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Fitch: Canadian House Prices 20% Overvalued

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20%? More like 100%, but at least the dumbasses at Fitch have identified a bubble this time round.


Canada’s Magnificent Housing Bubble at Risk, Fitch Says
by Wolf Richter

July 16, 2014

Ratings agency Fitch, which is in the business of slapping high-grade ratings on iffy bonds so that they can be sold to conservative pension funds around the world, and which is not in the business of considering entire asset classes overvalued, nevertheless considers the Canadian housing market “20% overvalued in real terms.”

And that in a world where nearly all asset classes are overvalued! Natixis, the asset management and investment banking division of Groupe BPCE, the second largest bank in France, grappled with that issue and came out predicting the likelihood of another financial panic [ What Happens When ‘All Assets Have Become Too Expensive?’].

But not in the Canadian housing market. To come up with the conclusion in its report, Fitch didn’t look at an obvious chart, like the one below, or at other obvious measures, but at its own “sustainable home price model, which measures home prices relative to long-term fundamentals.” If it had looked at the chart below, it wouldn’t have come up with 20% but with a number closer to 100%.

Home-price bubbles are a risky business: “High household debt relative to disposable income has made the market more susceptible to market stresses like unemployment or interest rate increases,” Fitch pointed out. In the third quarter, the household debt to disposable income ratio hit a record of 164.1%, though it has inched down a smidgen since then. And unemployment “will likely” remain stuck in “its current 7% range.”

So what’s propping up the market? Low interest rates. Alas, Fitch worries that “rising interest rates could pressure the market more than others given high borrower leverage and the short-term structure of Canadian mortgages.”

Solution? Not raising interest rates, obviously. Not ever. Because that would ***** the bubble and lead to a long, violent hiss as the hot air dissipates. Instead, the federal government should step in with additional regulations to cool down the market. Which it has already done, including shortening amortization periods to 25 years from 40 years and tightening the eligibility for government-backed mortgage insurance.

In this manner, Fitch said, the government should try to “engineer a soft landing.”


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Read their new Governor going on about soft landings the other day, after dreadful export data, and other article about a mystery where $50bn of previous exports are no longer going.

Canada's top house price (crash) blogger entries (flavour below) just get me ever more angry. The prices are extreme. I'm not buying anything Canadian, in order to try and help their younger people - well those who aren't trying to get as much debt as possible to live the dream.

The condo economy

July 15th, 2014

The guy across the street was home for, I guess, three months. As Bandit irrigated his bush the other night, he mentioned he was working again. Doing what, I asked? “Commercial wiring,” he said, “big new condo. Like fifty floors.”

I said I was happy for him. I was. Been out of work a few times, too. So, last month 32,000 more construction jobs like his popped up. Even as the economy as a whole shed almost ten thousand positions, a new army of roofers, drywallers, formers, carpenters and electricians suited up. The unemployment rate swelled, Ontario’s manufacturing base shrank, but the cranes and condos kept rising.

..So, is it any wonder the average Canadian house is 60% more expensive than the average American one? Or mortgage debt is now $1.1 trillion? Or that our personal savings rate is in the ditch?

.. And now along comes US rating agency, Fitch, which has just given us a special designation: Screwed ++.


July 13th, 2014

..And last week, as I reported, Morningstar equity analyst Dan Werner has this stunning news for us: while all these new homeowners have been unable to repay their RRSP withdrawals, our mortgage debt profile has come to mirror that of the US just before its devastating real estate plop. Today 23% of Canadians have financing of 80% or more on their houses. At the height of the American housing bubble, it was only 22%.


July 1st, 2014

I realize this is hard to believe. But sometimes realtors lie. Real estate boards revise statistics when they think nobody’s looking. Big outfits like Re/Max and Royal LePage publish ‘reports’ with zero methodology. Agents routinely relist pooched houses so they hit the market as fresh. And the most brazen house-floggers even try to dupe the media. Which is none too hard.

A famous case is rattling the industry in Vancouver (you can read all about it on the Whispers blog). Of course. Where else? The dorks who run MAC Marketing, a bunch of vigilantes usually hired to flog condo developments, outdid themselves during the Chinese New Year last year when network TV cameras were invited to the grand opening of a new building called Maddox.

