Tax this

BENT modified

The reporter was insistent. “Please do not blog about this request at least until the day the story airs,” he said. After all, the last thing they need at the CBC these days is for a pathetic blog to scoop The National. What with budget cuts, job insecurity and dwindling audiences as people migrate online, it’s tough to run a TV and radio empire. At least Kevin O’Leary ratted off.

So the topic when the crew reached the GreaterFool corporate offices high about the ant-like masses was this lame idea in Vancouver of taxing people who buy real estate but don’t live in it. As you may know, this is a meme now among the political class in the Mouldy City. One mayoral candidate, a leftie with zero chance of election, wants to slap fees on foreign buyers. Sadly the mayor succumbed, promising a commission to root out the identity of property owners, presumably so the Asian ones can be punished.

“Is that going to make houses more affordable?,” the associate producer asked as Vlad the camera guy aimed LEDs at me and rolled. This is going to be a short interview, I thought, as I said “no.”

When you think about it, taxing something more that you want to cost less is not exactly brilliant. But this is municipal politics. Up is down. The Van proposal is therefore divorced from making real estate affordable to the average citizen. Instead it’s all about xenophobia and sending a message to offshore buyers that they should stay home. This despite the fact non-resident foreigners buy from a willing local, pay closing costs and fork over property taxes. Plus they maintain, insure and often lease out their real estate to more locals who are subsidized when they live there.

Yes, non-local investors (whether from Saskatchewan or Singapore) don’t live in BC and pay income tax there. But they also don’t gum the health care system, take up space on the SkyTrain, drive at 45 kph in the HOV lane or fill the schools with their offspring.

So the only possible, tenuous connection between some guy from Guangdong buying a Coal Harbour condo he visits once a year and the stupid cost of a dodgy house on the East side, is…well… there isn’t one. It’s fiction. It’s politics. It’s the ugly, unfair lashing back of people who feel entitled to real estate but can’t afford it, looking for someone to hurt as a result, and the office-seekers who manipulate them. Imposing double property tax on people with names that sound Chinese won’t do anything to stop investors and speckers, or bring down the cost of a house. But it will reinforce the city’s burgeoning image as intolerant.

We all know why the median SFH price in 604 is currently $1.1 million. CHMC policies, 5% downpayments, voracious lenders, homeowner tax breaks and realtors using fear and deception to magnify the Asian threat have done the job. Throw in HGTV, Global anchorettes, west coast house lust and the willingness to swallow endless debt, and no wonder the BC savings rate is negative.

When prices normalize, Van blows up. Ironically, the sooner the idiots running the place impose a new house tax, the faster it happens.

BTW, the CBC interview is slated for Sunday night. “Unless something more important happens,” the reporter told me. That shouldn’t be too hard.

***

Well, if you think interest and mortgage rates will stay low for years to come, go argue with the G-20. These guys just carved in stone what this blog has bleated about for a few years – too-cheap rates for too long create too much risk. So, it won’t be long now.

The finance ministers of the 20 countries that matter wrapped up a conflab on Sunday and issued a communique saying cheap money is turning into a global negative. “We are mindful of the potential for a build-up of excessive risk in financial markets, particularly in an environment of low interest rates,” it stated.

Added our own Joe Owe, present at the meeting to add a colourful splash of panache, “What we are looking at here is an apparent search for return in a low-yield environment and the concern is that we are seeing more investing in higher-risk ventures. If there is a reappraisal it could all of a sudden shoot up in volatility and result in losses and it could be disruptive.”

Translation: You’re borrowing w-a-y too much money to buy Vancouver Specials and slanty semis in Leslieville, and that’s driven prices to unsustainable levels. Once the cost of money drifts back to historic levels, you’re probably screwed. Of course, the G-guys are also worried stock markets have been overly-plumped by low rates, since who wants to own bonds anymore? Plus, whole countries are using cheap money to stimulate growth through borrowing and consumer spending (like us) rather than getting productive and creating jobs.

So, be warned. Next year it all changes. Even the disbelief.

191 comments ↓

#1 Mark on 09.21.14 at 4:41 pm

” Of course, the G-guys are also worried stock markets have been overly-plumped by low rates, since who wants to own bonds anymore?”

Lots of people want to own bonds. After all, why have interest rates been able to stay so low? If leaders want job growth, they need to find a way to scare people out of bonds, and back into equity. After all, it is equity, and the risk taking associated with such business, that builds factories and creates jobs. Not relatively risk-free debt.

#2 Gord In Vancouver on 09.21.14 at 4:49 pm

“Is that going to make houses more affordable?,” the associate producer asked as Vlad the camera guy aimed LEDs at me and rolled. This is going to be a short interview, I thought, as I said “no.”

You’re right – offshore investors will most likely see the tax as the price of doing business but, at least, Vancouver’s budget will be in better shape.

#3 Smoking Man on 09.21.14 at 5:00 pm

Truth is every country is different, right from horses mouth.

I never got the higher rates hint from Oliver rant.

http://www.winnipegfreepress.com/business/oliver-urges-weaker-g20-economies-to-follow-canadian-stimulus-model-275928051.html?device=mobile

#4 deaner on 09.21.14 at 5:01 pm

Okay Garth or others, so what alternative policy could a municipal government implement that would clean up the housing market?

The policy causes of the problem – CMHC and banking regulations – are controlled by the feds.

The only policy that may be implemented at the local level, is to publicize sales data in order to allow Zillow-type services to break the hold that real estate boards have on information.

#5 John B on 09.21.14 at 5:05 pm

Truer words have never been spoken.

#6 Victor V on 09.21.14 at 5:14 pm

G-20 Warns of Potential Market Risks Amid Uneven Growth

http://www.bloomberg.com/news/2014-09-21/g-20-sees-potential-for-excessive-risk-in-markets-amid-low-rates.html

#7 CPG on 09.21.14 at 5:14 pm

From Pimco’s Bill Gross:

A credit-based financial economy (as opposed to pure cash) depends on an ever-expanding outstanding level of credit for its survival. Without additional credit, interest on previously issued liabilities cannot be paid absent the sale of existing assets, which in turn would lead to a vicious cycle of debt deflation, recession and ultimately depression.

http://www.zerohedge.com/news/2014-09-03/austrian-bill-gross-discusses-credit-creation

#8 Ben on 09.21.14 at 5:14 pm

Tax all real estate with a land value tax then slash income tax. Watch work pay again and property prices tank.

Totally disagree with your characterisation of people taxing rentiers as “leftie”. You know what isn’t right-wing? Taxing people for producing more wealth. Workers produce the wealth, rentiers skim off it.

Rentiers contribute nothing and persecution of all of them should be at the top of the list.

You know what was a really bad political decision? CMCH, changing the loan period above 25 years and not capping lending at three times one salary. Because too much debt is always bad – it sets prices and the workers then work for the banks.

#9 peter on 09.21.14 at 5:21 pm

Maybe we have entered a Japan-like scenario where deflationary forces allow C-planners to keep rates low for, well, ever? CRB index is in crash mode while USD keeps rallying higher. No inflation on the radar?

#10 Mark on 09.21.14 at 5:21 pm

“Okay Garth or others, so what alternative policy could a municipal government implement that would clean up the housing market?”

Give land away for free (or for a small amount) to new housing developments. Use tax dollars to pay for such land. This would drive down housing prices. Rigorously enforce bylaws pertaining to run-down housing and empty lots.

#11 angus on 09.21.14 at 5:26 pm

It is the law on PEI to tax non-residents at 100% of the local tax rate. Permanent residents are taxed at a 50% of the local rate

Given local rates, a piffle. — Garth

#12 Tripp on 09.21.14 at 5:28 pm

Everything is fine in The G&M world. Firm title for a vague article, especially the word “suggested” in the first paragraph.

http://www.theglobeandmail.com/report-on-business/economy/housing/cmhc-doesnt-fear-a-housing-bubble-ceo-says/article20711061/

#13 T.O. Bubble Boy on 09.21.14 at 5:31 pm

What about the scenario where the millionaire husband stays working offshore (paying no income tax in Canada) while wife & kids use roads/schools/health care?

Millionaire dad imports money for them to live on, which is spent locally. Besides, if they are legal residents, they have rights. Like you. — Garth

#14 CPG on 09.21.14 at 5:32 pm

Further to #3 Smoking Man’s link:

The Canadian stimulus model has resulted in $184 billion of debt being racked up by the Stephen Harper Government from 2008 to 2014 for future generations to pay off.

I thought things were supposed to be different when the Reform Party => Canadian Alliance => Conservative Party of Canada movement arrived in Ottawa and took hold of the levers of power.

http://www.cbc.ca/news2/interactives/canada-deficit/

#15 Shawn on 09.21.14 at 5:34 pm

CBC has done a great job

Speaking of CBC and scoops, they have done a great job

They have exposed numerous stores in the past year or so including the whole Senate / Duffy scandal. Sadly I can’t remember all the different stores but it seems like every couple of weeks they have dug up something often using freedom of information requests.

They have dug up more dirt this past year that any ten farmers put together.

Also, their web site cbc.ca gets a TON of traffic and, more to the point, hundreds of reader comments on many of its stories.

Just take a look right now. The first story I clicked on, a story about fare increases for BC ferrys has 218 comments.

http://www.cbc.ca/news/canada/british-columbia/bc-ferries-fare-hikes-forcing-some-to-rethink-island-work-life-1.2772606

Overall they get HUGE reader engagement on many stores per day. And that is despite the fact that you have to get a login ID to post. So people know their comments can be traced back to them by authorities. Requiring a log in makes it harder to post comments and yet they het huge numbers.

Yes, so does Garth absolutely.

Meanwhile I read big stores in the Globe and Mail / report on business site and there are usually very few comments. Same for National Post / Financial post in my experience, few comments. Reader enagement is apparently very poor.

My point is. CBC does a great job in the news department and their web site and I think they deserve credit for that.

Does that mean I support tax payer subsidies to CBC? I have not commented on that.

I will say it is extremely unfair that the cable companies have spent years and years of charging for cable, of which CBC and CTV and the other “free over the air” networks are a huge part of and have not paid for that content. They get it free and they resell it to Canadians. (Yes they paid into some cultural funds for CBC but they still got the programming for free other than that.)

The fact is cable companies got their whole start by distributing content that they did not pay for. They have a lot of gall now opposing fees for that content.

It’s easy to bash CBC but they do some things very well and they got a raw deal in many ways.

Another example. CBC was a HUGE part of building the brand of NHL hockey in this country. But ultimately now rather than continuing to share in that huge bounty they are mostly out of the picture. Every NHL player should say thanks daily to CBC.

#16 Kenchie on 09.21.14 at 5:44 pm

To all those who poo-poo on the CMHC and their role in “distorting” the market (I am not in full agreement with that notion), please remember this:

“He noted the government has been compensated for its risk to the tune of $18-billion in profits from CMHC over the last decade.”

That’s from the NP article someone posted on B of M.

At the end of the day, the CMHC is a for-profit organization that is conveniently owned by the Gov’t of Canada. As long as they continue to make money, they aren’t really subsidizing the market any more than Genworth and Guaranty Canada. It is only if they had annual losses over the long-term that the CMHC would be technically subsidizing the market. Think about it…

#17 Kenchie on 09.21.14 at 5:50 pm

Garth,

“buying a Cole Harbour condo”?

Cole Harbour: Home of Sidney Crosby

http://en.wikipedia.org/wiki/Cole_Harbour,_Nova_Scotia

Coal Harbour: Home of retirees and drug dealers who rent outrageously expensive condos.

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

=P

#18 A Yank in BC on 09.21.14 at 5:52 pm

In the late 80’s, it seemed like the Japanese were buying the United States. Rockefeller Center, the Monterey Peninsula, about half of Hawaii. There was genuine concern, but no talk about levying special taxes on foreign owners. Then things started collapsing back home, and they had to sell it all back to us at fire sale prices. Man, did they lose their shorts.

#19 Rifles on 09.21.14 at 5:57 pm

I understood the tax proposal was directed at vacant properties, not those that are rented out or otherwise occupied. This is not dissimilar to the policy pursued in London, UK (much more of a multicultural city than bicultural Vancouver could ever hope to be). So a local holding three empty apartments for speculation purposes would also be subject to this tax.

Regardless, a more interesting policy would be to see them make rent tax deductible.

#20 fisheman on 09.21.14 at 6:07 pm

When I left to go north this spring bulding lots on west side Van (33’x120′)were 1.4-1.5 mil. Now my co conspiriters tell me good ones go for 1.8-1.9mil., multiple bids too. $60,000 for the legal paper & a minimum of $200/sq.ft. for 2800 sq ft. max build. 2 1/2 mil for a house on a block with 17 other houses & 18 across the street. Mind you a lot of west side streets are tree lined. 55′ lots are 2.5-2.7 & the big ones 85′-100’+ are 5-6.5 mil. The west side I’m guessing could include 1800 square blocks (rough).
Imagine how much access to capital the owners have access too. Maybe it will be like when Tokyo was worth more than all of Canada. Us oldtimers that have stuck around & hung on all these years, mainly through lack of initiative rather than foresight,are flabbergasted & don’t have a clue if R/E out here on the western fringe is going up,down or sideways anymore. We’re in the game in that we have properties, but we’re out of buying, building, renovating, renting or flipping like we did in past winters. You need big cash flow & big cajones, so any immigrant group that wants to ante up to play the west side Van. R/E game, fll your boots.

#21 Vamanos Pest on 09.21.14 at 6:08 pm

#2 Gord in Vancouver

Wrong.

