Generation Squeezed in BC

Housing, child care stings 'Generation Squeezed'

With a combined income of $92,000, he and his wife could qualify for a $500,000 mortgage. But Atkinson said the minimum $25,000 down payment is too rich for him and his young family.

Banks are approving at a 5.16x multiplier of salary in a country where there is no such thing as a 30 year fixed mortgage? And people claim there is no subprime.

"We'd have to save up for at least five, six years just to get a decent down payment…and that's really frustrating," he said.

I have bad news for you. If you can't save up for a down payment, then you certainly can't save up for the emergency fund you need to keep a house operating. Houses can ding you for 25k with no warning. If you aren't that liquid, you need the security of the kind of predictable monthly expenditure that one can only get through renting.

A recent study from the UBC Early Learning Partnership found that young families are bringing in roughly the same income as those before them did nearly 30 years ago, even though most families are now duel-income.

Kershaw said while household incomes have flat lined, housing prices have not -- rising 76 per cent in the same period since the 1970s.

THIS is the real issue for this generation. Relative to their parents, where does all the wealth this couple generates working end up? Is it going into more expensive advanced health care? Is it going into supporting the now larger generation before? Is it being distributed upward to a greater degree? Or, most likely, a mix of all of the above?

The wealth shifted away from the pocketbooks of the middle class, but for some crazy reason, house prices continued to mount. That is the essence of the problem. Debt has been substituted for wages and excessive credit issuance is reflected clearly in the rise in price of the most widely leveraged asset: the family home.

"Squeezed" doesn't quite cover it.

Canadian House Price Index Shows Stall

Housepriceindex.ca has published the September data.

The only remaining city still truly defying gravity is Winnipeg. Ottawa and Quebec City are showing peaks.

In other, possibly related news, the major central banks of the world are again mistaking a solvency crisis for a liquidity crisis, and the markets are ecstatic about this.

Vancouver Realtor: 90% of High-End Buyers are Foreign

Another data point in the foreign influence debate.
Should there be restrictions on ownership of real estate in Metro Vancouver?

Moore says almost 90 per cent of higher-end house buyers are foreign.

“They seem to find Vancouver and the Lower Mainland to be a safe place to live, in terms of worldwide, and they do like our weather, and it doesn’t seem to be slowing down since they began looking for homes in the ’80s,” says Moore. Condominiums are a different story, though, where he estimates it to be more of a 50-50 mix, although he admits 26 of the 28 units he sold at a new complex on Royal Oak recently went to those of Asian descent.

There's the rub with an informal survey. Asian descent doesn't tell you anything about foreign money.

Although much of New West is high on a slope, it hasn’t seen the same pressure from foreign buyers.

. . .

However, Goodwin has noticed many of the South Asian builders that buy land in Burnaby to construct big homes and sell them, are now targeting New Westminster’s West End for its big view lots.
Pilothouse Marketing’s Craig Anderson has been project manager for three recent new developments that went on sale in the city—Brickstone Walk, 8 West and 258, and he estimates 35 per cent of the buyers for the last two were mainland Chinese.

The Real Estate Board of Greater Vancouver doesn’t track specifically where foreign buyers are purchasing homes. However, president Rosario Setticasi says a regular informal poll of up to 400 realtors reveals only about 10 to 12 per cent of home purchases are by foreign buyers.

10-12 percent is enough to boost a market. It's certainly enough to utterly juice a few select submarkets.

Vancouver is a Balanced Market

Have to note this for the future. Brian Morton. We'll check back in on him later.

“The threat of a bubble has largely dissipated,” senior economist Robin Wiebe said of Metro Vancouver. “But, really, there never was one.

“When prices rise, new supply is attracted to the market. And that's what's happened.”

Actually, when the supply increases during a speculative frenzy, you just get more objects to trade with in a speculative frenzy. The laws of supply and demand left the building exactly when the increase in price triggered an increase in demand.

According to the index, the average price in Metro Vancouver was $774,000 in October, two per cent more than September and 15.3 per cent more than October 2010.

A gain in excess of inflation is not balanced.

