

#78 Garth’s Favourite Amazon on 09.01.14 at 11:29 pm

I could not, with a straight face, describe that area as “middle class.” The employees and hired help of the people who own there are middle class.

———-

#87 @Anson and Don Werner on 09.02.14 at 1:18 am

This is the age of the great divergence. You will have trans-generational HAVE families and HAVE NOT families.

That’s what socio-economic class is, isn’t it? Not a new concept, and neither are the barriers to climbing out of the lower rungs into the higher ones. Not great for society, but not news, either.

#126 Son of Ponzi on 09.02.14 at 3:07 pm

Such silly talk. If there was a 2% default rate, it would be gargantuan, and without meaningful impact on the banks. — Garth
—————–
You maybe right, but every snowball rolling down a hill starts out small.
Markets are irrational, IMO, and fear is stronger than greed.
I worked for a major Credit Union in BC in the early 90s and a small percentage of defaults caused considerable damage.

#127 rosie "moving forward" in the knowledge that, "this won't end well" on 09.02.14 at 3:10 pm

Is this a slow price burn?

http://insiderealestate.heraldtribune.com/2014/08/29/manasota-key-house-sells-half/

#128 devore on 09.02.14 at 3:20 pm

#59 X

With the average down at 8%, gov’t should slowly increase the minimum dp, 6% in 2015, 7% in 2016, etc up to 10% down.

If the average downpayment is 8%, that is huge, because we know a handful of big numbers drives the average up very quickly. It’s easy to see the large majority of downpayments is 5%.

#129 Mark on 09.02.14 at 3:26 pm

“I worked for a major Credit Union in BC in the early 90s and a small percentage of defaults caused considerable damage.”

Credit Union risk management practices, from what I’ve seen, are generally horrible. They are way over-concentrated into small-business and local lending. Not diversified nationally/internationally. They have a structurally higher cost of capital. Their boards often are significantly devoid of financial professionals (a former music teacher of mine is actually the Chairman of the Board of my local credit union!). And they are significantly disconnected from the natural discipline of the capital markets. So I would expect your experience at a Credit Union to be significantly different than someone at a big-5 bank.

Furthermore, the local credit union was still pushing 0-down loans far after the CMHC banned insurance against them. Which tells me that they’re not being very aggressive insuring them like is seen with the big-5 banks when it comes to subprime loans.

#130 LTL_FTC on 09.02.14 at 3:38 pm

Coffee-Spitting Good

Garth – In reference to your reply to #47 Mister Obvious on the Groundhog Day theme:

“You can say that again. — Garth”

Priceless. You can’t teach quick wittedness!

#131 devore on 09.02.14 at 3:48 pm

#85 Mr Stats

Wow! So who is buying those million dollar homes? Plus if interest rates go up, its not going to hurt people with only a $200,000 mortgage. So no crash…

Don’t be an idiot. Average insured mortgage includes mortgages issued 25 years ago.

#132 happity on 09.02.14 at 3:55 pm

How about that $22-per-ounce drop in gold today?

Why are you saying I should be worried about that?

Nanex has confirmed stock market manipulation for years, and central banks own roughly 50% of global stocks.

There is no reality basis or price discovery in all the investment vehicles you recommend because of this. There is so much leverage and hypothecation that there is practically no tangible collateral to speak of.

You think digits on a computer are safe when they are backed by nothing but the electrons presenting them on your monitor…

#133 devore on 09.02.14 at 4:05 pm

#91 earthboundmisfit

Re: Whole Foods
Went into the one in Oakville on a lark. Almost died laughing at the hoi polloi getting goosed for 3X-4X the normal price of things

“Normal” things, stuff other stores sell, is priced the same, last time I did a direct comparison. You don’t get the sales or loyalty card discount though.

Other things are boutique brands, and assorted organic and fair trade products. Some of those are worth it, some not so much. Some might taste better, some you might not like. That’s why you can also buy garbage like wonder bread and reconstituted meat beef jerky. There are good deals, and not so good deals, like in any other store.

I can tell you the seafood and baked goods at WF are great, as good or better than anywhere else, with the convenience of being under one roof. And nothing costs 3-4 the “normal price”, whatever that is. (Although now that I’ve said that, I’m sure you’ll find that one thing that is.)