The tax wouldn’t effect prices because foreign investment is not the thing driving prices. If foreign buyers are not the cause, then how can targeting them with a tax have an effect. There is NO EVIDENCE (zero, none) that foreign investment is significantly contributing to home prices in Vancouver. (keep in mind, you looking out you’re window and noticing the new neighbours “look Chinese” is not evidence, it’s xenophobia).

The cause of housing prices in Vancouver is low interest rates, the moral hazard introduced to the mortgage industry by the CMHC, and a good dose of stupidity amongst the locals. Period.

Want to bring prices down? Raise interest rates to somewhere in the range of historical normals, and tighten CMHC rules (or end it altogether). The effect on prices would be drastic and immediate.

My guess is you wouldn’t vote for that. But then, at the heart of it all, we don’t really want prices to drop, we just want someone to blame. And I agree, the “Chinese” are perfect for that.

#22 Mark on 09.21.14 at 6:08 pm

“At the end of the day, the CMHC is a for-profit organization that is conveniently owned by the Gov’t of Canada. As long as they continue to make money, they aren’t really subsidizing the market any more than Genworth and Guaranty Canada. It is only if they had annual losses over the long-term that the CMHC would be technically subsidizing the market. Think about it…”

The CMHC isn’t profitable, and never will be, as they are obviously not recording adequate reserves for the sort of systemic risk they are taking in the housing market. By the CMHC’s definition of ‘profit’, an insurance company could write hurricane insurance, and merely decide to pay no claims, even though the legal obligation exists for a hurricane insurer to pay claims.

It is pretty obvious, hence, that the CMHC has insufficient capitalization to withstand any meaningful amount of loss in their portfolio. $20B of capital against $900B of subprime loan guarantees. 45X leverage. Only takes less than 2% of the portfolio going bad to render the CMHC insolvent. The have effective leverage into subprime mortgages that no OSFI-regulated bank would be allowed to have even into prime mortgages. The CMHC has placed the finances of the Government of Canada at grave risk, and only managed to accumulate paltry reserves. The CMHC is nothing but a giant subsidy to the housing industry from the government.

#23 DreamingInTechnicolour on 09.21.14 at 6:12 pm

PEI is way ahead of the rest of Canada on restricting ownership of part of their Province to non-residents- you have to get Provincial Cabinet Approval if you are A NON RESIDENT WANTING TO OWN MORE THAN 5 ACRES OR 165 LINEAR FEET OF SHOREFRONT.

http://www.gov.pe.ca/environment/index.php3?number=15042&lang=E

Nothing to be proud of. — Garth

#24 Shawn on 09.21.14 at 6:25 pm

Bill Gross Pimco and interest liabilities that cannot be paid without new debt

CPG at 7 posted a paragraph from Bill Gross which he found on Zerohedge.

A credit-based financial economy (as opposed to pure cash) depends on an ever-expanding outstanding level of credit for its survival. Without additional credit, interest on previously issued liabilities cannot be paid absent the sale of existing assets, which in turn would lead to a vicious cycle of debt deflation, recession and ultimately depression.

**************************************
I have read Bill Gross’ monthly Outlook column for many years and so I saw the above paragraph there.

Bill Gross’ material is usually entertaining and usually easy to follow

When I read that paragraph about interest can’t be paid unless new debt is issued or assets sold I felt that he had in no way explained why.

Many companies pay interest out of income and not asset sales. People pay both interest and principal from their incomes not by selling assets.

Gross’ claim does not look correct to me.

Anyhow, I am not sure I need to care. I am busy enough making money and don’t see much use in trying to figure out the intricacies of world credit markets.

A lot of people were pretty sure that the world monetary system was doomed around 2008. They got out of stocks and bonds and invested in gold, canned meat, bunkers and guns & ammo. How’s that workin’ out?

#25 NostyVlad the Snugglebombed on 09.21.14 at 6:27 pm

From Joe Owe: “If there is a reappraisal it could all of a sudden shoot up in volatility and result in losses and it could be disruptive.”

Yes, suddenly shoot up, volatility, losses and it could be disruptive. Would China’s new gold exchange, starting 11 days earlier than planned, have anything to do with this? “The significance of China’s gold exchange is that the western banking system will no longer be able to dominate the price of gold to protect their paper assets.” wrh.com. Don’t forget the Super Duper Rich are buying up a whole lotta this.

SMan — here’s couple — MH17 lawsuits and UK okays Bitcoin.

#26 Harbour on 09.21.14 at 6:31 pm

The fed has got themselves in a corner.

They created this housing bubble, now they’re in a tough situation of trying to keep the lid on it without bursting it.

#27 Call it what it is on 09.21.14 at 6:42 pm

First there’s NO HAM…then there is…which is it???? I’m getting politically correct whiplash. I know there are entire streets in Vancouver that have gone dark. Shopkeepers in some areas are going broke because so many of the houses are unoccupied.

It isn’t because some crazy mad buyer from Coquitlam bought three houses side by side for 3 million a piece and went back to live in his $600 thousand side split on the mountainside.

I watched across the street HAM in action just a couple of weeks ago. A water pipe had burst on the second floor of the house across the street and water was flooding out the doors and down the driveway. We called the city and they turned the water main off, then a local realtor turned up…..a few days later a couple showed up with their suitcases in a cab from the airport. The suitcase tags were NAY ( Beijing) to YVR. They entered the house with the realtor, put their suitcases in a new Audi that was parked in garage, and took off.

We didn’t see them again. I think that’s the definition of HAM Garth, people who buy multi million dollar homes and are not Canadian immigrants or otherwise. There are hundreds of thousands of ‘dark residences ‘ in Vancouver, all owned by HAM. Thats why people are thinking a tax on foreign owners might be a good idea.

I don’t know whether your position on HAM is an attempt to ‘defend’ a particular ethnicity, but it certainly isn’t fooling anyone. The fact is that HAM is a problem, and the the fact that it has been let become a problem which is out of control has greatly contributed to a lack of affordability in Vancouver.

You are not King Canute, you cannot hold back the tide of truth from getting out. I think people are really going to resent your trying to hide the truth from them when the time for a reckoning comes around.

A threat from an anonymous poster. So scared. All I hear in your words is resentment and hatred – which are precisely the sentiments behind a tax-the-HAM tax. Will accomplish nothing. — Garth

#28 Bobby on 09.21.14 at 6:42 pm

For #13 Bubble Boy,

It is not illegal to leave family members in Canada and work overseas. However, given that Canada taxes on worldwide income, having your spouse and children in Canada would make you a resident for tax purposes, obliging him to declare his income. Whether he does or not is his business, but if he gets caught the penalties are rather severe.

#29 OttawaMike on 09.21.14 at 6:48 pm

Not to worry, when globe temperatures rise 10 degrees house prices will be the last thing we will need to worry about. Most of us will be returning into the cosmic dust we came from

http://mobile.nytimes.com/2014/09/22/science/earth/scientists-report-global-rise-in-greenhouse-gas-emissions.html?smid=tw-share&_r=0&referrer=

#30 Bloefeld on 09.21.14 at 6:50 pm

No government can ‘fix’ a market in Canada. They can only skew it.

#31 ShawnG in TO on 09.21.14 at 6:56 pm

re #15 Shawn
that whole foreign temporary worker program abuse was cracked by CBC
recall a bunch of RBC IT workers told CBC that they were training their own replacements who were making a fraction of their pay
good job CBC

#32 crowdedelevatorfartz on 09.21.14 at 7:16 pm

@#11 Angus
“It is the law on PEI to tax non-residents at 100% of the local tax rate. Permanent residents are taxed at a 50% of the local rate”
+++++++++++++++++++++++++++++++++++

Yup, as I pointed out to one of my well lubricated uncles a few years back when he complained about all the “off islanders” driving up the housing prices. I pleasntly asked him what his property taxes were for his $150k , 5 bedroom, 3 bathroom house on 5 acres…. $700/year.
I then sweetly informed him my $85k, 2 bedroom , 1 bathroom cottage on 1 acre property taxes were $1500/year.
I then told him that I only used the garbage collection services 2 months of the year so the next winter when the snow plows were pushing record amounts of the white stuff off the road…………….he could thank all us “off islanders”.
I sold not long after that. Prices have dropped since.

#33 Nemesis on 09.21.14 at 7:17 pm

#”EppurSiMuove”. #CoalHarbour… #”aPlaceOfMystery”… #”aWorldOfSurprise!”:

http://youtu.be/yhX89dDoAw4

[NoteToGT: You’re not going to change your mind are you? Such obstinacy! Never mind. Just between the two of us, though – as GhostTowns go, it certainly had its moments… I particularly miss my concierge, the SovietRocketScientist. Alas.]

#34 Flawed on 09.21.14 at 7:30 pm

#13 T.O. Bubble Boy on 09.21.14 at 5:31 pm
What about the scenario where the millionaire husband stays working offshore (paying no income tax in Canada) while wife & kids use roads/schools/health care?

Millionaire dad imports money for them to live on, which is spent locally. Besides, if they are legal residents, they have rights. Like you. — Garth

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

Really? Last I checked it was INCOME TAXES that pay for things like healthcare and education. So what your saying is “offshore millionaire dads” who pay NO INCOME TAX have “different and special” rights compared to poor dumb-ass Canadians who were born here because we have to pay income taxes and offshore millionaire dads don’t.

Sending money back here? Please very weak argument Garth. Millionaire dads who live and work here buy the same expensive crap for their wife and kids AND pay income tax with the money they earn in Canada unlike OFFSHORE millionaire dads who pay no income tax.

How do I know this? A good friend of mine (Asian) used to manage a billion dollar “offshore millionaire dads” portfolio at one of Vancouvers major banks “Asian Banking Centers”. Yes it is called that.

Thanks for describing why so many people are pissed off at offshore investors.

#35 El Barto on 09.21.14 at 7:31 pm

A young Garth. Less hardware in his ankle, a full head of hair, and a heart full of dreams. I’m gettin’ all misty…

http://www.cbc.ca/archives/categories/economy-business/banks/canadian-financial-forecasters/garth-turner-sheer-panic.html

#36 Flawed on 09.21.14 at 7:37 pm

#21 Vamanos Pest on 09.21.14 at 6:08 pm
#2 Gord in Vancouver

Wrong.

The tax wouldn’t effect prices because foreign investment is not the thing driving prices. If foreign buyers are not the cause, then how can targeting them with a tax have an effect. There is NO EVIDENCE (zero, none) that foreign investment is significantly contributing to home prices in Vancouver. (keep in mind, you looking out you’re window and noticing the new neighbours “look Chinese” is not evidence, it’s xenophobia).

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

I would tend to agree that an offshore sales tax is dumb.

A better law would be that you must declare your offshore income tax and pay the “fair portion” relative to how much time you spend in Canada and how much your wife and 4 kids who use healthcare and education spend in Canada…..do that…..and watch the for sale signs start popping up like weeds.

Canadian residents must declare global income and be taxed, pursuant to the adjustments in the Canada-China Income Tax Agreement (1986). — Garth

#37 Tony on 09.21.14 at 7:44 pm

Foreign students pay double or triple tuition fees (as they should) so taxing foreigners double or triple property taxes is a start. The foreigners and their total stupidity are responsible for all the increase above the inflation rate for Vancouver housing. Maybe they should make potential buyers take a course in economics first.

Given what you have posted here recently, that’s hilarious. — Garth

#38 Realties.ca » Tax this on 09.21.14 at 7:53 pm

[…] Source: http://www.greaterfool.ca/2014/09/21/tax-this/ […]

#39 Nemesis on 09.21.14 at 8:00 pm

“Canadian residents must declare global income and be taxed, pursuant to the adjustments in the Canada-China Income Tax Agreement (1986)”. — Hon[IfOccassionallyObstinate]Garth

#FancyThat!… #InPointOfFact:

[CBC/RCI] – Canada Revenue Agency to cut auditors, as domestic, international tax evasion rises

http://www.rcinet.ca/en/2014/01/03/canada-revenue-agency-to-cut-auditors-as-domestic-international-tax-evasion-rises/

#40 Casual Observer on 09.21.14 at 8:03 pm

Regardless, a more interesting policy would be to see them make rent tax deductible.

I agree. Since landlords are taxed on rental income, those paying the rent should get to deduct it.

Businesses deduct their rental costs from earnings, why shouldn’t households be able to?

Sometimes this blog is terrifying. — Garth

#41 Smoking Man on 09.21.14 at 8:03 pm

http://www.theblaze.com/stories/2014/09/21/f-the-police-communists-radicals-spotted-throughout-climate-march-in-new-york-city-demand-revolution-nothing-less/?utm_source=twitter&utm_medium=story&utm_campaign=ShareButtons

Tree huggers exposed

#42 Freedom First on 09.21.14 at 8:04 pm

Best bottom line ever Garth. Reminds me of the age old saying: “Failure to prepare=Preparing to fail”. Liquidity, Diversification, Balance. And for myself, living a debt free lifestyle is comfortable, but not an easy mindset to achieve in an I want it now society that has worked very successfully at the eradication of using creative thinking. Freedom First.

#43 Retired Boomer - WI on 09.21.14 at 8:07 pm

I’ll believe it (rising interest rates) when I see them. The 10 yr is basically 2.5% it has hovered between 3 to 2.1 % for awhile.

I don’t believe Janet the Yellin’ has the fortitude to allow rates to rise to “normal” -whatever the heck “normal” would be after 6 years of basically ZRIP policy.

