An Expat Canadian: Returning home has become "downright frightening"

Human's are herd/social creatures. Bubbles are about socially constructed myths, making them harder to see from the inside. For the outsider, there is only the language of disbelief. Neil Macdonald: Why a U.S.-style housing nightmare could hit Canada

Friends and colleagues who own homes in Canada are the very pictures of smug. They seem convinced the markets in which they happily reside will keep rising forever. Or at the very least, never drop.

And any discussion of the subject usually involves condescending lectures about how Americans, who are only beginning to recover from a six-year nightmare of foreclosures, could have used a dose of Canadian common sense and prudence.

It's all about the debt.

As was the case in America when I arrived here nine years ago, Canadians have for years been so desperate to avoid being left behind by a surging housing market that they've been stretching themselves beyond reasonable financial limits to jump in, thus of course ensuring continued surges.

In the process, household debt has doubled, going from a manageable 75 per cent of household income in the early 1990s to 150 per cent today.

Worse, as the Bank of Canada has been pointing out, Canadian debt is disproportionately concentrated in the most vulnerable households, defined as those devoting 40 per cent or more of household income to paying interest charges.

. . .

The central bank's analysis suggests that if interest rates rise to 4.25 by mid-2015, fully one fifth of all Canadian debt would be held by those households least able to finance it.

"My base case expectation would be that most markets in Canada over the next two years would see a pullback of housing prices of 10 to 15 per cent."

That's Don Drummond, former chief economist at TD. Back to Neil:

If you take that tax refund into consideration, prices in Ottawa are now approaching or equal to prices in Washington, DC., a city steeped in wealth and power. Seen from this distance, by a longtime expat, that is just unmoored from reality.

Big Drop for Vancouver Prices

Garth Turner gets a bit of coverage. Big drop predicted for Vancouver real estate prices

We'll have something around a 30-to-40 per-cent decline in prices.”

Sounds about right. Still pricy, but easier to sustain.

Despite his dire outlook, the market has been robust for most of the last decade and condo marketer Cameron McNeill believes Turner will be proved wrong. “The fundamentals that are driving the market below the surface are just too strong for any sort of bubble circumstance to happen,” says McNeill.

“The fact of the matter is, in Vancouver today, you can buy a condominium and you can rent it out and you will have 40 people in line trying to rent that condominium,” McNeill says. “If you have that much desire for people to live in a condominium, I think the market's got no problem sustaining itself.”

Well, I'm convinced by the power of that argument. It is just me or is McNeill from Brooklyn?

Australian Banks Pass IMF Stress Test

Pretty stringent tests assuming 5% decline in GDP and 35% fall in house prices. Australian Banks Pass IMF Stress Test

Australia's lenders came through the global financial crisis in relatively good shape helped by conservative lending policies, strong prudential oversight, and a firm underlying economy supported by a resources boom. The country's biggest banks also managed to steer clear of the kind of exotic structured-credit products that dragged down U.S. lenders.

The resources boom is just 4.5% of GDP and 1.5% of employment. As opposed to the housing market which is over 3x annual GDP in asset value. And construction which is 9% of the workforce. Both industries are bubble driven, but the first is driven by someone else's bubble.

While profit growth has slowed in the past year--as credit demand stays subdued and higher international funding costs squeeze margins--the big four remain among the world's most profitable lenders, and are routinely praised by ratings firms for their strong balance sheets and low mortgage-arrears rates.

The biggest risk isn't to the banks, it's to sustainability of prices. 30-40% of mortgage debt is being funded from overseas. If that dries up then prices have to adjust to match. It's the next buyer that determines the price, not the previous one under rosier conditions. Not to mention the pressure on the currency from having to service that foreign debt.

The IMF also considers that Australia's central bank has plenty of room to cut interest rates if the need arises to shield the country from a sharp downturn in the global economy.

Speaking of pressure on the currency . . .

Canadians buying up Florida Real Estate

Northern flight: Canadians gobbling up Southwest Florida real estate

From July 2011 to June 2012, foreigners accounted for 19 percent of the home sales volume in Florida, led by Canadians, according to an industry report by Florida Realtors, a statewide trade group. In that year, sales to foreigners in the state reached an estimated $10.7 billion — out of a total of $58 billion. Canadians accounted for 31 percent of those foreign purchases, putting them in first place among all nationalities.

In the Cape Coral-Fort Myers market, Canadians ranked as the top country for foreign home buyers in the year ending June 30, with a 56 percent share, according to the National Association of Realtors' 2012 Profile of International Home Buying Activity. That was followed by Germany with 17 percent, then the United Kingdom and Honduras, each with 6 percent.