#134 Blacksheep on 09.02.14 at 4:11 pm

Flawed # 116,

“Currencies are backed by confidence.”
———————————————
Disagree…again.

Sovereign currencies are backed by the requirement that every business and citizen whom generates sufficient revenue in said $, MUST cover their income tax liability.

Use Bitcoin all you like, this can only be paid in sovereign $.

#135 Son of Ponzi on 09.02.14 at 4:13 pm

Credit Union risk management practices, from what I’ve seen, are generally horrible. They are way over-concentrated into small-business and local lending.
———————-
Mark, in BC over 60% of the residential mortgages are undertaken by Credit Unions.
They may not be diversified, but they know the local markets.
Obviously, the CU that you’re taking about is very small.
All larger ones have qualified professionals on the Board and the ALCO is independent of management and reports directly to the Board.
And btw, Lehman Brothers were diversified and professionally managed.

#136 Mark on 09.02.14 at 4:15 pm

“There is so much leverage and hypothecation that there is practically no tangible collateral to speak of.”

Perhaps within the banking system, but on a broader basis, Canadian corporations are the least leveraged as they ever have been. And any lending slack to the residential sector can easily be taken up in the business/corporate sector.

#137 Samantha Fox on 09.02.14 at 4:17 pm

bank preferred have inversed correlation to interest rates. so they will go down if interest rates go up.

on other hand: interest rates might stay low for a while despite the inflation as we can’t afford higher rates due to unserviceable debt.

once people realize inflation is here it would be too late, everything would already be priced accordingly. the time to invest is now.
Euro and European companies coming first and then commodities and energy.
whether is gold or oil? who cares.

#138 Flawed on 09.02.14 at 4:30 pm

Bitcoin like pretty much all other ‘electronic’ currencies are widely considered Assets (aka things) by governments. As things, they can be traded between them and the value is determined as such. Because Bitcoin is not a currency, there is NO backing by any factor.

********************************

As is with ALL currencies. Bitcoin can be taxed just like all money can. But there is NOT BACKING of any currency. Currencies are all backed by confidence and nothing more. And confidence in centrally banked, hierarchical, corrupted and co-opted currencies like the US, Cdn and Eur is falling. Enter bitcoin.

#139 devore on 09.02.14 at 4:33 pm

#118 Daniel

The only hard-limit in Bitcoin is that the ‘production’ of new coins are increasingly hard to produce

There is a limit on Bitcoins, but there is no limit on these digital currencies. In other words, there is Bitcoin scarcity but no currency scarcity. Already, there are dozens of Bitcoin clones. Ultimately, they’re worth the computing power used to produce them, and not much more, because the barrier to entry and capital investment needed to begin “mining” is basically zero. If these things gain any mainstream traction, no one’s going to pay anywhere close to what they’re worth today.

Thought experiment. If tomorrow everyone has a Star Trek replicator in their house, how much is a bottle of water or an ounce of gold or a pair of jeans worth? However much power it takes to pop it out of the machine.

#140 Mike S on 09.02.14 at 4:36 pm

“The recent acceleration in bank profits hence can be taken as prima facie evidence that the housing downturn is underway.”

But did you read any of the recent reports?
increase in wealth management and related, not due to spreads

#141 bubble&squeek on 09.02.14 at 4:40 pm

DELETED

#142 Flawed on 09.02.14 at 4:46 pm

#134 Blacksheep on 09.02.14 at 4:11 pm
Flawed # 116,

“Currencies are backed by confidence.”
———————————————
Disagree…again.

Sovereign currencies are backed by the requirement that every business and citizen whom generates sufficient revenue in said $, MUST cover their income tax liability.

Use Bitcoin all you like, this can only be paid in sovereign $.
*************************************

Not disagreeing with your statement cept that you are only talking in terms of the “bubble of the country” within that statement.

Last I checked currencies were traded worldwide to the tune of 4.2 Trillion Dollars….give or take.

And just cuz you need to “convert” your bitcoin or $ or Eur or Yuan to that country to pay your taxes, does not mean you have confidence. It just means your paying yer taxes.

So disagree all you like. Currency strength is about confidence.

#143 eddy on 09.02.14 at 4:59 pm

Bank on this- there will be another war in Europe.

Remember USA educated Polish foreign minister Radoslaw Sikorski?
‘Sign deal or you will all die’
Yep, death treats in pubic.