Banks have done well under ZIRP, would they under “normal” rates again? RE has done well under ZIRP, would it continue under “normal” rates? Stocks have done quite well under ZIRP, I will state they will do fine under “normal” rates as well. Will there be an adjustment period? Dam right. Those Bonds I have would lose some value when interest rates rise, but that’s the price, baby.

Answer this question, what would be ‘Normal’? Assuming we have 2.5-3.5% inflation my guess is 5-6% would be normal. Offering mortgages at 5-6% would do what to the potential buyers among us? How about those adjustable mortgage borrowers, on cars and RE? OOPS!!

Hell, this might be to be fun if rates were to zoom up a bit too fast! Always a way to make money in a rising rate environment.

#44 billybill on 09.21.14 at 8:12 pm

so what do the prudent do now

#45 maxx on 09.21.14 at 8:14 pm

#3 Smoking Man on 09.21.14 at 5:00 pm

” Truth is every country is different, right from horses mouth.

I never got the higher rates hint from Oliver rant.”

http://www.winnipegfreepress.com/business/oliver-urges-weaker-g20-economies-to-follow-canadian-stimulus-model-275928051.html?device=mobile

The Canadian stimulus model is a pernicious debt stimulus model: comprised of a rapidly thinning veneer of robust fiscal health with a thick, nasty, intransigent substructure of consumer debt lurking below.

Pity any country that adopts this model.

#46 ShawnG in TO on 09.21.14 at 8:14 pm

#40 Casual Observer

households can’t deduct rental costs, wage earners can’t deduct income expenses. that’s because ordinary employees are lowest form of tax slaves in Canada. you pay tax on everything, and exempt nothing.

dividends and capital gains are taxed at much lower rate. or, you are better off as a contractor wrapped up in your own business. you get many more tax deduction, and you can contribute to your pension at >18%. you get to retire years earlier.

#47 Harbour on 09.21.14 at 8:15 pm

Canadian residents must declare global income and be taxed, pursuant to the adjustments in the Canada-China Income Tax Agreement (1986). — Garth
……………………………………………………………………….

Yes you do have to declare global income but you only have to pay tax once.

As it should be. — Garth

#48 TEMPORARY® Foreign Prime Minister on 09.21.14 at 8:25 pm

#15 Shawn on 09.21.14 at 5:34 pm
CBC has done a great job
=========================

Excellent post, and so true.

The majority of reader comments posted at the end of CBC and Globe online articles usually expose more truth than the articles themselves.

Democracy at its finest, much to the chagrin of the current government’s PMO propaganda-pumping machine.

#49 earlybird on 09.21.14 at 8:28 pm

Sadly Houses/Real Estate are the new pensions….

#50 Anson on 09.21.14 at 8:34 pm

The governments around the world will save us all with taxes , taxes and more taxes.
…Too many foreign investors; here is a tax just for them
…People to obese here is a sugar tax…
…Carbon emissions are rising so let’s tax it….
…Help people stop smoking by increasing taxes..
…Help people drink moderatley by increasing taxes..
Thank you mom, oh I mean government for looking out for my best interest.

#51 "Land Of The Living Skies" on 09.21.14 at 8:39 pm

“Yes, non-local investors (whether from Saskatchewan or Singapore) don’t live in BC and pay income tax there. But they also don’t gum the health care system, take up space on the SkyTrain, drive at 45 kph in the HOV lane or fill the schools with their offspring.”

I thought people from here (Sask) only buy and sells houses to each other. Now they are going out-of-province to spread the love of how great it is here. They can now justify their 1,400 sq/ft houses to cost half a million dollars – because it’s different here.

#52 Mark on 09.21.14 at 8:40 pm

“I don’t believe Janet the Yellin’ has the fortitude to allow rates to rise to “normal” -whatever the heck “normal” would be after 6 years of basically ZRIP policy.”

You really think that central banks have control over this? That they can just wave a magic wand and what they desire happens?

At some point, there will be a revulsion in the financial markets to the low rates, and then the rates will be low no more.

Are we there yet? No. But as Europe has taught us, it can happen very quickly once the fire gets started.

#53 Cici on 09.21.14 at 8:46 pm

#15 Shawn,

Awesome observation. You are right, CBC has done fantastic things for the people of this country and its image.

Unfortunately, most people aren’t bright enough to recognize it (even if they’ve gained and profited from it), and slam CBC when the right-wing cronies start whining about its “cost” to tax payers, whereas those same cronies just want the tax payers to keep paying so their friends can profit by eliminating the “free” competition.

Canadians will have to keep paying the taxes, but the private sector will benefit from those funds while the people will have less access to accurate and unbiased reporting, not to mention less made-in-Canada content and promotion of local/national talent.

If only the sheeple weren’t so dumb.

#54 "Land Of The Living Skies" on 09.21.14 at 8:47 pm

Why do people here in Canada (I’m mean not all Canadians as I love Canadians more than anyone else) always blame their failure/misery to somebody. It is the current generation who is destroying the affordability of housing.

I have peers who earns 1/4th of what we earn but borrowing ridiculous amount of money to buy boats, cabins, houses, big trucks, and vacation. All of these are financed with borrowed money. And now they are blaming the Chinese and other Asian people. Not to mention the huge amount of student debt that they have after school. It was worst here in the prairies. The sense of entitlement is mind boggling. There are substitute for handwork, discipline, and perseverance to make you entitled to enjoy the good things in life. Not borrowed money, and it is not the fault of the recent immigrants either, it was shared responsibility by everyone.

Sorry Garth for my rant here, I am quite but also sensitive, because I was hurt by reading things about xenophobia.

#55 Thomas on 09.21.14 at 8:50 pm

I find this news very sad and disappointing. I used to be proud to call myself a Canadian, but this type of blatant racism makes me feel ashamed to be from Canada. I truly hope people will come to their senses on this one.

#56 P-Gizzzle on 09.21.14 at 8:52 pm

First, the candidate proposing this tax is Meena Wong… Yes, she’s Asian. In fact, she was born in Hong Kong.

Second, it’s total BS that CMHC has anything to do with prices in Vancouver. The mortgage requirements for houses over 1 million are absurd (you need 50% down for every dollar above 1,5 million – a “lot value” house on the westside is at least 1,6 million in most areas). A construction mortgage is even more absurd (65%). People buying these houses definitely aren’t buying with 5% down.

There’s nothing wrong with trying to keep local house prices in sync with local salaries. The tax may not be the correct solution, but the fact that politicians are finally talking about it is important.

There are actually important, practical reasons for limiting the displacement of “locals” from the cities they service.

It’s not xenophobia… it’s community-philia.

#57 Cici on 09.21.14 at 8:55 pm

#16 Kenchie

$18 billion ain’t much when you are in debt to the tune of some $900 billion.

Think about it.

#58 ovidet on 09.21.14 at 9:05 pm

Same story different source:
http://online.wsj.com/news/articles/SB10001424052970204394804577011760523331438
http://www.cbc.ca/news/business/almost-half-of-china-s-rich-want-to-leave-the-country-barclays-says-1.2766823
” So the only possible, tenuous connection between some guy from Guangdong buying a Coal Harbour condo he visits once a year and the stupid cost of a dodgy house on the East side, is…well… there isn’t one”
It is so hard to disprove Garth’s claim without hard data; however, the majority of people that came to see an apartment in a 20+ years old building along Bay St canyon were Asian. Were they all “wealthy”? I can’t tell. Do they have the power to move the market? I say no more than the wealthy Persians, or the Russian oligarchs, etc. Canada is still considered an “exotic” place for folks outside North America/Western Europe and owning property here simply gives you bragging rights in the country of origin (among other things).

#59 jackace52 on 09.21.14 at 9:10 pm

The Canadian housing market is FUBAR whether the greater fools realize it or not. The time has come for drastic action: electing a temporary Canadian housing czar to have unfettered control over ending this foolishness.

Similar to the contest of rating the best financial online blog, there could be a contest to vote for the best “czar”. Then present the winner for Ottawa’s approval.

Nominations should open sooner rather than later.

#60 Uh Oh Canada on 09.21.14 at 9:17 pm

Ah, those West Coasties deserve the finest housing crash in history. By the way, I call it for 2015. I left BC ten years ago and I only miss the mountains. Witnessed the start of the crazy house lust before I left and can’t believe it’s still going on. The reason is because they have nothing else to focus on- no culture, no local economy, nada.

If the citizens weren’t so busy boasting about their “one million dollar” Vanugly Specials, they’d be on the verge of a melt down due too debt load. Take it from me, it’s not normal in Vancouver. It’s different there.

#61 CREIT on 09.21.14 at 9:22 pm

@ Vamanos Pest #21

It couldn’t have been said better!

#62 Observer on 09.21.14 at 9:24 pm

Inside ‘Billionaires Row’: London’s rotting, derelict mansions worth £350m
The North London street where billionaires can buy homes, never live in them, let them rot and still make millions

http://www.theguardian.com/society/2014/jan/31/inside-london-billionaires-row-derelict-mansions-hampstead

#63 Italians love real estate on 09.21.14 at 9:25 pm

All this talk about HAM in Vancouver.

Anyone paying attention to the amount of Russian , Farsi and Cantonese being spoken exclusively in Richmond hill and Markham?

Anyone pay attention to the signage along yonge street , north of steeles and along hwy 7 between yonge and Kennedy?

No foreign influence ?? No flood of foreign buying ??? Really???

Anyone who dismisses the impact of foreigners on our RE market has got to be in denial

Italian inferiority complex? — Garth

#64 FormerSaskie on 09.21.14 at 9:25 pm

#39 Nemesis

The money to pay for all of the MP’s who will be elected in the newly created ridings needs to come from somewhere and the next election is just around the corner. What is the PMO to do when they can’t increase taxes?

#65 Sean on 09.21.14 at 9:28 pm

Added our own Joe Owe, present at the meeting to add a colourful splash of panache

———-

Excellent… lol! Nicely worded!

#66 Mark on 09.21.14 at 9:29 pm

“Second, it’s total BS that CMHC has anything to do with prices in Vancouver. ”

No its not. CMHC only recently installed the $1M limit. Enactment of the $1M limit on a loan (not on the total value of the house) and other limitations has already had a profound impact on the market in Toronto, Vancouver, and Calgary.

Additionally, CMHC provides credit at the margin to the marginal borrower. Plenty of people in Vancouver have leveraged their existing equity to ‘move up’ to bigger/better homes over the past decade. A house that started off in 2000 at $250k, is now ‘worth’ a million, and the owners likely have refinanced that or used that equity to buy something bigger/nicer, or otherwise engage in consumption. CMHC was directly responsible for inflating this bubble.

As it stands, there is minimal evidence of “HAM” being anything statistically relevant. “Foreign money” actually should be reducing leverage, not increasing it.

#67 Retired Boomer - WI on 09.21.14 at 9:32 pm

#52 MARK

Yes, I DO believe the U.S. Federal reserve has the size (power) to effect a GREAT DEAL of commerce if ‘they’ decided to normalize rates.

“They” would most certainly affect the bond markets, and the stock markets.

You are talking about the largest economy in the world, and the largest debtor as well.

When the US acts, many others watch and act in similar fashion (for better, or for worse). I merely said we are presently the largest, I did not imply we were the smartest.

#68 Sheane Wallace on 09.21.14 at 9:33 pm

16 Kenchie

what if the bill is 300 billions?

#69 Sheane Wallace on 09.21.14 at 9:35 pm

#56 P-Gizzzl

Stop CMHC and the prices in Vancouver will drop to 40 % of the current levels.

No bank will lend to 80 % of the current buyers.

Just stop CMHC and watch it.

#70 Retired Boomer - WI on 09.21.14 at 9:38 pm

#52 Mark

I do realize the Fed has sole control over domestic (short term) interest rates, and that longer term rates are established by the cost of funds in the international bond arena.
Carry trade etc. not withstanding, the US Fed’s decision to normalize interest rates short term domestically will have an impact on the cost of money in all markets sooner, rather than later. Hope I made that clearer.

#71 Setting the Record Straight on 09.21.14 at 9:41 pm

“At the end of the day, the CMHC is a for-profit organization that is conveniently owned by the Gov’t of Canada. As long as they continue to make money, they aren’t really subsidizing the market any more than Genworth and Guaranty Canada. It is only if they had annual losses over the long-term that the CMHC would be technically subsidizing the market. Think about it…”

what do you mean by profit? What is the cost of capital?

Would a private company be willing to provide this service at to the extent the CMHC does ? What would be their cost of capital

No subsidy?

#72 Mr Stats on 09.21.14 at 9:48 pm

Canadian residents must declare global income and be taxed, pursuant to the adjustments in the Canada-China Income Tax Agreement (1986). — Garth

Or else what. Computer info between the 2 countries has never been shared nor has one person ever been convicted.

The truth will get out Garth whether you delete or not.

Why would I spoil the fun? — Garth

#73 Setting the Record Straight on 09.21.14 at 9:52 pm

@48
“#15 Shawn on 09.21.14 at 5:34 pm
CBC has done a great job
=========================

Excellent post, and so true.

The majority of reader comments posted at the end of CBC and Globe online articles usually expose more truth than the articles themselves.

Democracy at its finest, much to the chagrin of the current government’s PMO propaganda-pumping machine.”

Disgusting!

You want citizens to pay taxes to propagate your political opinions.

if we just nationalized all news outlets including papers, tv, and internet new sites we could all benefit from the CBC line.

#74 Big Al (New) on 09.21.14 at 10:00 pm

PEI, I spent a week there one afternoon. As for rates rising it would be like PEI become an exciting destination,what a waste of a bridge.