I wonder what percent of these buyers are taking out equity back in Canada to fund these purchases?

Glen Bigness, a Realtor with Premiere Plus Realty Co., said in an email that he sees a great number of Canadians visiting his websites.

He's in regular contact with lenders who provide loans to foreign nationals.

"Most tell me money is tight, and qualification is very narrow and stringent for them, so most deals seem to still be cash at closing," Bigness said.

His company offers a "buy and fly" program to Canadians. Buyers who spend at least $200,000 get up to $500 at closing to pay for their flight to Southwest Florida.

If you can't afford a plane ticket, how can you afford to be a long distance owner?

When these foreign markets also adjust, U.S. housing is going to find another bottom.

Deflationary Pressures Increase in China

While the money supply growth is considered high enough to prevent deflation, other measures, such as PPI, industrial output and profits are flashing warnings. Industrial output and profits are expected to continue downward through the autumn. China’s Deflation Rears Its Ugly Head

The Producer Price Index, an indicator of production output prices, retreated to its lowest level in August since November 2009, a fall of 3.5 per cent from a year earlier. It was the sixth consecutive monthly decline as it reached its lowest level in 34 months.

When PPI declined 2.9 per cent year-on-year in July, it was a warning that manufacturing companies’ income had dropped rapidly, a development that might hold back additional investment in industrial sectors and further drag down the whole economy.

In the first seven months of this year total profits of big industrial enterprises declined by 2.7 per cent from the same period in 2011 to 2.68 trillion yuan.

“Fundamental problems in the Chinese economy are starting to show and the downside risk is very hard to control,” Yuan said pessimistically.

Uncertainty over overseas demand, retreating governmental supportive policies and tightening property control have all pushed the industrial companies into a chilling environment. However, deeper problems, such as the increase in labour costs and the slumping competitiveness of Chinese business, should be given more attention, Yuan said.

Vancouver luxury market -- it's only worth what someone will pay

Luxury homes are not the best indicator for the market in general because the price is always detached from fundamentals. But sentiment is easier to gauge because the market is smaller, is more closely watched, and the swings in price are more volatile. Vancouver real estate’s million-dollar question: What sells?

Mr. Christiansen, who routinely sells houses worth millions of dollars, hasn’t seen an August this bad for sales in his entire career. He says there were only 24 sales in West Vancouver in August, compared to 80 last August, and the usual August average of around 50.

So, at normal sales rates there would be inventory of 10.6 months. But at half that sales rate, the current reality, there is 20+ months of inventory. Luxury homes are generally less substitutable for one another, but that's a very crowded market. Too much choice leads to buyer complacency.

Still, he’s wary of pricing low to start a bidding war, because these days, the bidding war might not happen. There are currently 530 houses listed in West Vancouver and buyers – about 50 per cent of them from Mainland China, according to anecdotal realtor input – are choosy.

There’s the trick. Most sellers are living with yesterday’s sales figures in mind, and they want the old top dollar. The reality is, a house is only worth what this current market will pay for it – and sometimes, that’s anybody’s guess.

It's only worth what someone will pay for it.

Two CPI proposal, one for owner-occupiers

What Really is Happening with Housing Prices? The CPI Won't Tell You - C.D. Howe Institute

In "Housing Bubbles and the Consumer Price Index: A Proposal for a Better Inflation Indicator," Philippe Bergevin points out the CPI has not usefully reflected the rapid run-up in housing prices in recent years. He proposes a new official inflation indicator for monetary policy purposes that would better reflect the prices of houses sold in the market.

"The use of assumed prices for dwellings rather than actual prices for houses and the inclusion of a mortgage interest component make the CPI less sensitive than otherwise to housing price changes," notes Bergevin. The main concern, he adds, is that the CPI's insensitivity to housing could potentially cause the central bank - reassured by its imperfect indicator that inflation is under control - to keep rates too low for too long.

This is an interesting idea. Especially since, imagine a time when there would be two CPIs: a high one for owners at the peak of the bubble and a lower one for renters. Wonder if that would get people to notice sooner that prices are out of line with fundamentals.