He is married to an American ‘journalist’, check out her wartime propaganda, she could write speeches for Harper:

http://www.slate.com/articles/news_and_politics/foreigners/2014/08/vladimir_putin_s_troops_have_invaded_ukraine_should_we_prepare_for_war_with.html

#144 Kenchie on 09.02.14 at 5:15 pm

Another example of MSM following this blog

http://business.financialpost.com/2014/09/02/real-estate-canada-gains/

#145 Smoking Man on 09.02.14 at 5:16 pm

#143 eddy on 09.02.14 at 4:59

Aggreed, game of chicken is on…

Wondering if Garths pic up top us a cryptic message….

I notice everything…

#146 Flawed on 09.02.14 at 5:23 pm

Thought experiment. If tomorrow everyone has a Star Trek replicator in their house, how much is a bottle of water or an ounce of gold or a pair of jeans worth? However much power it takes to pop it out of the machine.

********************************

Which again is another reason Bitcoin is gaining in popularity. Cost’s of living are being “propped up” by greedy corporations and the govt’s they control. A Foxconn Iphone costs Apple $15. Cost’s you $600. And don’t give me this BS about development because they have shit developed years in advance as well as the fact that even the Iphone 5 has bugs bugs bugs…..oil is propped up, food, gas, hydro…..all of it. For profits and to pay overpaid and underworked gigantic govt workers.

The fact that bitcoin can’t be printed out of existence is a feature. You can’t hide it like fiat. Feature. Can’t use it in pallets to be dropped off in Iraq to fund drug smuggling. A feature. Can’t regulate the crap out of it and steal your privacy. A feature. Brings banking to 3.5 BILLION unbanked poor people. A feature. The fact that it is does not let corrupted banks print trillions of dollars into their ponzi scheme. The BIGGEST feature.

yes yes yes…its ALL about terrorism and drugs right? Please. The US Dollar has done TRILLIONS in this business for hundreds of years. Police need to do their job period.

Bitcoin is a flawed, volatile, unreliable and wildly unbridled medium of exchange which will never be the currency of anywhere. — Garth

#147 april on 09.02.14 at 5:25 pm

#105 – Canada is the next bubble to burst? Hope it includes Vancouver BC.

#148 economictsunami on 09.02.14 at 5:31 pm

Two interesting reads:

We Are Not A Resource Economy!!: The largest component of our GDP is actually…Real Estate!…

http://datarific.blogspot.ca/2014/08/we-are-not-resource-economy.html

Why real estate gains in Canada aren’t nearly as healthy as they seem:

http://business.financialpost.com/2014/09/02/real-estate-canada-gains/

#149 Balmuto on 09.02.14 at 5:46 pm

To the point that HELOCs are demand loans. Ok, but in the event that the borrower cannot repay the loan on demand, what recourse does the bank have? Foreclose on the house? Well, the mortgage must be paid off in full in the event of a foreclosure sale before the HELOC (a second lien on the property) would receive any funds. Now, the 65% equity rules do offer some cushion (it was 80% a couple of years ago), but does anyone seriously believe that the banks are using conservative valuations to determine the equity %? Need a $50,000 line of credit to add to the $470,000 mortgage on that house you just bought for $500,000? Yeah, well, uh based on our general, uh, survey of houses in that area, the “computer system” tells me your house is worth $800,000 – so you qualify for a $50,000 HELOC – here you go!!!

#150 Mark on 09.02.14 at 6:06 pm

“Mark, in BC over 60% of the residential mortgages are undertaken by Credit Unions.”

Exactly. And that should scare anyone who lends a credit union money in BC (ie: hoardes of little old ladies who think that the ‘extra’ interest they receive is risk-free and ‘guaranteed’). Thanks for proving my point.

#151 Blacksheep on 09.02.14 at 6:15 pm

Flawed # 142,

“Not disagreeing with your statement cept that you are only talking in terms of the “bubble of the country” within that statement.”
————————————————-
Each sovereign is a “bubble” unto itself, with its citizens being the internal driving force behind GDP, thus supporting the sovereign demand for $’s via taxes.

Multiple factors affect exchange rates, but a currency must maintain internal value to be accepted for global trade.

Why is a Canadian $ worth 90 % of the US $ ?