#75 devore on 09.21.14 at 10:04 pm

The extra tax is just the price of doing business, the price of owning a Vancouver vacation property. Anyone bumped out of the market by an extra couple thousand a year has no business owning multi-million dollar overseas vacation property anyways. With construction activity on track to drop off in the future, the city will be in need of money to replace all those lost fees.

#76 devore on 09.21.14 at 10:16 pm

#15 Shawn

The fact is cable companies got their whole start by distributing content that they did not pay for. They have a lot of gall now opposing fees for that content.

Cable companies pay royalties for all channels and content they carry. No one gets to legally distribute anything for free.

#77 Transplant on 09.21.14 at 10:25 pm

#27: First there’s NO HAM…then there is…which is it????

It seems unusual that the apparent home owners you observed had luggage tags reading “NAY-YVR’.

NAY is the 38th busiest airport in China with 1/20th the traffic of PEK, Beijing Capital International Airport, one of the world’s busiest airports.

Having been to Beijing several times (by the way, I’m neither Chinese nor into real estate except for owning a home) I have to say that during my stays there I never once heard anyone mention any local airport save for Beijing Capital.

Since NAY offers domestic flights only I wonder how on earth this particular flight ended up in Vancouver.

#78 Lynn on 09.21.14 at 10:29 pm

As long as I know, the investors in Vancouver are not from Winnipeg or Singapore, most are HAM from Mainland China. I went to few open houses yesterday in Burnaby, 99% Chinese shoppers, only saw one guy speaks English looks like a philipino. One realtor told me that 800k to 900k houses are like hot cake…

The haters are out tonight. — Garth

#79 EvilMagpie on 09.21.14 at 10:34 pm

4 beds, 2 baths, 1,504 sqft
For Sale
$137,000

Just down the block and across the street. This is why America is awesome. That said, if I really wanted to get a house here I’d want one that’s on the UTOPIA network…

#80 Bob on 09.21.14 at 10:35 pm

@Tony #52 Not every foreign student is wealthy. Does a TFW working at McDonalds, paying income tax here, deserve to be paying double the tuition?

#81 Kenchie on 09.21.14 at 11:00 pm

#22 Mark on 09.21.14 at 6:08 pm

“The CMHC isn’t profitable, and never will be, as they are obviously not recording adequate reserves for the sort of systemic risk they are taking in the housing market.”

You are implying that every insured house would have to be paid out at once. That doesn’t sound realistic. Considering the diversification of the insured loans CMHC does, it’s very unlikely that every mortgage would have to be paid out in a single year or even a few consecutive years. So your opinion is not very credible.

And

“By the CMHC’s definition of ‘profit’, an insurance company could write hurricane insurance, and merely decide to pay no claims, even though the legal obligation exists for a hurricane insurer to pay claims.”

Do you think they don’t pay out claims to the banks when insured homes are foreclosed on? Of course they are. But you don’t see many “foreclosed” auctioned houses because the CMHC limits the marketing of foreclosed assets to avoid attracting the low-ballers.

And

“It is pretty obvious, hence, that the CMHC has insufficient capitalization to withstand any meaningful amount of loss in their portfolio. $20B of capital against $900B of subprime loan guarantees. 45X leverage. Only takes less than 2% of the portfolio going bad to render the CMHC insolvent.”

First of all, the amount of “transactional home mortgage” (THM) insured by the CMHC was about $300bn. NOT $900bn! Secondly, the average LTV for the CMHC portfolio is 55%. Not exactly scary… Third, 79% of THM insured by CMHC are between between $100k and $400k. At those prices, the market can most likely hold up the value of the insured homes if they are foreclosed on. Also, the average THM is $180k. Chances are that they will be able to recoup the majority of that capital when foreclosed sales happen. Fourth, only 1% of THM have credit scores of sub-600 (FICO), so you are also incorrect about calling them “Subprime” when only a very few are. Average FICO is 728 at end of 2013. Once again, that ain’t too scary.

“The have effective leverage into subprime mortgages that no OSFI-regulated bank would be allowed to have even into prime mortgages. The CMHC has placed the finances of the Government of Canada at grave risk, and only managed to accumulate paltry reserves. The CMHC is nothing but a giant subsidy to the housing industry from the government.”

Last time I checked, the homeowners that use it pay the premium, so it’s really those high LTV homeowners that need CMHC that subsidize the housing market. It’s your opinion that the reserves are “paltry”. But look at the past 7 years of “expected losses” vs actual paid out. 2007 to 2013: total expected losses $3,771m vs $3,240. Only in 2007 and 2009 were the actual payouts greater than the expected losses.

So the conclusion is that you should probably do a bit more research before spewing incorrect rhetoric because you have clearly made up your mind before even looking at their annual report (i.e. facts). Mark, you’re better than this.

PS: 2013 total insured portfolio held by CMHC is about $300bn for THM, about $210bn of MBS (55% from not Schedule I banks), and about $50bn of CMHC insured mortgages is on multi-family residential buildings. The average CMHC mortgage value per unit of MF resi is $51k. That’s not worrisome at all.

#82 Kenchie on 09.21.14 at 11:10 pm

#49 earlybird on 09.21.14 at 8:28 pm
“Sadly Houses/Real Estate are the new pensions….”

So true.

#83 Mark on 09.21.14 at 11:12 pm

“You are implying that every insured house would have to be paid out at once.

Nope, less than 2% of the portfolio has to go 100% bad before the CMHC has burned through its capital. Or 4%, 50% bad. Or 8%, 25% bad. Considering the sort of trash CMHC insures subprime-wise (people so poor they couldn’t cough up even a 20% downpayment), this doesn’t seem at all unrealistic during a systemic housing downturn.

As for CMHC being leveraged 45X into subprime mortgage guarantees, that’s not an opinion. Its a fact.

#84 Kenchie on 09.21.14 at 11:16 pm

#57 Cici on 09.21.14 at 8:55 pm
“#16 Kenchie

$18 billion ain’t much when you are in debt to the tune of some $900 billion.

Think about it.”

I have. Hence I said it.

Read this (page 33):

http://www.cmhc-schl.gc.ca/en/corp/about/anrecopl/anre/upload/CMHC_68134_w.pdf

It’s really not as scary as Mark et al make it sound.

#85 shawn on 09.21.14 at 11:20 pm

Cable Don’t Pay for CBC, CTV,

Devore said:

Cable companies pay royalties for all channels and content they carry. No one gets to legally distribute anything for free.

***************************************
That sounds logical, but it is wrong.

Cable companies get to re-broadcast any free over the air channels that they pick up like CBC, CTV and the main global channel and others. And presumably all radio stations.

This is an accident of history.

A while back CBC and CTV applied to the CRTC to have the cable companies pay for all that free content and it was rejected.

CBC may have requested that the cable companies start paying them AND that the cable companies not be free to drop CBC when the fee came in. (mandatory carry)

Is anyone familiar with this? I can’t find quite the google link I need to back this up.

#86 Dave p on 09.21.14 at 11:29 pm

There is an interesting blog called ‘Beautiful empty homes of vancouver’. It was started to highlight the problems associated with abandoned homes in Vancouver. It is a real phenomenon

Taxing arguments and xenophobia aside please! The real point is that this represents a real estate market that is sick. This is going to be a big problem when we crash. Very similar to Las Vegas shortly before the bottom fell out.

#87 Kenchie on 09.21.14 at 11:29 pm

#68 Sheane Wallace on 09.21.14 at 9:33 pm
“16 Kenchie

what if the bill is 300 billions?”

You do realize that they recover a significant amount of their losses when the foreclosed house/condo is sold, right? So why would it be the entire insured portfolio at once or even over a few years?

If everyone with life insurance from Manulife died at once, thus triggering millions contracts at once, wouldn’t Manulife go bankrupt too? But is this realistic? No… no it’s not. So instead of fixating on the worst possible scenario, pay attention to what’s really happening. CMHC increased the cost of their insurance (they seem to have a lot of pricing power!) which will just pad their reserves further. The most the CMHC paid out in one year, over the past 7 years, was $678m in 2010. Having something like $16bn or so in capital reserves seems to be enough even under a worst case scenario of $1bn or $2bn in claims to be paid out. And if CMHC does make banks pay a deductible, the risk to taxpayers will be even lower.

#88 Cato the Elder on 09.21.14 at 11:39 pm

Excellent points Garth, especially about how ‘taxing something more won’t make it cheaper’. We are in this situation today because so many politicians have spent NO TIME IN THEIR ENTIRE LIVES in the private sector. AKA having to produce something of VALUE in exchange for money, as oppose to living off government largess.

Another point to make is that foreign buyers are helping the economy – the developers of those properties PAY their workforce, they BUY materials, they PAY property taxes, all of which benefit the economy.

If the government REALLY wants to make houses more affordable, they need to REDUCE taxes and regulations so our nation can become rich again. It’s not about how much money you make, it’s about how much you can AFFORD with that money.

Let’s INVITE more rich to live here. Not just buy and park money, but create an environment in which they feel it’s SAFE to settle down and transfer their wealth here. That means GUARANTEES of: NEVER raising taxes, NEVER confiscating wealth by some future socialist government, NEVER taxing inheritance or transfers of assets.

Imagine the flow of money that would pour into Canada from around the world. There are LOTS of rich people constantly on the lookout for safe havens for their wealth. They are shifting money all the time in an endless effort to reduce their exposure to confiscatory government policies.

Let’s take the lead on this: come here, you’re wealth is safe! Come, spend, invest, settle down, build our cities, build businesses, raise your children here to do the same.

#89 Kenchie on 09.21.14 at 11:43 pm

#71 Setting the Record Straight on 09.21.14 at 9:41 pm

“what do you mean by profit? What is the cost of capital?

Would a private company be willing to provide this service at to the extent the CMHC does ? What would be their cost of capital

No subsidy?”

Accounting profit, of course.

Cost of capital for CMHC? Not sure, but it probably wouldn’t be significantly higher than GoC 30-year bond yield.

Would a private company be willing…? Not to the same extent, probably, but many companies together (i.e. the industry) would likely do it to the similar extent under the current laws requiring high LTV mortgages to be insured. CMHC is already intentionally ceding market share to Genworth and Guaranty Canada. And I believe that is a fantastic idea to lower their total insured portfolio, and reduce risk to taxpayers. However, so many ppl here seem to think that total risk = total insured portfolio. It doesn’t. Private companies’ cost of capital would, obviously, be higher.

No subsidy? Implicit subsidy, yes because it is backed by the gov’ts credit. Explicit subsidy, no. These are two different types of subsidies. Lower cost of capital (i.e. economic profit) does provide a subsidy compared to a CAPM-derived RRR. But accounting-wise, until the accounting profits over the 67 years of CMHC have turned into losses, then there has not been an explicit subsidy.

#90 Nemesis on 09.21.14 at 11:47 pm

#LikeIt,OrNot… #”AChangeIsGonnaCome”…

http://youtu.be/0nvA92DUzOA

[NoteToGT: I was – after all – BornByTheRiver, ya know… Yes. TheDetroit. We never quit.]

#91 Cato the Elder on 09.21.14 at 11:52 pm

You know it really should be a requirement that you’ve either worked in the private sector or run a business in order to run for office. Some sort of a points system like this:

1 point if you’ve worked as an employee of a private sector firm
1 point + 1 additional point for every worker that you’ve managed as a private sector employee
1 point + 2 points for every worker you’ve employed as a private sector business owner

Could you imagine the difference? People with actual experience running things! Only those that have created VALUE and don’t have some naive fantasies about how the world works. People who understand hard work. People who understand the immense FORTITUDE that is needed to successfully allocate resources for the benefit of mankind.

I remember seeing an interview with the guy that started Whole Foods. He said that when he was younger, he was a HUGE socialist and hated capitalism – UNTIL he started a business. He said that “all his employees complained that he didn’t pay enough, and his customers complained he charged to much”. It isn’t easy bringing value into this world – that’s why so many valueless people nestle themselves into the nooks and crannies of government.

#92 WhiteKat on 09.21.14 at 11:55 pm

@Mr Stats re: #72

I guess you never heard of GATCA, son of FATCA.

#93 valleyrenter on 09.22.14 at 12:03 am

Bit of a late post from the wet coast. SM and Vlad-might like this bit of MSM muppetry, goggle ‘Kevin Spaceys breath in a jar’ and watch the full force of parroting in motion. Put together by one of the local stations’ morning show as a “prank/social experiment”.

#94 Kenchie on 09.22.14 at 12:06 am

#83 Mark on 09.21.14 at 11:12 pm
“You are implying that every insured house would have to be paid out at once.

Nope, less than 2% of the portfolio has to go 100% bad before the CMHC has burned through its capital. Or 4%, 50% bad. Or 8%, 25% bad.”

Even in the worst case scenario, they own the land, which is the majority of the value in the most bubble-ish residential neighbourhoods. Total insured does not equal total risk. Furthermore, they don’t need to sell at a loss either. Given that the majority of their portfolio is not very expensive, this doesn’t seem to be as big of a problem as you make it seem. Chill Mark, the world isn’t falling apart.

“As for CMHC being leveraged 45X into subprime mortgage guarantees, that’s not an opinion. Its a fact.”

Please provide your evidence of your “fact”.

PS: Subprime is generally sub-600 FICO score. That makes up 1% of the CMHC THM insured portfolio. To be generous, if you want to say anyone below 660 FICO score as subprime, that’s 9% of the portfolio. So stop lying about CMHC being majority “subprime” when you’re clearly wrong.

http://www.investopedia.com/terms/s/subprime_mortgage.asp

#95 Flawed on 09.22.14 at 12:07 am

A better law would be that you must declare your offshore income tax and pay the “fair portion” relative to how much time you spend in Canada and how much your wife and 4 kids who use healthcare and education spend in Canada…..do that…..and watch the for sale signs start popping up like weeds.