Early Warning for Canada

Year on year total home sales change and months of inventory provides early warning on prices for Canadian cities in August:

Vancouver	-31%	10.7 MOI
Quebec	-26%	12 MOI
Victoria	-17%	10.9 MOI
Ottawa	-14%	(Total inventory not provided)
Hamilton-Burlington	-13%	3.2 MOI
Edmonton	-11%	5.2 MOI
Montreal	-7%	10.8 MOI
Kitchener-Waterloo	-4%	(Total inventory not provided)
Calgary	+16%	6.3 MOI

Months of Inventory (MOI) over 6.5 is considered depressive on prices. Will prices decline? No real telling, I'm afraid, but MOI is generally a reliable belweather.

I have a suspicion that Hamilton is suffering from a product substitution effect where Toronto buyers, fed up with getting out bid near the big city, are shifting their buying that far afield and impacting that much smaller market. Hamilton only looks cheap I estimate it is 100k overvalued.

The Hamilton August MLS release is here They still haven't fixed the broken link.

Shadow Banking Blues in China

In the first six months of the year 58,000 private lending lawsuits filed in Zhejiang province (where Wenzhou is)
involving 28.4 billion yuan in private lending ($4.5 billion USD)
up 27% from 2011
highest in 5 years
600,000 lawsuits filed nationwide in 2011
valued at 110 billion yuan ($17 billion USD)
up 38% from 2010
376,000 filings nationwide first six months of 2012
up 25% from 2011
depositors seeking better returns withdrew 500.6 billion yuan ($79 billion USD) from banks in July
or 0.6 percent of total deposits.
30% of funds in Wenzhou's shadow system went to SMEs
60% went into real estate speculation and re-lending


You've probably heard the joke about the German tourist who puts a $100 bill on the front desk of the hotel and goes to look at a room. (The hotel pays the cook the cook pays the butcher the butcher pays the hooker the hooker pays the hotel and the German gets his money back when he decides not to stay.) It's an example of what it takes to unwind the tangled credit of an informal banking system where by some miracle everyone is made whole.

(Wall Street with its derivatives has become a giant informal system, one of the reasons it crashes rather than unwinds. But that's another topic.)

China's (no reserve) shadow banking system is in the middle of a great unwind. But given the chaotic nature of it, there is no feasible way to run a $100 bill through it to make everyone whole.

Shadow Bankers Vanishing Leave China Victims Seeing Scams

To live out his retirement years, He Zhongkui was counting on steady income from an investment that promised interest payments five times higher than what he could earn in a Chinese bank.

The Chinese are savers. The Chinese are savers. We hear that repeatedly in arguments against a crash. The proponents of this argument never seem to take the next step and explain what they are invested in. They are invested in their children's inflated houses and in schemes like this.

Now He, a 62-year-old former municipal official in Wenzhou who rides a rusty bicycle, is cutting back on food and gasoline, having found himself one of a growing number of victims of China’s nebulous world of shadow banking. A “friend,” who he said had been paying him 2,400 yuan ($379) a month after He gave him one-third of his 600,000-yuan life savings to invest in real estate, suddenly disappeared. So did the payments and principal.

China’s slowest economic growth in three years and a slumping property market, where many so-called shadow-banking investments are parked, are squeezing millions of Chinese who have invested the money of friends and acquaintances chasing higher yields to honor those payments.

Chasing yield. Well, we can all feel for this guy.

“It’s time for payback for the unchecked growth of China’s shadow-banking activity,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA, who estimates that as much as 2 trillion yuan of underground lending may default eventually. “The risks are culminating, and part of the system is doomed to collapse. On the flip side, this gives policy makers an opportunity to put in place oversight for a sector that should have been regulated a long time ago.”

Private lending between Chinese individuals is believed to be worth $1.3 trillion, according to Boston-based research firm IHS Global Insight (IHS), the equivalent of the 2011 U.S. federal budget deficit. Interest rates can reach as high as 100 percent.

In the heady days of blockbuster growth, maybe one's business could carry that kind of load. Maybe. The ones who couldn't rolled the debt, if they could.

The lending is part of a shadow-banking system that also includes the off-balance-sheet business of banks and trust companies and totals as much as $2.4 trillion, about one-third of China’s official loan market, according to estimates by Societe Generale. Shadow banking is prevalent in China because more than 90 percent of the nation’s 42 million small businesses are unable to get bank loans, while such investments offer returns at least several times higher than deposits.

The numbers just keep getting worse.

Another Wenzhou shadow-banking victim, Mao Renye, said he took out a 700,000 yuan bank loan last year at 10.8 percent annual interest, using his home as collateral, to help his son’s struggling clothing business. Enticed by a 36 percent interest rate promised by a city resident who ran a nationwide pharmacy chain, the 69-year-old former farmer-turned-businessman said he invested 550,000 yuan, only to find that the borrower’s company was on the brink of bankruptcy and dozens of creditors were chasing him for repayment. Mao didn’t get any money back.