Two comely babes were introduced to the gullible reporters as sisters who were shopping for condos which their wealthy parents from Mainland China would soon be buying for them. It was perfect. It hit all the buttons. Hot Asian Money. Giggly girls buying real estate like pots of liquid lip liner. Foreigners pushing out the locals. Endless gobs of offshore money promising ever-higher prices. And, of course, a sexy hot building destined to brim with monied pulchritude.

Below are the “sisters.”


The news items went to air. A breathlessly horny city lapped it up. And, in the afterglow, it was all proven to be fake. There were no Chinese condo-snorfling sisters and no rich parents. Just two MAC Marketing employees pretending to be buyers, and another employee pretending to sell them units.

Buried in complaints, the Real Estate Commission of BC was ultimately forced to look into the event. The outcome was never in question. It was marketing fraud. Somebody’s orifices had to run red. And the unlucky guy turned out to be Nic Jensen, who was managing the condo presentation centre that day. His penalty: no selling real estate for two weeks, and a $1,200 fine.

..Now, look at the picture below, published here some days ago:


Those people are at a sales presentation centre for new houses north of Toronto, with some of them spending well over $1 million, and doing it in an average time of about 15 minutes. Closing the sales – which are legally binding, firm and require on-the-spot deposits – are sales associates who may or may not be trained, licensed, regulated or even registered. Do you think the buyers realize that?

Of course, we all know people who flock to a developer’s pre-construction event to buy imaginary real estate from fuzzy drawings and compete to have red dots put on a board are fools. But now we know more. It’s all fake. Except the regret.

Fear factor

June 9th, 2014

They swarmed the sales centre. The best guess seemed to be 300 when the doors opened. A few hours later only one third of the crowd had been processed. But that was enough. Oakford was sold out.

This is a new development of 48 homes in the GTA’s distant Markham, near Buttonville airport, slated to become a giant subdivision of singles, semis and condos. There are no houses built here, and the soonest anyone might move in would be next winter. But despite the fact there’s nothing much to see, save maps and brochures, house horniness ruled. It was a blizzard of offers and cheques.

When it was all done, lusty buyers had spent an average of $1.3 million in an average of 16 minutes. It takes longer than that to buy a bag of Stanfields at The Bay. “Everyone in the lineup knew there was a limited supply,” says an industry insider. “The mentality was clear. Buy immediately, or lose out.” And buy, they did.

But this was just a taste of happened a few clicks to the north this past weekend.

The marketing for Aurora Trails has been relentless, pounding, masterful and deliberate. “It’s not a lottery,” says the insider. “but it sure feels that way. There’s the fear of loss, the engineered lineups, first-come, first-served, restricted availability and the intense competition.”

Once again, they came – baited, hooked and landed. Desperate to sign up for a new house even in a project where hundreds of them will be available. And not cheap. Detached homes on 38-foot lots, 50 km from downtown Toronto on some of the nation’s most constipated highways, from the $700,000s. Add five more feet of dirt, and prices start at $100,000 more.

Here’s what it looked like:



But this was a competition just to attend a preview. To actually buy involved another race – clicking on a site at precisely 6 pm Sunday evening in order to secure an appointment to acquire an unbuilt home. The rules were crystal:

Sunday June 8th at 6 p.m at

Bank pre-approval info
Personal cheque book (minimum 5 cheques)
Photo ID (i.e. drivers license or passport)
Lot availability and all program details and pricing are subject to change without notice.

...To normal people, it’s mania. This is 1999 and Nortel all over again. It’s the desperation to buy Bre-X in 1995. The obsession over an ounce of gold in 2011. Houses in Florida or Vegas in 2004. It’s Tickle-me-Elmo, pet rocks and Backstreet Boys all rolled up together.

It’s not so much that these people are nuts, but that they represent the mainstream belief real estate, even secured with deep debt and bought in extreme haste, is utterly safe. That they were manipulated and goaded is moot. That this is now common is terrifying.

You know how it ends.

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It constantly amazes me how the Chinese manage to be buying property all over the world despite their countries supposed strict restrictions of currency movements.

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It constantly amazes me how the Chinese manage to be buying property all over the world despite their countries supposed strict restrictions of currency movements.

CCTV said Bank of China Ltd. was among lenders that circumvented the foreign-exchange regulations. Customers at the country’s fourth-largest lender by market value can convert unlimited amounts of yuan into other currencies through a product called “Youhuitong"

....Youhuitong targets customers who wish to invest in or migrate to North America, Australia and some European countries, CCTV said, referring to documents shown by unidentified Bank of China employees.


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