Canadian residents must declare global income and be taxed, pursuant to the adjustments in the Canada-China Income Tax Agreement (1986). — Garth

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

Thank you for that clarification Garth. Too bad it’s largely ignored. As told to me personally by high net worth client bankers.

#96 Jeffw on 09.22.14 at 12:17 am

Garth;
As much as I agree on your ideas of diversification of assets, ETF’s etc.., and to not be overly indebted to real estate, your comments on what is happening in Vancouver is completely, utterly incorrect.
1. HAM has played a central role in driving up prices astronomically on the West Side of Vancouver and Downtown over the past decade. We own a duplex, all paid off, but have been going to open houses for the past 7 years to try to move up to a west side single family home, but in the end the numbers do not make sense for us as we cannot compete with cash payments of 1.8M and overbidding for basic houses. We have friends in the same financial boat who came here from Hong Kong many years ago, and their view is the same.
It is not racist to insist that the city planners investigate the percentage of offshore buyers, and to do basic research on how this has impacted our city. Tsur Sommerville at UBC has been a complete failure in conducting any basic research on this question.

2. For you to compare Victoria to Vancouver a few months ago is completely ridiculous, quoting the small percentage of offshore buyers there. It is well known that the influence of HAM is completely insignificant in Victoria.
The city does not care to research the percentage of foreign owners, how many vacant properties there are etc…, as it their self-interest together with the developers to keep the status quo….
3. Although HAM may be only a SMALL percentage of buyers in the entire lower mainland, their effect INDIRECTLY does contribute substantially to price growth in other areas, as local people with families feel the pressure (driven by local media) to buy something… they need to live somewhere (when they are priced out of the inner city). Similar phenomena occurred when Greece almost defaulted; a small country with little GDP was largely responsible for huge dips in the market. How can a country with so little GDP be a catalyst for wild market swings; How can HAM focusing primarily only on Vancouver West, West Vancouver, Coal Harbor, etc.., influence large tract of the lower mainland?… same effect…. we are all connected..

Your ideas of diversifying assets is indeed valuable, but by now I have heard this same message a million times on your blog, and the story is now frankly a little boring. However, your continual denial of the influence of HAM on Vancouver is completely wrong and the few brave people here who you have slagged today who would like to push this topic for public discussion is annoying to the same belief…. You do not live in Vancouver, and have no clue on what is going on here…

Let’s recap. You own half a house and have been shopping to move up for seven years but can’t afford a $1.8 million property in the most expensive hood in the overall-most expensive city in the country. You blame foreigners, the government and the media for this while telling me I’ve been boring to push you to invest and grow your money. Did I miss anything? — Garth

#97 Fleabitten Monkey on 09.22.14 at 12:19 am

Hi Garth,
Re: #36 Flawed/#47 Harbour comments……

Approximately how much in Canadian Income Tax (Fed and Provincial combined) would a Chinese domiciled businessperson who re-locates their family to British Columbia pay on $1million of taxable income earned in China. This assumes the businessperson is now a full time resident in BC, Canada for tax purposes. Looking for what the 1986 agreement does. How much would they be obligated to pay to CRA according to Canadian Tax Law AFTER being taxed in China?

Please share with the blog readers.

Thanks

Sure. Just read this. More importantly, why does this matter? — Garth

#98 Kenchie on 09.22.14 at 12:19 am

Continued:

#83 Mark on 09.21.14 at 11:12 pm

“Nope, less than 2% of the portfolio has to go 100% bad before the CMHC has burned through its capital. Or 4%, 50% bad. Or 8%, 25% bad.”

Considering the arrears rate for bank-held mortgages in Canada is at 0.29% of gross lending in June 2014 (0.18% in Ontario!), I wouldn’t put the probability very high on a scenario of 8% of CMHC mortgages going 25% bad. Or any of your other scenarios.

http://www.cba.ca/contents/files/statistics/stat_mortgage_db050_en.pdf

Even if interest rates jump significantly in a very short-term, this metric probably wouldn’t break 1% until 2017-2018 as the low-rate 5-year mortgages come up for renewal.

#99 Now next year? on 09.22.14 at 12:26 am

Walk in downtown Coal Harbour on a Sunday night after sunset and see for yourself. Way more dark unlit condos.

Yes, that’s right. People saving on electricity to pay for $2 million dollar condo’s bought with 5% down.

Good grief.

#100 P-GizzleG on 09.22.14 at 12:36 am

#69 Sheane Wallace

Banks are tripping over themselves to lend money to the people capable of buying on the westside of Vancouver (though a good chunk of the houses here are probably mortgage-free).

CMHC has zero influence on these buyers.

Even if prices drop 60% in the burbs after elimination of CMHC, no one from the westside will move there.

Contrary to what Garth says, it is different here. Prices here have increased 3-4 fold in the last 20 years. Drive 20km down the road (to the burbs) and prices are barely over double in the same time period.

#101 MP on 09.22.14 at 1:14 am

Even if rates goes up to 4-5%, which will take years, it’s still low by historical standards. Non event.

#102 Dan on 09.22.14 at 1:18 am

#18… Yank in B.C.

Sounds awfully familiar doesn’t it, but you said the
Americans never considered taxing Japanese major purchases of Re.I beg to differ,Japan was at the tailend
of a boom like no other,and at a time of massive inflation…the yanks imposed duties,tarrifs,and taxed
like hell autos,machine tools and anything else that entered the U.S. market at a time that they knew the
bubble was bursting and (helped) send Japan into the
deflationary spiral that it is still reeling from today.
What is different from today,other than its Chinas
turn to play the game this time.They are swandiving as
we speak,capitol flight is in full gear around the globe,
Vancouver’s re (Canada’s)is just another locale in the
bigger picture.U.S is in the shitter too as everyone should know,the bond market is going to fix everything
sooner or later (as in scorched earth)…a whole lot of
people are going to get roasted,and not just in Vancouver….at least stocks will be cheaper though!
Get outta re!!!
All these fires all over the world,middle-east,ISIS,
wars,little islands in the middle of no where are just a
co-incedance.
Dan

#103 Nemesis on 09.22.14 at 1:41 am

#TheCowBoysOfSinaloa… #&OtherRiders… #Parable.

http://youtu.be/cuyvGFgsmJs

#104 Son of Ponzi on 09.22.14 at 2:00 am

Hang Seng down about 10 %.
Harbinger?

#105 Glen on 09.22.14 at 2:46 am

Readers might find some real interesting reading in a recent article I just read on Seeking Alpha by Joseph Stuber. “Anatomy Of A Market Bubble”.
Quoting the Summary:
• Malinvestment best explains the US economic policy over the last 35 years – a policy that has produced three major
market bubbles.
• Misallocation of debt created new money – first into housing, and then into stocks – has produced two market bubbles
since the turn of the century.
• $10 trillion in new money has been created since the onset of the recession in 2008 with roughly 65% of it driving stocks
and 35% driving the economy.

#106 Offshore Survivor on 09.22.14 at 3:26 am

RE: #13 T.O. Bubble Boy on 09.21.14 at 5:31 pm

What about the scenario where the millionaire husband stays working offshore (paying no income tax in Canada) while wife & kids use roads/schools/health care?

Millionaire dad imports money for them to live on, which is spent locally. Besides, if they are legal residents, they have rights. Like you. — Garth

———————————————————
That is Why Harper killing OETC (Overseas Employment Tax Credit) is a bad idea.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns409-485/426-eng.html

It will encourage tax avoidance (or cheating) or stop people from seeking work offshore entirely.

These people bring all their money into the country and spend it.

PS..

We are not millionaires.

#107 Nemesis on 09.22.14 at 5:29 am

#KodaChrome®… #aBreakfastParable… #ForSaltierDogz…

http://youtu.be/wZpaNJqF4po

#108 Barbara on 09.22.14 at 7:33 am

Empty homes in Vancouver

Here is a link to a blog tracking vacant, expensive Vancouver homes

http://beautifulemptyhomes.tumblr.com/

The site exorts people to squat in others’ real estate. Shameful. — Garth

#109 surprised on 09.22.14 at 7:44 am

Is there any way to teach Joe Owe to talk to the masses?

Holy crap, we need a translator every time a freaking sophisticated person open the mouth.

It’s not even funny and I’m serious!! :)

#110 Gigi on 09.22.14 at 8:15 am

Garth! Just saw you on CBC this morning. It reminds me Mike Wazowski from the Movie Monsters Inc.

http://www.youtube.com/watch?v=431KmmNU8rA

This is how the media is shutting up the truth.
Thank you for your blog, I read it daily.

#111 David W on 09.22.14 at 8:43 am

Long story short, low interest rates are fueling a housing bubble and another stock market bubble.

Houses, for sure, based on historic price/rent and price/income ratios. However, P/E ratios on major NA stock markets suggest overvaluation, but no similar bubble. — Garth

#112 Better call mom and dad on 09.22.14 at 8:46 am

http://www.mortgagebrokernews.ca/news/buying-a-home-is-more-expensive-than-expected-says-bmo-182163.aspx

#113 Italians love real estate on 09.22.14 at 8:58 am

#63 Italians love real estate on 09.21.14 at 9:25 pm
All this talk about HAM in Vancouver.

Anyone paying attention to the amount of Russian , Farsi and Cantonese being spoken exclusively in Richmond hill and Markham?

Anyone pay attention to the signage along yonge street , north of steeles and along hwy 7 between yonge and Kennedy?

No foreign influence ?? No flood of foreign buying ??? Really???

Anyone who dismisses the impact of foreigners on our RE market has got to be in denial

Italian inferiority complex? — Garth

What Garth ?

Love the fact that they are pouring into the yonge corridor delineated by bayview to the east Bathurst to the west north of steeles south of major Mackenzie.

I have placed my ” hard and real ” asset bets accordingly

#114 crowdedelevatorfartz on 09.22.14 at 9:01 am

@#79 EvilMagpie
“if I really wanted to get a house here I’d want one that’s on the UTOPIA network…”
+++++++++++++++++++++++++++++++++++

I believe Utopia is somewhere in Scotland where the separatists promised the 16 year old voters free medicare, free daycare, free university, free medication …….. all without raising taxes and dwindling North Sea oil.
But the Separatists lost and now the leader is blaming “big business” for “fixing” the vote.

Utopia …..located just past Hope and Delusion.

#115 Kenchie on 09.22.14 at 9:12 am

Be wary of (conservative) Americans loving Canada too much.

http://www.nytimes.com/2014/09/21/upshot/the-new-conservative-love-affair-with-canada.html?mabReward=RI%3A16&_r=0&abt=0002&abg=1

#116 Sheane Wallace on 09.22.14 at 9:15 am

This is what Joe said:

https://ca.finance.yahoo.com/news/oliver-urges-weaker-g20-economies-canadian-stimulus-model-161444401.html

The guy is delusional.

#117 Lineman for the County on 09.22.14 at 9:21 am

Re 16 Shawn. Nice to see you like the state broadcaster so much (CBC).

If CBC is so well supported, why not let their fan base support them (like the publicly-supported CKUA in Alberta) and remove the CBC billion-dollar-plus tax burden from those who don’t like their leftie slant on everything?

I bet the CBC wouldn’t survive for six months if it wasn’t on the public teat.

#118 jess on 09.22.14 at 9:27 am

The Free Rider Problem
First published Wed May 21, 2003
http://plato.stanford.edu/archives/sum2012/entries/free-rider/

=
July 17, 2014 6:00AM ET
by David Cay Johnston @DavidCayJ
http://america.aljazeera.com/opinions/2014/7/tax-inversions-freeridingwalgreenspfizercorporations.html
=========
http://www.justice.gov/justice-news
http://www.fbi.gov/about-us/investigate/white_collar

The House King,
…”used a classic loan origination scam, said Stemen, a veteran mortgage fraud investigator in our Miami office. “In this scheme, you had all the players,” she explained, from straw buyers—who are paid to lend their name to documents—to a real estate agent, licensed mortgage broker, and title attorney. Mortgage applications were falsified to inflate the value of properties, defraud lenders, and line the pockets of the fraudsters.”

#119 nancy on 09.22.14 at 10:09 am

Just the fact that there are so many empty homes owned by offshore investors, while Canadians have such a hard time putting a roof over their heads – something is askew. Then, the absentee husbands with wife and 4 kids in Canada who makes tax avoidance a main sport is another issue. You don’t find something wrong with funneling dirty money into our Country to avoid the wrath of their own? There is something morally wrong with this culture as a whole. Why would you try to make excuses for them? Contribute to our society in a honest healthy way and I promise you there will be no haters.

Why are people with more money than you ‘dirty’? That’s hating. — Garth

#120 peter on 09.22.14 at 10:17 am

You have 3 guys: Head of CMHC, the Finance Minister, and the BoC, saying the same thing.

No bubble, no correction. Some cities have slight overvaluation (i.e. Vancouver/Toronto) but it has been like that anyway for decades and decades. AKA NO MAJOR RISKS!!

The blog should really forget about RE and and move on to focus purely on financial investments.

#121 Rational Optimist on 09.22.14 at 10:19 am

115 Kenchie on 09.22.14 at 9:12 am

That article’s author is useless. “Openness to trade and skilled immigration have made Canada an attractive place to invest; perhaps too attractive for some, given the dizzying way Chinese investment has driven up housing prices in Vancouver.”

What dinner party did he hear that “fact” at?