The nightmare didn’t end there. As his bank loan matured in October, Mao had to borrow from friends, relatives and loan sharks to pay back the debt so his home wouldn’t be seized. Now he’s seeking to sell his 2 million-yuan home to pay off his borrowings. No buyer has shown interest, he said.

In Erdos, about 150 kilometers (93 miles) south of Baotou, 80 percent of housing-construction projects are halted after home prices tumbled to 3,000 yuan per square meter from a record 20,000 yuan per square meter, Caijing magazine reported Sept. 3. The biggest source of funds was private lending, and as defaults surged this year people began greeting each other by asking how much savings they were able to retrieve from their shadow- banking investments, the report said.

It goes on, read the rest

Australian House Prices to Fall 20% Over Two Years

A conservative assessment of Australian housing by the Wall Street Journal. Two years to decline 20% at this point in the market is about half the rate of decline of the U.S. That will still be painful.

Home Prices Tipped to Fall by up to 20%

Investec Asset Management strategist Michael Power said while Australian property prices had fallen six per cent since 2010, he expected them to fall further in the next 18 months to two years. "We're not seeing anything like the US, Irish or Spanish property bust here," the South African-based strategist told a business lunch in Sydney. "But I think over the next 18 months it could go down by double digits, 12 or even 15 (per cent). A 15 to 20 per cent (fall) would be my outside downside over the entire period."

He goes onto say that well, yes consumer debt is very high, the banks may be in trouble because of foreign debt financing, but there likely won't be any inflation.

I wish the article were longer because it would be interesting to hear how he thinks those conditions can possibly resolve without inflation. The chart below from oanda.com shows how buoyant the currency is. During the global liquidity freeze of the Great Recession the Australian dollar lost a lot, quickly, relative to the U.S. dollar. Australian foreign debt is ~1.2 trillion on ~1.6 trillion GDP.

Heard This One?

Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump.

House prices nearly tripled in the first half of this decade, and speculators, who are more likely than residents to sell a house in a panic, flooded into the area in recent years.

The truth is that the official numbers on house prices — the last refuge of soothing information about the real estate market on the coasts — are deeply misleading. Depending on which set you look at, you’ll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.

Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. As Ed Smith Jr., the chief executive of Plaza Financial Group, a mortgage brokerage firm near San Diego, said, “So many people picked up their homes, turned them upside down and shook them like a piggy bank.”

The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s Economy.com that took inflation into account.

All of the above are from this article: What Statistics on Home Sales Aren’t Saying New York Times 2006

Flash forward to 2012:

In addition to the level of debt, the way it is employed may also affect out- comes during periods of economic stress. If debt has been used to finance household consumption, for example, consumption may be constrained following a shift toward reducing debt burdens. In “Household Borrowing and Spending in Canada,” Jeannine Bailliu, Katsiaryna Kartashova and Césaire Meh focus on how the accumulation of debt is related to household expenditures, specifically consumption and spending on home renovation. They observe that the share of consumption financed by home-equity extraction has risen since 2000. They also note that a much larger share of spending on home renovation is financed by these debt flows. Home-equity extraction in turn has been supported by rising house prices and financial innovation. Simulation results suggest that a negative shock to house prices could have a relatively large impact on consumption.

--Bank of Canada

Check out the associated chart:

House prices have doubled, but Canadian housing equity has been falling. (Looks about level with 2000 values or up very slightly, but this is in an environment of greatly increasing "values". It's nuts.) Of all the parallels with the U.S. worth panicking over, this should be high on the list.

That crossover point where the growth in mortgage debt begins to exceed the growth in real estate values . . . that's interesting marker. That's the point where the central bank lost control through relaxation of mortgage standards.

Back to the article, the trigger for the angst was an auction of foreclosed property.

The highest bid on one three-bedroom ranch house with a pool was $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, received a high bid of $880,000, compared with $1.35 million a year earlier. On average, the bids suggested that the houses at the auction had lost about 25 percent of their value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the results.

More coverage from that era:

Realtors fume over property auction

Some local real estate professionals are livid. It’s bad enough that sales of single-family houses in the Naples area has dipped nearly 50 percent.

Now, an impending auction of 45 prime properties has locked up the market, Realtors contend.

. . .

However, the proposed auction has tied up the real estate market for the next few weeks, some Realtors protested in early October.

