Demographicman will save the day in Toronto

I would have said that you could recognize Demographicman by his red cape with a chart printed on it, but there aren't any charts in this article.

Demographics make big city condos hot

Housing starts in April (expected to have lost some activity to a warm March) were a surprise 244k, 40k higher than estimates.
Average house prices in Canada are 84% higher than in the U.S. (that is on lower average post-tax income, btw)
Multifamily unit starts are up 27% year on year.

So clearly it doesn't take a statistics degree to read the numbers and unequivocally declare the Canadian housing market is overheated and in particular, the condo market, right? Wrong.

You can trust these guys to never disappoint.

First off, CMHC's recently released annual report stated: "Clear evidence of a bubble is lacking [and we] continue to monitor very closely housing prices and underlying factors such as demographic and economic fundamentals and financial conditions across all major urban centers, including condominium markets."

All of the above, plus household debt, plus mortgage debt, plus recent gains in price far in excess of GDP or personal income are, of course, not evidence of anything.

And what are those demographics that will absorb tens of thousands of excess condo inventory, just this year? (Oh, he didn't say the rescue was this year, just in "the coming years")

Retiring Boomers will move into condos
Every new immigrant (despite much lower salary and higher unemployment) will RENT condos (apparently below carrying costs because otherwise, wouldn't it be cheaper to buy?)
And young people will flock downtown to work and form families (apparently happy with 600sqft to do it in).

There. See. You bears are so wrong about condos in Toronto.

Therefore, my feeling is that big city condo values will continue to rise in general and that house prices in some urban areas will fall as a broad trend, with average home prices across the country potentially flat in the years to come.

Your "feelings"? Seriously? Also, "soft landing" is the term you are avoiding here for some reason.

High Inventory in Australia

The Slow Death of Australian House Prices

The rate cuts in November and then December were supposed to save Australian house prices.

Yet less than six months later, recent economic data suggest things are getting worse.

Aren't banks there claiming they are having funding problems? (Evidence of which is reportedly scarce, but nonetheless, it would explain the lack of stimulative response in the market.)

But ever the optimist, RP Data called this decline in April a ‘renewed softness’.

According to the RP Data Report transactions are steady at 31,000 a month, but that is down from 45,000 in 2009. Correspondingly, inventory is high, 2x what it was in 2007. Now, population grows about 1.4% per year, so over a little of that is natural growth. But the upswing in hopeful sellers from the GFC never quite got out of the market, and now we have another upswing in hopefuls for the market to try and digest.

Via MoneyMorning.com.au

Quick back of the envelope MOI would be just under 10 months of inventory (MOI), a highly contractive number. (Balance is considered to be 6.5 or so.)

Comparing Canada's CMHC to the U.S. Fannie/Freddie

At the bursting of the U.S. housing bubble in 2006 Fannie/Freddie had $4.3 Trillion in mortgages held or securitized. GDP of the U.S. that year was $13.1 Trillion, for a ratio of GSE holdings/GDP of 33%.

North of the border is Canada where CMHC is bumping up against $600 Billion on mortgages ($540 as of Q3 2011). GDP last year was $1.75 Trillion, for a ratio between 31%-34%.

Those look pretty comparable. Scary comparable.

Fannie/Freddie have used between $190 and $641 Billion in bailout money (depending on how you want to measure it). They just booked a profit of $2.7 Billion this last quarter and Freddie a profit of $577 Million. Only 6 years after the crash began.

By the way, the reason it is hard to measure the bailout is the treasury bought the mortgage securities off of the GSE's books, but they didn't turn out to have zero value. Hence the discrepancy.

Where was I? Oh yeah, those two liabilities look awfully, frighteningly similar. If we assume the same ratio of losses (and given the other stark similarities of: total growth in house prices, consumer debt load, total growth in mortgage debt, this isn't a stretch) That would be $415 Billion (averaging the bailout range) in losses out of $4.3 Trillion in mortgages or 10%. So perhaps CMHC is looking at needing a $56 Billion bailout by the time the market reaches bottom.

A few other things. A lot of Canadian newspapers (especially!) but analysts too, oversimplify what happened in the U.S., to the point of misleading. So, some points I'd like to make here, because they become relevant, post-crash:

1) Fannie and Freddie were not the primary cause of the market bubble in the U.S. The Private Market was. Try on this chart from this UNC report

You will note that Fannie/Freddie were actually blocked from issuing many kinds of mortgages. They dropped significantly out of the market just as the bubble was taking hold. Private Issue Subprime took off. That is your market destroyer, price bubbler, evil dark lord of financial nightmares.

Another view of the same data by total amount, not just percent of market share.

Finally, who was issuing the crap, really? Turns out Fannie/Freddie were not allowed to deal in subprime, although because the executives in this frankensteinian, half privatized, half nudge-nudge wink-wink taxpayer backed monstrosity were losing out on insanely fat bonuses their banking buddies were all getting and were having a serious sad about that, they DID weaken their requirements and started accepting NEAR-prime in an attempt to compete with the insanity.

[That is another thing, the role of executive compensation in the bubble has never been addressed, which is a tragedy. It was a huge factor in the short term thinking of all parties involved in finance, from the heads of the GSEs right down to the loan brokers.]

But back to the garbage, er, delinquency rates. Massive trouble on all scales. But notice the bottom blue line. That is Fannie/Freddie's Overall Book. It barely topped 5% deliquency. Which is horrible! No doubt about it. But it is peanuts compared to Wall Street's fraud machine, which cranked out enough garbage to hit 30% with their subprime issuance. Even their Prime issuance is worse than Fannie/Freddie's overall book.