#122 Shawn on 09.22.14 at 10:34 am

Show me the (Dirty) Money!

Why are people with more money than you ‘dirty’? That’s hating. — Garth

****************************************
Easy. It’s because they’re filthy rich.

If not hating, surely it’s okay to be insanely jealous of this?

#123 Singaporean Investor on 09.22.14 at 10:36 am

Here’s an idea… Don’t allow foreign incestors to buy detached homes and leave them empty. But allow them to do that with condos, just like in Singapore where foreigners are only allowed to buy condos. Then, my condo value will skyrocket!

#124 Rebs on 09.22.14 at 10:47 am

In my opinion, BANKS should pay for their own default insurance. A lot of other businesses (from lawyers to roofing companies) have to pay some sort of liability insurance as part of doing business. This would in turn reduce the number of people buying with only 5-10%, which seems to be a main cause of high prices. In what way does 5% down on such a huge purchase make sense, unless everyone including a big ‘responsible’ bank is telling you that it’s all good?

It’s no secret that the banks love the CMHC – no cost or risk to them so why not! When I went for my mortgage with 20% down, the original papers were drawn up automatically with a 5% down payment and including CMHC premium. Like, seriously!?

PS – any comments on Montreal market? We are all a bunch of crazies here I know but people don’t talk about it much.

#125 gladiator on 09.22.14 at 10:52 am

To those who say that low rates will keep the RE mah-kets at stratospheric levels and that we are not Japan because we got immigrants coming here with wads of cash, please see this post on zerohedge (sorry Garth):

http://www.zerohedge.com/news/2014-09-22/where-housing-recovery-one-chart

They got low-low rates and plenty of immigration AND a much more diversified economy.
Are are so screwed….

#126 gladiator on 09.22.14 at 10:53 am

It had to read
“We are so screwed”

#127 Fed-up on 09.22.14 at 11:18 am

I’ve never posted much about HAM and I’m not sure if this picture proves anything (doubtful), but wow, it was a real eye opener for me when I saw it. This is the line up for the new iphone in Burnaby, BC:

http://i.cbc.ca/1.2772419.1411166706!/httpImage/image.jpg_gen/derivatives/16x9_620/image.jpg

Multiculturalism is a great thing but I don’t see multiple cultures in this particular photo.

#128 Italians love real estate on 09.22.14 at 11:18 am

Simple piece of advice for the average working stiff in the near suburbs of the GTA.

Buy a property ( or two or three) along the yonge corridor north of steeles up to major Mackenzie drive maximum to the north before the onslaught of Russians , Asians and especially Persians take them all.

The coming LRT will put an absolute floor on prices

#129 Son of Ponzi on 09.22.14 at 11:21 am

“insipid”
This perfectly describes Oliver.

#130 Nomad on 09.22.14 at 11:23 am

Monday the TSX is soiling its pants again.
Bad news from China.

I hope that like me, you’re buying something.
Probably you’re not.
Probably you’re selling.

That’s why the stock market is a hard sell to the young generation. At any point you can see your account down a few thousand dollars because of some news. People don’t like that. With a house, there’s no daily price they can glance at on their way to work.

#131 Casual Observer on 09.22.14 at 11:28 am

#98 Kenchie on 09.22.14 at 12:19 am

“Considering the arrears rate for bank-held mortgages in Canada is at 0.29% of gross lending in June 2014 (0.18% in Ontario!), I wouldn’t put the probability very high on a scenario of 8% of CMHC mortgages going 25% bad.”

Some think that CMHC is rock solid because arrears have been low for the last few years. Considering we’ve had a decade long housing boom, would you expect something different.

It’s also been mentioned that CMHC’s average LTV is not extreme, but people forget that the high LTV mortgages are the ones that usually default. Borrowers with low LTV can just sell and pay off the mortgage.

I’ve linked this report before.
http://www.cansofunds.com/wp-content/uploads/2013/07/Canso-Px-The-Canadian-Housing-Market-July-2013-Revised-2.pdf

From Pg. 13 “Arrears in Confidence”
“…the current level of CBA mortgage arrears is very low at .32% which in our opinion reflects the sharp rise in housing prices.

Note that arrears were even lower at .18% in the last Canadian housing bubble in 1988. The very disturbing thing about this chart is how rapidly the arrears increased from the .18% in 1989 to .62% in 1991.

…MICC (Genworth MI predecessor, Mortgage Insurance Company of Canada) hit .4% of mortgages in arrears in 1991 and was insolvent in 1992.”

When things go bad, they can go bad in a hurry.

Here’s a couple of interesting quotes to keep in mind…

The delinquency rate of federally insured mortgage loans “is the lowest in the 22 years that these data have been put together.”About the U.S. in 2005: Federal Deposit Insurance Corporation chief economist Richard Brown

“The quality of the insured mortgage portfolio remains strong and the rate of arrears of insured loans remains historically low”About Canada in 2013: Canada Mortgage and Housing Corporation

http://macleans.polldaddy.com/s/who-said-it-canada-u-s-housing-bubble-edition?p=1

#132 Paul on 09.22.14 at 11:30 am

Off topic but interesting. What is the government thinking?

http://www.bnn.ca/News/2014/9/20/New-pension-rules-allow-retirees-to-withdraw-directly-from-plans.aspx

#133 Rational Optimist on 09.22.14 at 11:52 am

123 Singaporean Investor on 09.22.14 at 10:36 am

“Here’s an idea… Don’t allow foreign incestors to buy detached homes and leave them empty.”

I agree strongly with this. In fact, incestors of any kind- whether foreign or domestic- should be prevented from this kind of activity.

Absurd. If I buy a vacation house and it sits empty for 50 weeks, while I pay my property taxes and upkeep, it is zero business of yours. — Garth

#134 condopoor on 09.22.14 at 11:59 am

So many xenophobes…. scary stuff.

#135 Bigrider on 09.22.14 at 12:04 pm

” #128 Italians love real estate on 09.22.14 at 11:18 am
Simple piece of advice for the average working stiff in the near suburbs of the GTA.

Buy a property ( or two or three) along the yonge corridor north of steeles up to major Mackenzie drive maximum to the north before the onslaught of Russians , Asians and especially Persians take them all.

The coming LRT will put an absolute floor on prices. ”

Although you are probably correct about the area you mention, your constant promotion of RE and the ignorance you display towards financial investments personifies, unfortunately, the predominant thinking in your community, which I am a part of.

RE will not go up in price forever. Not here or anywhere else for that matter. Get over it already.

#136 Doug in London on 09.22.14 at 12:06 pm

@Nomad, post #130
You said: Probably you’re not Probably you’re selling.
————————————————————–
I haven’t bought anything yet, but have some lowball offers in and am watching to see what else goes on sale. Has anyone noticed, for example, that XRE is down to $16.00? If I sell anything in the near future it will be money market fund units to pay for any deals I scooped up with stocks or ETFs. As for daily fluctuations, I don’t care AT ALL if my account is down a few thousand bucks. The dividends still come in so I can buy more investments that may go on sale.

#137 Sheane Wallace on 09.22.14 at 12:15 pm

#100P-GizzleG

#87Kenchie

Have any of you ever worked in the Insurance business?
I would advise on getting first at least 10 years experience in any aspect of insurance preferably underwriting; then start expressing opinions about it.
CHMC has nothing to do with insurance. There is no equivalent of CMHC anywhere in the world. Government should not be in the Business of insuring mortgages.
If CHMC was private entity we would never have the bubble blown to such extend. 80 % of the mortgages in the last 6-7 years would have not be given by the banks if not for CMHC.
Government (Central banks, agencies, ministries) should not be in the Business of market making (including interest rates suppression). FDIC is more than enough. Let the banks take their risk and pay for it.
Otherwise there are no markets but just a loot by the privileged few at the expense of the rest of us.
Million dollar houses and zero interest rates is not affordable housing. 300 k house and 5 % interest rate is.
What you don’t see is the system risk of blowout which at this point unfortunately is a certainty.
We will either see currency crash or significant losses on mortgage guarantees, there is no middle ground here. And the bill in both cases will be paid by taxpayers,

And when a dementia geriatric aka Joe brags about how prudent we are, it adds insult to injury. We will pay dearly for the arrogance.
It will be another Nortel moment.
I would gladly write a book on the topic. Oh, wait, there is already one, a classic on stupidity of crowds. google it.

#138 Smoking Man on 09.22.14 at 12:21 pm

Jack Ma: If You’re Poor At 35, You Deserve It

 

 

Jack Ma believes people lose out in life because of these 4 reasons:Being myopic to opportunity, Looking down on opportunities, Lacking understanding, or Failing to act quickly enough. “You are poor, because you have no ambition.” Go big, or go home. Otherwise, you’re wasting your youth

http://www.zerohedge.com/news/2014-09-22/jack-ma-if-youre-poor-35-you-deserve-it

 

#139 NEVER GIVE UP on 09.22.14 at 12:30 pm

#8 Ben on 09.21.14 at 5:14 pm
Tax all real estate with a land value tax then slash income tax. Watch work pay again and property prices tank.

Totally disagree with your characterisation of people taxing rentiers as “leftie”. You know what isn’t right-wing? Taxing people for producing more wealth. Workers produce the wealth, rentiers skim off it.

Rentiers contribute nothing and persecution of all of them should be at the top of the list.

_____________________________________________
Yours is one of the most truthful and prescient posts of all. Spot on.
It will eventually when the world wakes up we will see the error of our present ways.

Taxing possessions rather than income is feudal. — Garth

#140 Rational Optimist on 09.22.14 at 12:34 pm

133 Rational Optimist on 09.22.14 at 11:52 am

“Here’s an idea… Don’t allow foreign incestors to buy detached homes and leave them empty.”
I agree strongly with this. In fact, incestors of any kind- whether foreign or domestic- should be prevented from this kind of activity.

“Absurd. If I buy a vacation house and it sits empty for 50 weeks, while I pay my property taxes and upkeep, it is zero business of yours. — Garth”

You’re right about that. My post was a joke about the fact that Singaporean Investor accidently typed ‘incestors.’ Investors of any kind, I support. Incestors, on the other hand, make me nervous.

#141 NEVER GIVE UP on 09.22.14 at 12:36 pm

I do believe that taxing condos that are empty is impossible to properly levy.
Simply let people do what ever they want but tax the capital gain at 50% with withholding tax.

It does do damage to our economy when the housing is left unused.

Imagine if a 4000 parking spaces were used for storage and none of the cars ever moved.
All of the businesses in front of the parking spaces would suffer greatly or die.
But we would still get the parking revenue you say?
Big deal.
You should be in our economy spending 80k a year on food restaurants shopping etc.
Not using up a space and making thousands of locals commute from Surrey so you can make a profit on our limited space.

What prevented you from buying a better-located home? Oh, money? So tax the guy who could afford it? How does that assist you? — Garth

#142 coastal on 09.22.14 at 12:42 pm

As Don Henley once sang, ” You call somewhere paradise, kiss it good bye”.

Tax the ones that leave their places looking like a shithole like everyone else should be. Can’t stop dirty money, it always finds a home somewhere. Right now it’s Hongcouver.

#143 Son of Ponzi on 09.22.14 at 12:56 pm

I’d say, tax the people actually living in their houses.
This way, they move somewhere else.
And the city would save lots of money otherwise wasted on garbage collection and schools.

#144 Son of Ponzi on 09.22.14 at 12:58 pm

Even Shawn’s hero, the Buffett guy, thinks that the rich should pay more taxes.

#145 William Bell on 09.22.14 at 1:06 pm

Anyone got the link of the CBC interview ? Or is it up yet online? Thanks !

#146 Son of Ponzi on 09.22.14 at 1:17 pm

Interesting article on A. Shuchart’s (a Richmond Realtor) blog.
Conclusion: Richmond’s house prices way out of reach of locals.
————-

Here’s a snippet to close off a hectic week: Only 27.6% of all single family homes listed for sale in Richmond are priced under $1 Mill!  The median price of all 785 of these homes is: $1,380,000.  It is a 2400 sq ft home built in 2009 on a 4150 sq ft lot at: 6388 Dover Rd. in the Riverdale neighbourhood.  No opinion is given as to the accuracy of the listed price. The house contains 4 BRs and a den and 4 bathrooms.  

53.3% are priced between $1 Milll and $2 Mill
15% are priced between 2-3 Mill
4% are priced over 3 Mill

Here’s the clincher:  The median selling price over the last 30 days is: $976,000.  So in all, the market is not where the list prices are.  It might be expected that a median sale price be a reasonable distance from the median asking price.  But such is not the case.  There is a disconnect between the sellers and the buyerss in terms of the product being sought vs. that being offered.

Would you say that this constitutes a crisis in affordability?  Would you surmise that most of the people that you know who live here are earning 3X as much as most people were about 13 years ago? 

 

#147 Bottoms_Up on 09.22.14 at 1:17 pm

#124 Rebs on 09.22.14 at 10:47 am
—————————————
Without CMHC, or by forcing banks to cover this insurance cost, they just simply would not lend.

They don’t make much money off mortgages….so it’s in the economic interest of everyone that they do lend.

#148 Curious on 09.22.14 at 1:17 pm

When are the Baby Boomers going to start selling en masse?

#149 Cato the Elder on 09.22.14 at 1:24 pm

#133 Rational Optimist

“Here’s an idea… Don’t allow foreign investors to buy detached homes and leave them empty.”

I agree strongly with this.

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

See why I am so concerned Garth? Of course, people like you and me know that this is nonsensical and dangerous. But we are in the very, very minority.