People have stopped buying so they can wait and see what they can pick up at the Oct. 21 sale, at which they can bid online or at the Naples Beach Hotel & Country Club for some 45 homes primarily in The Moorings, Lake Park, the northern boundaries of Old Naples and Cape Coral.

. . .

Real estate professionals say it is especially obnoxious because many of the properties that will be sold on the auction block — by seller desire, not because they can’t pay the taxes — were purchased by speculators who likely attempted to manipulate the market.

“The majority of investors are selling off with little or no profits. Look at the 11 homes (in Lake Park) going up for auction by an investor now,” says longtime Naples resident and Remax Elite real estate agent Jerry Krecicki.

Noting that assessed value and sales price are a matter of public record, Turner cited a house at 1121 10th Ave. N. that listed for $569,000 on March 5, 2005. Moorings resident Marjorie S. Dresner bought the house on March 7, 2005, and closed on it on April 26, 2005.

For $585,000, Turner said.

The Buyer Today is Going to Wait for Prices to Soften

The Naples News reports from Florida. “The deadline for closing on properties purchased in an Oct. 21 auction has been moved back to Dec. 6. Auction operator Paul Drake said he wasn’t aware that one of the properties for which he’d announced a high-bid price is now in foreclosure.”

“In legal ads printed in the Daily News, Washington Mutual Bank announced foreclosure on 1121 10th Ave. N., although the ads refer to it as Lot 22, Resubdivision of Block A, Lake Forest. The owner of record, Marjorie Dresner, had numerous properties listed in Drake’s auction.”

“Shortly after the event, Drake said that property at 1121 10th Ave. N. drew a contract price of $341,000. Public records show that Dresner bought the house in May 2005 for $585,000, with an April 26, 2005, loan from Washington Mutual. Mortgage documents show Dresner took out a loan worth $468,000 plus interest.”

“That is part of the problem, real estate professionals protested, before and after Drake’s advertised auction. It was unrealistic, because many of the top bid prices were far less than the mortgage prices, they said.”

“While Drake had denied financial hardship was involved for people who had put their properties up for auction, real estate analysts noted that a few days before the auction, Dresner had taken out a second mortgage on most of her participating properties.”

“News of the auction ignited debate about Naples’ real estate market, and whether sales prices were dropping drastically.”

Well, let's go take a look, shall we?

Zillow Map

Back to the 2006 NYT article:

Over the last few decades, the world’s financial system has endured a crisis roughly once every three or four years. There was the stock market crash of 1987, the Asian and Mexican meltdowns in the 1990s, the dot-com implosion of 2000 and, most recently, the aftermath of Sept. 11, 2001. We may now be living on both borrowed money and borrowed time.

Toronto City Detached House Prices Down 14%

Median detached house prices within the city of Toronto have been plummeting. In April 2012 the median was $656,000. This month it is $577,250. That's a decline of $79,000 or nearly 14%.

Detached for all of the TREB region ticked up slightly this month, but is still down 6% or $35,000. Imagine if interest rates normalized.

Total sales down 12% from a year ago, matching Vancouver's falling sales trend. Average was up, if you want some soothing news to go with your charts.

I've added Toronto to the Canadian City Price Peaks and Declines

On the condo front, things continue to slide.

The potential losses for speculators in condos, per unit, is not all that high in comparison to, say, Vancouver Richmond or West Van. From Shiller's interview on BNN (hat tip: VREAA). Corrected for inflation, condo prices Boston, Toronto:

Since 2000 the prices have risen 60% (20% of it in the last calendar year). Not extreme, but given the anecdotal stories of investors buying 3, 4, or even 5 at a time, many investors may have similar exposure as a Vancouver speculator holding only one property. The scale of risk may actually be the same.

For those keeping a scorecard, a 60% overvaluation is corrected by a 37.5% decline.

The Effect of Rate Cuts on House Prices

The Central Bank went for the save on Australian house prices in May, then had to spike the punch again a month later. I borrowed the chart from this Joye piece. Australian house prices stabilise in August

Rate cut dates marked by me

Rates were left alone last week, but a cut is expected by the end of the year. More on that here if you are interested.

Australian Construction Contracting Faster

Australian Construction Contracts Fastest Pace in 11 Mths

The construction performance index fell to 32.2 last month from 32.6 in July, a survey by the Australian Industry Group and the Housing Industry Association released in Sydney today showed. A reading below 50 represents a contraction.