Back to the topic. Cast your eyes back to the first graph. Notice what happened to the two pink lines after the crash. THAT my friends is why CMHC will not die. It is going to prop up the market, it will BE the market, when everything private label is frozen. Yeah, irony is long dead.

Toronto Condo Prices Peaked in September/October 2011

Toronto Condo Median Prices from TREB

Condos in the TREB area are down 1% from the peak (still, but just barely) or $2500
Condos in Toronto City are down 1.5% from the peak or $5100
Condos in Toronto Central are down 4.4% or a loss of $17,000, which is enough to put a 5% down buyer well underwater not including transaction costs.

Currently about 3 months of inventory.

Including transaction costs, all recent buyers with minimum downpayments will need to bring a check to sell.

Condos are more like cars than houses. When the manufacturers are regularly turning out new cars/condos, there is no reason to go to the used car/condo lot to spend more money. Anyone wandering into the used car/condo lot is going to expect a discount.

data from: TREB Market Watch

Australia March Quarter ABS House Price Index Charts

ABS Australian Established House Price Index Chart

Below is the Year over Year change in price. Sydney's downturn appears to have taken full hold.

ABS Australian House Price Change Chart

CMHC contemplated selling mortgage insurance business

You know these guys have to have the data about what's to come. I just can't believe they are sailing along the way the appear to from the outside. CMHC considered selling mortgage insurer as housing bubble fears grew

The board of Canada Mortgage & Housing Corp. considered selling the home loan insurer last year, according to former Chairman Dino Chiesa, who’s term ended in March. CMHC, set up in 1946 to promote home ownership, also studied the sale of Australia’s government-owned insurer and presented the findings to the Bank of Canada, according to documents released to Bloomberg News under Canada’s Access to Information Act.

CMHC analyzed Australia’s housing finance system, where the government-owned mortgage insurer was sold to the private sector in 1997. Since the 2008 credit crunch, Australian homeowners pay “relatively higher margins on their mortgages than do Canadians; the lending industry has become more concentrated and less competitive,” according to the documents obtained by Bloomberg News, which show the analysis was presented to Bank of Canada officials last June.

West-Side Realtor: 90% foreign buyers last year now 10% of market

Sky-high housing prices in Vancouver’s west side short-lived

“Banks are now requiring borrowers to disclose incomes and assets before mortgages are approved, as of the last six weeks,” said west-side realtor Marty Pospischil, who specializes in selling single-family homes owned by long-term residents. Last year, he says 90 per cent of his 100 house sales were to “offshore buyers” – people not living here yet, who flew in to buy. This year, it’s less than a tenth of that. “We’re now seeing a 50-per-cent collapse rate in deals, when it’s usually more like 5 per cent,” he said.

There is just so much win in this paragraph. It's all subprime and off-shore sales until it isn't. Really, it had to be. You can't sustain a market at prices that require 100% of average income. Reality, meet the west side.

Australia New Home Sales at 17 Year Low

New home sales plummet to 17-year low

The number of contracts signed for new homes fell in March to 5443, down 9.4 per cent from the previous month, a figure only slightly ahead of a similar period in 1995, when then-governor of the Reserve Bank Bernie Fraser raised interest rates across the country.

In New South Wales, sales tumbled 9.7 per cent in March. In Victoria, they were down 4.6 per cent, in Western Australia 12 per cent, and in Queensland they fell 15.3 per cent, the HIA-Jeld-Wen survey shows.

Australian Property Monitors last week said values rose 0.9 per cent in the first three months of this year, but rival RP Data recorded a flat overall trend while another data source, Residex, had prices falling 0.7 per cent.

Property Related Stocks to Watch in Australia

The author makes a good point, that the views of the Australian housing market outside Australia are far grimmer, which wouldn't matter, except that's the source of the funding for more mortgages. Bankers and Builders -- Stocks to watch in a slowing property market

Banks and real estate professionals have a vested interest in painting our property market picture in colorful hues. Foreign investors on which our banks rely so heavily draw from experiences in their own countries and paint a different picture.

In a recent interview with the Australian Spectator, bond king Pimco’s head of Australian operations said that his colleagues in the United States believe the Australian property market is the most overvalued market on the planet.

Debt to disposable income has been improving and the household saving rate has made great gains, but will this rescue the bubble from a crash? It depends on what percent of households are actually participating in the de-leveraging. Real estate is priced on the margin. Take the wildly optimistic view that 80% of house-owning households are getting their personal balance sheets in order. Twenty percent in distress would still put severe downward pressure on the market. And the number of households participating in higher savings is probably closer to 50% than 80%. But I don't have the data to know.

The gradually growing income gap also contributes to these numbers improving, a few high net worth individuals saving more makes the average look better for all. So, while these improving numbers are a good sign, they over-simplify the picture too much to let us know if Australia is off the hook for a crash.

China Freeing Financial Flows

Analysis - China poised to crank up capital account opening

China is poised to boost quotas on outbound investment schemes to $100 billion (62 billion pounds) and cut barriers to moving foreign currency in and out of the country in a series of swift but small steps to crank open its tightly controlled capital account.

Sources in close, direct contact with the People's Bank of China (PBOC) and the China Securities Regulatory Commission (CSRC) say reforms are ready to be rushed out over the next 12 months to boost two-way capital flows, drive diversification of business finance and accelerate corporate currency hedging.

Bo Xilai was considered to be an old-schooler and his swift removal from contention for leadership speaks to coincidence or a strong desire for reform.