Unfortunately, our entire population has been taught for decades since a young age to abhor ‘unfairness’ by our schooling. The basis for that unfairness is never discussed (is it because of hard work? or because of government graft?). It is merely the fact that someone has MORE than another that causes this resentment – it is jealousy plain and simple.

#150 Cato the Elder on 09.22.14 at 1:28 pm

#133 Rational Optimist

“Here’s an idea… Don’t allow foreign investors to buy detached homes and leave them empty.”

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

Just to address this from an economics point of view and not a philosophic one:

Those houses wouldn’t be BUILT in the first place if the developer didn’t have a reasonable expectation of selling them. Therefore, it can’t be argued that if foreigners didn’t buy it, it would be available to someone else.

This is a mistake people often make when talking about starving children around the world. They complain about the waste of food and water here, and how other people around the world would appreciate it more. What they don’t realize is the food and water isn’t available there for a reason. It was grown here with the explicit purpose of making a profit by selling it to you. If that incentive didn’t exist, the food/water would not magically find it’s way to impoverished countries. The incentive of a reasonable profit expectation has to exist before a business owner will make an investment in producing anything – food and water are no exception.

#151 Smoking Man on 09.22.14 at 1:31 pm

CSIS my fee just went up again….

Dyslexic spies: GCHQ’s secret strategy to tackle terrorism and espionage

http://rt.com/uk/189580-gchq-dyslexic-spies-recruited/

 

#152 Retired Boomer - WI on 09.22.14 at 1:37 pm

#114 CROWDED ELEVATORFARTZ

“Hope & Delusion” is somebody buying a $999,000 property at 5% down with YOU the taxpayer ‘guaranteeing’ his mortgage.

This IS a trick question:

1. Who has the hope?

2. Who has the Delusions?

If or WHEN it starts to fall apart who ya gonna blame?

The HAM, or just the PIGS? ….just asking….

#153 Mike S on 09.22.14 at 1:41 pm

Had a nice chat with a young couple here in GTA

Apparently they say Mainland Chinese are “all cash” buyers of real estate here in GTA
Also it is totally OK to bring 0% of your own money
take 5% on credit take 95% loan and roll the CMCH insurance onto the mortgage itself. Best part you don’t even need to plan on repaying it back, just the monthly payments. either the RE goes up and you sell, or it goes down (which can’t happen of course, see the main land Chinese) and you can load more debt, take whatever cash left and declare personal bankruptcy

I wonder how our government still allows this insanity to go on?

#154 Don Sanderson on 09.22.14 at 1:52 pm

On Money Talks show this weekend, Michael Campbell’s guest at http://www.moneytalks.net, he said after September 2015, things are going to get much worse than the 2008-2009 Financial crisis.

We are in for big time financial pain according to Marty Armstrong with the North America being the only one holding us up for now and will bring all of us down.

#155 Nomad on 09.22.14 at 1:58 pm

#141

“So tax the guy who could afford it? … — Garth”

Those who can afford it, the investor types, should be free to invest in commercial real-estate or non real-estate investments. However, I’m pro for keeping their hands off houses and condos. They increase the demand which pushes prices up.

Toronto Builders advertise their projects as an awesome investment and investors have been answering to those mating calls: they buy, rent to my junior coworkers, then sell for a profit that beats the TSX. If it was not a good investment, a “box in the sky” in Toronto would not be priced as high.

Being an investor, I see no end to investment opportunities outside real-estate. Look elsewhere.

The government should do what it can to make buying a house (or condo) as an investment less interesting than buying the TSX. it’s 2014, you can certainly find who owns the property, and tax’em nicely.

It’s not like the country needs residential real-estate investors.

#156 Demolition Doug on 09.22.14 at 2:04 pm

Garth:

I agree that the foreign ownership tax proposal is a loser. I would argue that some scheme be in place to ensure that homes are either occupied or maintained. Too many houses are being left to rot by their owners. I don’t want Vancouver to look like Detroit.

One study indicated that approximately 15% of Vancouver condos are unoccupied. This is troubling from an economic perspective because if folks aren’t living in their overpriced shoeboxes, they aren’t spending money on the consumables that drive the economy. No cars, no clothes, no food, no entertainment. (the unfortunates in their over-leveraged homes have the same problem)

If the restructuring of the housing market wasn’t going to be so scary, it would be entertaining.

#157 Cato the Elder on 09.22.14 at 2:06 pm

#142 coastal

Tax the ones that leave their places looking like a shithole like everyone else should be.

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

What you, and every other government power promoter don’t realize is that the rules you institute to regulate others will eventually be used against you.

Who gets to decide if something looks like a ‘shithole’? Maybe government officials will decide that your house meets that criteria. Maybe that won’t be where the overreach ends, maybe they’ll start demanding your grass be cut a certain height, that trees on your own property can’t be felled, or that you can’t paint your house certain colours…Oh wait…they’re already doing that.

It’s so much easier to devolve into a totalitarian state when the people you’re oppressing are doing your promoting for you. Slavery is freedom.

#158 coastal on 09.22.14 at 2:16 pm

#157, if there are rats running rampant as per last nights National segment, then you don’t think that’s appropriate ? Guess you got your guns and gold all stocked up.

Apparently China’s whiskey consumption is tanking, signs the real estate market in Van city should be tanking as well real soon.

http://www.businessinsider.com/chinas-scotch-indicator-is-signaling-disaster-2014-9

#159 Shawn on 09.22.14 at 2:20 pm

Thinking like a loser

Sorry but I think some of the comments above are indicative of a victim mentality and blaming others instead of working to get ahead.

Ben at number 8 (and seconded Never Give up at 139) said “Rentiers contribute nothing and persecution of all of them should be at the top of the list.” (So owners of buildings and those who lend money that allows the building of infrastructure contribute nothing? really?)

Nancy at 119 figures foreign investors are tax evaders with dirty money… (jealous much?)

Never Give Up at 141 says: You should be in our economy spending 80k a year on food restaurants shopping etc. (So it’s your business what others spend?)

A reasonably good predictor of the future is the following

Winners (continue to) Win, and Losers (continue to) Lose.

If you are not winning the economic game and happen to want to win, start by changing your thinking.

#160 saskatoon on 09.22.14 at 2:40 pm

#157 Cato the Elder

dude…some people despise freedom: both for themselves and others.

these are normally the weakest individuals.

#161 A 604 RSIDENT on 09.22.14 at 2:51 pm

” But they also don’t gum the health care system, take up space on the SkyTrain, drive at 45 kph in the HOV lane or fill the schools with their offspring”

YES THEY DO!

#162 debtified on 09.22.14 at 2:51 pm

After the fourth paragraph I immediately had the urge to quickly skip over to the comments section. It’s predictable. It’s kind of fun (in a masochistic kind of way) watching all these haters blame the HAM for their inability to buy a house or a condo.

There are people who find solace in blaming other people for their misfortune, instead of taking control of their own destiny. These are the same people who buy $50K cars on borrowed money. They are happy to borrow $500K to buy a box in the sky if a bank lends them the money and to pay $2,500 plus maintenance and property taxes for a place they can rent for less than $2,000. They should thank these so-called HAM for preventing them from making such foolish decision and for subsidizing their housing needs.

I never blame people who are better than me or who have more than I have. They simply inspire me to do better.

#163 jess on 09.22.14 at 2:57 pm

Variable Interest Entity (VIE)

July 11, 2014 letter Senator, Bob Casey (D-Pa), issued two letters this year to Mary Jo White, SEC Chair
Casey to SEC: Protect U.S. Investors in Chinese IPOs; Transactions Could Leave U.S. Investors with Few Safeguards If They Invest in Shell Corporations
http://www.casey.senate.gov/newsroom/releases/casey-to-sec-protect-us-investors-in-chinese-ipos-transactions-could-leave-us-investors-with-few-safeguards-if-they-invest-in-shell-corporations

The Senator wrote:

“…American investors in Chinese companies often do not enjoy the same protections and legal guarantees that they are afforded when they invest in American firms. Most Chinese firms that list in the U.S. use a structure known as a variable interest entity (VIE). VIEs are shell companies that give investors contractual claims to a firm’s profits but do not legally grant them ownership of the company. For example, according to Alibaba’s securities filing, Americans who invest in the company will not be buying stakes in Alibaba’s profitable e-commerce business, but in a related Cayman Islands shell company. These structures allow companies to circumvent Chinese regulatory restrictions on foreign investment.”

“More concerning, given the Chinese government’s interest in restricting foreign ownership in certain industries, it is far from clear that the contractual claims underlying VIEs are enforceable. In fact, in recent years Chinese courts and arbitration boards appear to have invalidated VIE contracts and similar arrangements. As a result, VIE structures pose significant risks to American investors accustomed to the idea that shares sold on stock exchanges amount to legally sound ownership stakes in revenue-generating companies.”

read further and for the link to the Alibaba prospectus::
Pam Martens
http://wallstreetonparade.com/

#164 Smoking Man on 09.22.14 at 3:03 pm

Sucks for savers and basement dwellers.
Low rates forever….

Bank of Canada Senior Deputy Governor Carolyn Wilkins said potential output would be lower than in the years leading up to the 2007-09 financial crisis. Global savings and new financial regulations requiring more safe-haven assets would also affect rates.

 

“All told, we think that the neutral rate of interest is lower than it was in the years leading up to the crisis because of these structural developments,” she said in a speech unveiling the bank’s conclusions.

 

It is also possible that a persistent headwind might mean rates have to be lower than the neutral rate even after the output gap has been closed, to keep inflation on target, she said.

 

Wilkins said that in order to narrow the output gap, current policy needs to continue to be stimulative, relative to the neutral rate of 3 percent to 4 percent.

 

“But even with a closed output gap and inflation at target, the policy rate may not be neutral. As long as the factors leaning on growth persist, a policy rate below neutral would be required to maintain inflation sustainably at target,” she said.

http://www.reuters.com/article/2014/09/22/canada-cenbank-idUSL2N0RN17X20140922

#165 bigtown on 09.22.14 at 3:18 pm

In Paris France due to the high level of unoccupied flats there is a tax on VACANT UNITS that are not rented out. For most cities in Canada where the vacancy rate is under 2% taxing unrented vacant units would be a good thing as it would add some inventory.

Since 99% of all new housing units are made FOR SALE especially in Ontario where we have had no new rental housing for decades such a rule would add to the nonexistent rental inventory.

If CHMC would have the same support for rental housing that they have for homeowners builders would be able to afford to construct for the rental market.

#166 Mark on 09.22.14 at 3:30 pm

“Considering the arrears rate for bank-held mortgages in Canada is at 0.29% of gross lending in June 2014 (0.18% in Ontario!), I wouldn’t put the probability very high on a scenario of 8% of CMHC mortgages going 25% bad. Or any of your other scenarios. ”

As another poster pointed out, there hasn’t really been much of a housing downturn yet, so of course arrears aren’t very high. Houses owned by people in financial distress simply get sold, most usually at enough money to cover the note, and such distress doesn’t get recorded as a default.

Now, when houses go into oversupply and prices decline, as we’ve been seeing recently, is where a lot of people start being trapped. Particularly those borrowers at the margin.

As also pointed out, the situation in the USA was that of ultra-low defaults, and excessively low risk premia, *until* prices started declining and overcapacity was exposed. Then default rates exploded. All of CMHC’s USA-based analogues, such as Ambac, PMI, and even Freddie Mae and Freddie Mac, went bankrupt (or required recapitalization) as they were depleted of capital. There is no reason to believe that such won’t occur in Canada in similar circumstances.

#167 CorPockets on 09.22.14 at 3:33 pm

I’m always suspicious of people who look at a criticism and yell “racism.”

And it’s particularly difficult to accept Garth’s point on foreign buyers in Metro Van when he isn’t here to see it in action.

Just because it bothers our sensibilities to to admit/accept/acknowledge it, doesn’t mean we can deny it.

Actually I know Van very well. There is no compelling evidence foreign buyers have elevated the overall price of housing in the city. In certain hoods, for sure. In general, not a chance. — Garth

#168 Victor V on 09.22.14 at 3:38 pm

https://ca.finance.yahoo.com/news/bank-canada-sees-neutral-interest-rate-one-half-165240219–business.html

OTTAWA (Reuters) – Interest rates may have to be about 1-1/2 percentage points lower than they used to be historically to enable the Canadian economy to operate at full capacity, the Bank of Canada said on Monday in a major policy pronouncement.

The central bank estimated that the neutral rate of interest, at which the economy can work at full capacity with stable inflation, is 3 to 4 percent, down from 4-1/2 to 5-1/2 percent in the mid-2000s.

And it is possible that persistent headwinds might mean that rates have to be lower than the neutral rate even after the output gap has been closed, to keep inflation on target.

#169 Cato the Elder on 09.22.14 at 3:41 pm

Re: #164 Smoking Man

It is also possible that a persistent headwind might mean rates have to be lower than the neutral rate even after the output gap has been closed, to keep inflation on target, she said.

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

The government works for the banks. They will cherry pick data in order to ensure that their ‘inflation’ numbers are where they want them to be. Meanwhile, all of us are experiencing year over year increases of 10% on everything we buy.

The worst part about all this is it’s occurring under a ‘Conservative’ government. There’s nothing conservative about this government, they promote deficits, big government spending programs, and foreign interventionism abroad.

When things start to take a turn for the worst, people are going to think the solution lies in BIGGER government than we already have. I fear the democratic mob when the bread and circuses stop.