“The near-term outlook for the construction sector deteriorated with a further fall in new orders,” said Peter Burn, the Australian Industry Group’s director of public policy, said in a statement. “The drop-off in new orders was particularly sharp for engineering construction and the apartment sub-sector.”

Thus begins the vicious cycle.

BHP Billiton Ltd., the world’s biggest miner, last month decided to delay approval of an estimated $33 billion expansion of the Olympic Dam copper, uranium and gold mine in South Australia. Fortescue Metals Group Ltd. (FMG), Australia’s biggest iron ore producer after Rio Tinto Group and BHP, this week cut its full-year capital spending forecast by 26 percent to $4.6 billion.

China's manufacturing sector entered contraction too.

Seeking Alpha: Short RBC

2 Canadian Banks To Buy, 1 To Short On Housing Bubble Burst

There is sufficient data to suggest that the red hot Canadian housing markets are now cooling down. In the wake of recent developments in the Canadian housing markets, we have buy ratings for Toronto-Dominion Bank (TD) and the Bank of Montreal (BMO). These buy ratings are justified on the basis of the banks' higher proportion of insured mortgages, lower proportion of mortgage lending to their overall lending portfolio, and attractive valuations. Since the Royal Bank of Canada (RY) has no insured mortgages, we believe it is poised to take the maximum hit if the Canadian housing market bubble bursts, which is why we are bearish on the bank.

There is a rundown of each major bank.

Royal Bank of Canada (RY)

The bank, with a Tier 1 capital ratio of 13% and a Tier 1 common ratio of 10.3%, is adequately capitalized when compared to BNS. RY relies approximately 70% on Canada for its revenues, while the rest accrue from other international markets where it has its operations. Fitch considers the bank to have considerable exposure to the Canadian housing markets and faces the largest risk, as it uses less mortgage insurance as compared to most of its peers in the Canadian Banking Industry. In their conference call, after reporting the results of the third quarter of the current year, the management noted that the bank has the lowest insured mortgages of all the banks in Canada. The bank also has a large portion of its domestic mortgage loans to its overall lending. Going forward, we believe the bank will face a challenging operating environment, however, the bank's concentration on its credit card and commercial businesses will partially offset any adverse impacts.

The Australian House "Auction"

House auctions are far more popular in Australia and New Zealand, where around 40% of sales are conducted this way. But the idea of an auction can get pretty whack.

Vendor bid auction reform needed

A high-profile Melbourne buyers' agent has called for the introduction of a limit on the number of vendor bids allowed to be placed at Victorian property auctions. There is no cap on the number of vendor bids at Victorian auctions.

Okay, let's back up a bit. Just to be sure we are all clear on this, a vendor bid is one the homeowner makes on his own house. During the auction. Yes, the homeowner bids on his own house. Did I mention whack?

Buyers' agent Frank Valentic’s call came after he attended a recent Clayton auction where the auctioneer placed three vendor bids.

“Should we allow only one like NSW?” Valentic tweeted.

Why is this even a debate?? How about no flipping vendor bids? What part of "auction" (a public sale where goods are sold to the highest bidder) isn't clear here? How can you "sell" something . . . to yourself?

Peter Mericka, who runs the Lawyers Conveyancing website, has noted previously that the legislation permits an auction to be "crippled" if mutiple permissible vendor bids are used by the auctioneer.

"Five is right out."

Many auctioneers are loathe to lodge more than two vendor bids, one to open and another to close proceedings where buyer interest is restrained.

Yeah, I'm still seeing Monty Python here. People are arguing the fine point of auctioning property off to yourself.

But last October there were three vendor bids when the West Hawthorn home of former Hawthorn AFL premiership captain Sam Mitchell was passed in at its weekend auction.

The onsite auction opened with a $1.05 million vendor bid. There was then a $1.1 million vendor bid. It concluded with a $1.15 vendor bid.

LOL.

This is termed "passed in". Then the house sold afterward for $1,049,500. This is true in many cases. And the article goes on to detail how fair or unfair the process is for handing post auction offers. This is even more whacked.

Thus, if a genuine bid is received before the final vendor bid an agent would have to deal with that bidder first rather than throw the process open to all comers.

The advice does not apply if no genuine buyer bids were received during the auction.

Wait, you held an auction, won your own house, then you . . . opened it up to bids . . .

Or worse yet you got one or two legit bids, overbid the highest yourself, then hoped those buyers would submit another bid afterward. Auction theatre?

REIV data shows that more than 40% of all properties going under the hammer are currently being passed in, with nearly two in three of them on vendor bids.