Entries from January 2016 ↓

Of debt & data

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For a mortgage broker, a guy who scratches out a living giving money to house-lusty GTA couples, Damian is a skeptic.

“I’ve had clients in the last couple weeks come in looking for additional financing,” he says. “It seems ‘shadow lending’ is more prevalent now-a-days and people are trying to pay these awful loans out before their renewal period… If people are borrowing from these lenders at 12% and also have an 80% mortgage with a credit union or maybe a bank if they’re lucky, wouldn’t this be considered sub-prime?”

You bet. And it’s a far more common practice than most people think. With the average detached 416 shack now at $1.047 million, and no CMHC insurance available, buyers have to cough up a 20% down payment, plus finance the double land transfer tax. On a modest $1.5 million house, it means showing up with $352,000 in cash, then taking on a $1.2 million mortgage. If you lack that in your chequing account, there are brokers who will happily lend you the missing hunk of the down. Yes, at double-digit rates of interest. And, yeah, it’s prime Canadian subprime.

Debt’s a disease now out of control in our midst. In fact, Damian’s mom is a good example. “She’s 66, got laid off in the summer, not enough money to live on, and has a townhouse in Vaughan worth roughly $700,000,” he says, “with a mortgage. I’ve talked to her about selling and renting, to max out on this crazed market. I know what you’re thinking. Good luck trying to predict the peak. But if I’m advising her, I don’t want to be the guy that convinces her to sell at 700k and prices soar to 800k… I have enough brothers and sisters that I won’t hear the end of it.”

Adds the broker: “But I just feel when people in the GTA run for the door, they’ll run for it faster than they got in.”

Nowhere are the dangers of the one-asset strategy most Canadians have adopted more acute than on the coast. All real estate is local, and in BC its obsession has produced the only negative savings rate in Canada, as locals routinely spend more than they earn, making up the difference with debt, delusion and basement suites. The average house in Metro Van, as a result, costs $1.248 million and increased 23% last year. The average detached in the city is $2.5 million. The mega-lending credit union Vancity helps facilitate this with a palate of mortgages you won’t see anywhere else – dishing out loans to unrelated buyers of a single property, financing sketchy laneway houses, or gifting the self-employed who have no proof of income, plus enabling first-time buyers without savings.

As prices detach from the economy and local incomes, people look to cast blame. While an intoxicating mix of cheap rates and rank speculation has led to the embrace of debt and an obsession with houses, the social consequences turn ugly. The young feel shut out and blame the old. Long-time residents watch their hoods fall victim to speculation and excess. Old stockers decry foreign buyers, blaming them for idiot prices while they relish in the wealth effect they bring. And so Vancouver morphs from a hip and livable city into a giant cauldron of listings, simmered in greed and anti-Chinese.

Politicians are feeling the heat. And succumbing. The federal Libs say they’ll be collecting and analyzing the data on foreign buyers – everyone’s favorite straw men. The provincial government is now playing along, issuing a request for proposals on a “Foreign Investment Research Initiative” which may report in six months. The mandate: “Examine key factors affecting prices for new and resale homes in B.C.; impact of foreign home ownership on home prices, with a particular focus on the Lower Mainland; what sources of data are needed to measure the extent of foreign home ownership and price impacts; to what extent other jurisdictions are experiencing impacts from foreign home ownership, and what measures they are taking.”

What will it find?

Not much, muse the premier and the BC Real Estate Association – which has been providing politicians (secretly) with data over the last five years. Christy Clark is on record as saying most real estate deals in YVR are local-to-local, while her government claims: “There is a perception that foreign investors and speculators are driving an affordability crisis in residential real estate — particularly in Greater Vancouver. The data we have does not support this perception.” Meanwhile the realtors say their numbers show “less than 5%” of buyers are non-residents.

Well, let’s wait and see. The report might confirm that rich dudes escaping from mainland China are destroying Vancouver, or it could prove human greed and mania are fomenting a destructive racist envy.

Meanwhile there’s hard data from the closest major market. Victoria ain’t Vancouver, but it’s not Winnipeg, either. Here’s what an internal report from the local real estate board shows. Apparently everybody dreams of living in that lovely burg. But they’re not.