#170 Son of Ponzi on 09.22.14 at 3:44 pm

# 163
Alibaba and the forty thieves comes to mind.

#171 waiting on the west coast on 09.22.14 at 4:04 pm

The fact that a small proportion of people buy an asset does not make a market. The market is made by the overall expectation and the last buy/sell trade. The vast majority of Vancouverites are deluded into thinking that the merry go round cannot end… They are mistaken.

I read an article in the NY times that went on and on about global cities, etc. In the 80’s, everyone spoke about how Japan would be the next world power and they were buying up vast tracts of US real estate. It turned out that the poor locals were selling out at the peak of the market and the foreign investors were burned.

My point is Vancouverites don’t have to buy to support the price level. If they do, they have decided that the 25 year horizon of risk is worth the upside. I personally do not. But let’s not blame shifting foundations on boogeymen.

For a fun read, check out item #4 on this guys best trades ever (not entering the crazy home market in LA in miss-2000s). The rest of the article is good to.

http://bclund.com/2011/11/10/the-5-monster-trades-of-my-life-2/

#172 Nomad on 09.22.14 at 4:20 pm

BNN interview with analyst from Citigroup.

The guy says that chinese money is buyer Vancouver house for vacations or parking cash.

I don’t know if he’s right and certainly analysts are often wrong (or have an incentive to sell an idea) but I’m more inclined to listen to him rather than myself or to the rest of us who don’t work in that industry.

It’s consistent with Montreal house prices. Chinese money isn’t making it there but it’s not a good place for them to buy. Not for vacations.

http://www.bnn.ca/News/2014/9/22/No-fear-of-housing-bubble-CMHC.aspx

I’m teaching my newborn french. The best investment you can give your kid. He’ll be able to afford something good, in 25 years. Good luck to kids in Vancouver and Toronto.

#173 Smoking Man on 09.22.14 at 4:23 pm

#169 Cato the Elder on 09.22.14 at 3:41 pm

Inflation is a trick word, takes a hard core dyslexic to figure it out.

Inflation to the herd is when prices go up.
Inflation to Central banks is when we have wage gains.

I’ve been calling on here for a long time, central banks want wage gains, they will get them with stimulus.

There previous policy model was to efficient at keeping wages low.. They have finally recognized this imbalance and are doing there best to rebalanced.

It’s called inflate the debt away….

#174 Retired Boomer - WI on 09.22.14 at 4:35 pm

#173 Smoking Man

Consider ‘Inflation’ to be when your currency loses value.

It takes MORE of it to buy crap……

It takes the same amount of it to pay off old debt…

YOU want to borrow more? OK, but we need to charge you MORE interest because your currency is worth less…

#175 leafsfaninyvr on 09.22.14 at 4:50 pm

Not exactly, according to the BoC.

http://money.ca.msn.com/investing/news/cbc-news/dollar-drops-after-bank-of-canada-deputy-says-economy-still-needs-stimulus-1

#176 Mark on 09.22.14 at 5:03 pm

“Meanwhile, all of us are experiencing year over year increases of 10% on everything we buy.”

Not true. Practically everything I buy on a regular basis is down from even 2008 levels. Food. Gas/Petrol. Natural gas. Transportation (ie: airfares). I’d be hard pressed to come up with anything that has meaningfully gone up in the past 6-7 years. And the profits of the TSX haven’t really accelerated either from levels of 2007-2008 (ie: around 700-900 for the TSX composite!).

Not sure how this equates to 10%/annum inflation, unless your math is just horrifically bad. And if inflation was really 10%, we would have faced bank runs a long time ago from the minimal interest banking we have today.

#177 Mark on 09.22.14 at 5:04 pm

“Not exactly, according to the BoC. “

Of course. Canada’s private sector’s growth over the past decade, ex-FIRE, ex-Oil and gas, has been comatose. And as houses continue to go down in price, there will be very little mood for most investment in them. So policy rates need to remain low for a long time to revive the rest of the private sector.

This doesn’t mean that retail rates on increasingly risky asset classes such as RE won’t climb. They will, in response to an escalation of risk.

#178 Setting the Record Straight on 09.22.14 at 5:47 pm

“So many xenophobes…. scary stuff.”

No doubt back in the day a Chief was saying to a brave …you’re such a xenophobe…..

#179 Setting the Record Straight on 09.22.14 at 5:52 pm

“Rentiers contribute nothing and persecution of all of them should be at the top of the list.”

Careful what you wish for …. some people think think dividends are unearned income and persecuting capitalists would be just fine and dandy.

#180 Kenchie on 09.22.14 at 6:41 pm

#131 Casual Observer on 09.22.14 at 11:28 am

“#98 Kenchie on 09.22.14 at 12:19 am

“Considering the arrears rate for bank-held mortgages in Canada is at 0.29% of gross lending in June 2014 (0.18% in Ontario!), I wouldn’t put the probability very high on a scenario of 8% of CMHC mortgages going 25% bad.”

Some think that CMHC is rock solid because arrears have been low for the last few years. Considering we’ve had a decade long housing boom, would you expect something different.

It’s also been mentioned that CMHC’s average LTV is not extreme, but people forget that the high LTV mortgages are the ones that usually default. Borrowers with low LTV can just sell and pay off the mortgage….”

Very interesting link. Thanks for sharing. Although it doesn’t strike me as being unbiased…

I don’t disagree with the idea that those who need CMHC are higher risks when they start their mortgages. But what I would like to see is their average amortization term left per THM. That would be useful in determining whether they are still LTV or not. For example, if a CMHC mortgage that was issued in 1999 for 25-years is now only a 10-year mortgage, that’s not what anyone would consider high risk anymore despite it still being a CMHC mortgage.

#181 Kenchie on 09.22.14 at 6:53 pm

#137 Sheane Wallace on 09.22.14 at 12:15 pm

“#100P-GizzleG

#87Kenchie

Have any of you ever worked in the Insurance business?
I would advise on getting first at least 10 years experience in any aspect of insurance preferably underwriting; then start expressing opinions about it.
CHMC has nothing to do with insurance. There is no equivalent of CMHC anywhere in the world. Government should not be in the Business of insuring mortgages….”

Sheane, less ideologue please…

What you just wrote flies in the face of examples in Ireland, the UK, Germany and Spain, among others. Please look up National Asset Management Agency, Deutsche Pfandbrief Bank and SAREB before commenting about how great it would be if we didn’t have the CMHC. The UK took a different strategy with the bad loans on their banks’ balance sheet. RBS and Lloyds had bad bank loans sold off to private equity firms.

If we didn’t have the CMHC doing what it does, the mortgage market would have crashed in Canada just like our southern neighbour and those fools across the Pond. The FDIC didn’t do anything to stop the convulsions and failure of American banks. The UK equivalent didn’t do much either.

#182 crowdedelevatorfartz on 09.22.14 at 7:31 pm

@#152 Retired Boomer-WI

My delusions run rampant with the hope that, sooner rather than later, interest rates will rise and end the foolish, relentless rise that the Vancouver housing market has been on.

8% 5 year mortagages

THAT will be my utopia.

#183 Kenchie on 09.22.14 at 7:32 pm

#166 Mark on 09.22.14 at 3:30 pm

“As another poster pointed out, there hasn’t really been much of a housing downturn yet, so of course arrears aren’t very high. Houses owned by people in financial distress simply get sold, most usually at enough money to cover the note, and such distress doesn’t get recorded as a default.”

So why would you use such an outrageous example of 2% needing to lose 100% of their value? Or the others. Is that what happened in the late ’80s and early ’90s?

And

“Now, when houses go into oversupply and prices decline, as we’ve been seeing recently, is where a lot of people start being trapped. Particularly those borrowers at the margin.”

I agree that the risk to the market is on the peripherals of major markets (not dt TO or Van) and in the condo market. And that would mimic the experience of the US. However, the oversupply is not nearly as drastic as the worst hit cities in the US. You won’t find whole subdivisions Vaughan abandoned and taken over by black bears…

And

“As also pointed out, the situation in the USA was that of ultra-low defaults, and excessively low risk premia, *until* prices started declining and overcapacity was exposed. Then default rates exploded.”

American lending practices are not anything like they are in Canada. So don’t expect and “explosion”.

And

“All of CMHC’s USA-based analogues, such as Ambac, PMI, and even Freddie Mae and Freddie Mac, went bankrupt (or required recapitalization) as they were depleted of capital. There is no reason to believe that such won’t occur in Canada in similar circumstances.”

While we can’t rule out the idea that the CMHC capital would be depleted, it’s the US housing agencies went bankrupt because US institutions failed at their basic job of risk management (i.e. overexposure to TRUE subprime mortgages and not understanding the systematic risks of too many MBSs). It was a true glass house. And even after recapitalizing them, the US gov’t now makes copious amounts of profit from them:

http://www.latimes.com/business/la-fi-fannie-freddie-earns-20140807-story.html

The greatest mistake the US did was to semi-privatize Freddie and Fannie, which the profit-motive led to excessive and risky lending (moral hazard) but “grave risk” (as you put it) to the taxpayers. This is not a problem Canada has to deal with. So comparing CMHC to the American institutions is not comparing apples to apples.

#184 Casual Observer on 09.22.14 at 8:18 pm

Very interesting link. Thanks for sharing. Although it doesn’t strike me as being unbiased…

How is it biased? It’s not like it was written by a Real Estate firm, a mortgage lender, or a mortgage insurance underwriter.

It was written by an investment management firm that specializes in corporate bond portfolios, and was based on their own independent research.

They are obviously expressing an opinion based on their findings, but I don’t see how the report was biased.

#185 Ben on 09.22.14 at 9:32 pm

Taxing possessions rather than income is feudal. — Garth

Garth I think you are so wrong on this. Land is not the same as other possessions. What we have now in the UK *is* feudal. Young people cannot attain financial freedom due to land costs and so instead rent forever. In fact it’s worse than feudal as the land lord had certain responsibilities for sick tenants. Today in London when the tenant of 20 years gets sick the land lord gives them 2 months notice and gets a new serf.

Without land one cannot create wealth. Forcing the next generation to work for decades just to own a few square metres of land that the preceding generation bought for a song is wrong. Older people get a slice of the pie and so do the banks. Then next generation when all house prices are high nobody wins but the banks.

Garth go read some Henry George. You’ve already shown you haven’t understood land / credit issues deeply or you would never have agreed to the disastrous policy changes that enslave the Canadian youth today. Have a read and think again.

#186 Ben on 09.22.14 at 9:36 pm

Never give up – http://www.econlib.org/library/Enc/bios/George.html

Every post I read from Shawn I just see ignorance and greed overlapping. Rentiers spend the money on the *land* Shawn. Without land speculation it would be far cheaper and the cost of putting a house on that land is trivial. That’s what the whole post was about today. The land was bought for $2MM not the house. And credit drives the price of the land.

The unfortunate thing is that “winners” on this speculative madness think they are smart, when in fact they don’t understand they are used by the govt to boost the money supply. Many of them will be the title of this site, the “greater fool”.

#187 Ben on 09.22.14 at 9:43 pm

“If you are not winning the economic game and happen to want to win, start by changing your thinking.”

If we all play like this everybody looses. It’s not a game. Many people are out there doing real jobs that add value with actual stuff you can touch instead of playing the fiat money game by leveraging up on debt, waiting for the govt to let the banks lend even more and then watching assets appreciate.

Or as Henry George observed – go buy land where you hope the govt will build infrastructure paid from taxes on labour, and then sit. You may idle as you like. Then later watch the value of your land appreciate by far more than you could ever have added to the common wealth through your labour.

The increased leverage of the banks that caused the 2008 crash sets the price of housing as loan terms go up, rates go down and multiples go up – right Garth? But only until you hit the zero bound.

At some point work might pay again for your kids instead of having to advise them to be a scumbag speculator who adds nothing to society, only takes by making the working man pay more for the same pile of bricks even though efficiency is way up and building a house costs less in real terms than ever (except the land).

Until then we have to choose – be a speculator or don’t exploit others. Some are happily too dumb to comprehend this and think they are “winners”. Good luck to them, I’d rather be awake.

#188 Ben on 09.22.14 at 9:51 pm

Hey Garth thanks for accepting all those long posts, you are a gent.

If you or anyone else is interested about land value tax rather than labour tax (as if land were taxed you wouldn’t be taxed on your work):

http://www.amazon.com/Progress-Poverty-Industrial-Depressions-Increase/dp/0911312587/ref=sr_1_1?s=books&ie=UTF8&qid=1411436822&sr=1-1&keywords=progress+and+poverty

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

Really if you were young you’d see it as serfdom Garth. And the only way anyone older has out of it is to join the landlord game (the original name of Monopoly btw) and exploit your peers’ labour. Sad indeed. Hopefully times will change.

ps Scotland now has a rift between old and young as the olds voted to keep their high house prices and unfunded pension bribes. But it’s out the bag now and there is tension. This is a portal into your future Canada – heed it and see all wealth rise, ignore it, make zero sum games pay and keep wealth creation a mug’s game and reap the whirlwind. Good luck!

#189 Kenchie on 09.23.14 at 9:56 am

More evidence of the future economic and political war between boomers and Gen Y… Could the next federal election be the official start of the political front of the war?

http://www.theglobeandmail.com/report-on-business/economy/canada-narrows-gender-income-gap-as-generational-divide-grows/article20732086/#dashboard/follows/

#190 chet sanders on 09.23.14 at 11:21 am

Regarding this HAM business, back in ’84, the same kind of thing happened, when the Muppets took Manhattan.

#191 Doug in London on 09.23.14 at 3:06 pm

Further to my comment, post #136, it looks like the drop in the TSX has stopped. Damn, I was hoping for some good sales to come along!