Nutso nation

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The beater house below was listed this week for $2.3 million in Vancouver – in a nice hood, of course, but seriously…

Here’s us how realtor Andrea Kavanagh is flogging it:

Prime Point Grey location. This property is set mid block with mountains view. Quiet & private, 33×122′ property, cherry blossom tree lined street, 1/2 storey home with some improvements & a self contained basement suite. Excellent location within walking distance to Lord Byng Secondary, Jules Quesnel, Queen Elizabeth Elementary, West Point Grey Academy & 10th Avenue shops. Pacific Spirit Park & UBC also close by.

The house has 800 feet on the main level and 500 upstairs. No parking. Built in 1930, frame construction. The mold is free. And the basement suite is “unauthorized.” But it does have some features: “Clothes Washer/Dryer/Fridge/Stove/DW.” So, obviously it’s a tear-down, which begs the question of why any rich person would spend more than two million bucks to get a lot that’s a mere 33 feet across? How are you supposed to build a look-at-me mansion on that?

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“I’m a realtor in Vancouver on maternity leave,” says Nancy. “I don’t want to speak ill of my chosen industry but this kind of thing is just funny when you look at the state of the property and the price tag attached and then think, where are all of the young families going to live? I’m sure it will sell in a few days for more than the asking price.”

So gander back at the map posted here yesterday. The old $1 million dividing line between West (nice) and East (the poor people) has recently become a $2 million demarcation. And there’s no more poignant example in Canada of what house horniness will do to an entire region than this.

The big story is not stupidity in Point Grey or the Westside in general, but the ascent of prices well past the seven-figure mark in all parts of YVR. Supremely ugly, mass-produced, four-decade-old ‘Vancouver Specials’ routinely fetch over a million – which is why BC residents have (on average) a negative savings rate, epic debt levels and are forced to suffer basements full of pasty, rent-paying strangers.

We shouldn’t be surprised more BCers are now tuning to payday loans, according to a new study by Vancity (which is part of the problem). Those lining up to get advances with usurious rates are said to be more highly educated, employed and using this emergency cash to pay for food and utility bills – life’s essentials. The increase in the use of loan sharks is up 58%, and half of those folks say they need the cash for “essentials.” Of course, no readers of this pathetic blog have been spotted.

This is what happens when real estate turns from desire, to cult, to dependency and disease. The advice stands. You are a fool to buy in. A genius to sell out.

By the way, the shack above is open for inspection Tuesday at 10 am. Don’t forget your chequebook.

$ $ $

Well, this was inevitable.

Two months ago T2 gave a mandate letter to Poor Bill Morneau, the finance guy, asking him to make this a priority: “ensuring that Canadian-Controlled Private Corporation (CCPC) status is not used to reduce personal income tax obligations for high-income earners.” This means when the budget arrives (I’m hearing March 22) you can expect an attack on small businesses aimed at trying to turn entrepreneurs into employees. It’s likely that things like income-splitting with family members will be targeted and the tax rate raised on investment capital left within a corp. This will be the second assault on higher income-earners who operate through corporations, the first being the creation of a special soak-the-rich tax bracket which itself has prompted a new love affair with accountants and tax avoidance guides.

Anyway, it’s open season now on doctors. Of the meagre ranks of 260,000 high-income earners in Canada (over $220,000) roughly a third are medical people, and a big whack of them have professional corporations. Many also have employees, significant expenses and no pensions. And lots are mobile – now eying a less hostile tax environment south of the border.

The Canadian Medical Association is pissed, as you might imagine. Through it, the docs are lobbying Morneau not to be a knob and treat them the same as other, more worthless, wealthy people like financial advisors.

“As small business owners, physicians have responsibilities such as pay and benefits for employees, as well as our own pension and health benefits,” says the CMA to its members this week. “Unlike most small business owners, however, we do not have the ability to pass on increased costs of business such as changes to the tax framework governing our practices. It would be critical therefore, that any changes considered by the federal government also contemplate the implications on those who rely on these instruments to operate their businesses and plan their careers and retirements.”

As we already know, the T2 crew’s extra taxes on the successful will not cover the lost revenue on an $8-per-week tax cut for five million other people. This will cost everyone an extra $1.4 billion in deficit financing (today’s deficits are tomorrow’s taxes, after all). Likewise, hoovering a few thousand medical people at a time when new residents in many communities (like mine) have zero access to a family physician seems, ah, dumb. It costs taxpayers over $300,000 to educate a single MD.

What’s the goal? Keeping docs, or class warfare? Rhetorical question. They’ve already chosen.