The Fraser Valley was in a balanced market, with prices up 9.6 per cent year-over-year to $494,000, but Victoria was considered a buyers' market, with prices down 7.1 per cent year-over-year to $490,000.

Why is falling prices a buyers' market exactly? Sounds like a perfect wait for a better bargain market.

No mention of how much additional credit needs to be issued to sustain these gains "with sales of the expensive homes having moved through the system." (read: foreign $) and where that credit is going to come from to even match the recent gains ongoing. If the shift in buyers is real (they admit it is) where is that money going to come from?

Hat Tip: Smokin' Jayne commenting at VREAA

Jim Chanos on His Trip to Australia and Hong Kong

Video at the link below.
Chanos Says China Bank System `Extremely Fragile'

Our concerns about what we saw in Australia: an economy clearly tied to China, has hitched its wagon to the tail of the tiger.

The banking system in China is extremely fragile. . . . In fact because of what happened in the last two crisis in 99 and 04 when non-performing loans went crazy in China, without even a recession, the Chinese banking system was not recapitalized like ours was, it was papered over. So going into this credit expansion Chinese banks are sitting on lots of bonds from these so called asset management companies from 99 and 04 and they are keeping them on their books at par, at full value. In the case of Agricultural Bank of China, which we are short, those restructuring receivables are equal to over 100% of their book.

And when they talk about those foreign reserves of 3 trillion dollars, what everyone forgets is there is liabilities against that. And everyone seems to think it is just a free and clear open checkbook. It's not.

There is a growing sense that the Chinese government will ease. What we point out is their credit this year is going to grow between 30 and 40% of Chinese GDP. If that's tight, I'd hate to see . . . [Betty: what loose would look like.]

OECD Notices China Has a Problem

And they don't mince words.

Real-Estate Risks Overshadow China’s Economic Prospects, OECD Report Shows

“While the exit of small developers would not pose a problem, the failure of large promoters could put some bank lending at risk, perhaps triggering negative chain reactions,” the Paris-based OECD said in a report today. “A key risk is an overly quick liquidation of unsold property.”

And there is a lot of unsold property, not including up to 64 million empty apartments.

China’s economy, the world’s second biggest, will expand 8.5 percent next year even as export growth is pulled down by weak demand and a decline in the nation’s competitiveness, the report said.

Elsewhere in Asia Pacific, Australia has scope to cut interest rates should Europe’s sovereign-debt crisis stall global growth, the OECD said, a scenario investors already are betting on.
If downside risks to the international economy materialize, “monetary policy should be eased significantly to sustain demand in the context of moderating inflation,” the OECD said. Australia’s government could also boost spending, it said, though that would delay a pledged return to a budget surplus in 2012-13.

So, imagine this. Australia cuts rates, but that only applies to the domestically funded 2/3 of a mortgage. International appetite for Australian mortgage debt will not necessarily increase proportionally to track the same rates. In terms of funding mortgages, Australia's central bank is not in full control.

Affordability Index for Vancouver at 90.6%

Real estate becoming more affordable: RBC
Everywhere except the large metropolitan areas, that is.

For example, an affordability reading of 50% means that home-ownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household's monthly pre-tax income.

The index in Vancouver stands at 90.6%, Toronto 52.1% and Montreal 40.9%.

This Sure Doesn't Sound Like a Place with a Housing Shortage

Empty Richmond houses attract metal thieves

Thieves are breaking into abandoned Richmond residences to steal valuable metals such as copper and aluminum, RCMP said on Tuesday.

It's so common it's called urban mining.

The thieves break into empty homes and take copper pipe and wiring, radiators, appliances and aluminum-framed doors and windows for the metal to sell to scrapyards.

Housing Starts in China, Including Affordable Housing at 2.2% year-on-year

Also, the manufacturing sector is expected to have fallen into contraction. And since exports are up nearly 16%, this points to a pull back in domestic demand, the only thing that can rescue the economy.

China May Find It Hard to Break Fall

Wang Tao, China economist at UBS, estimates that new housing starts fell to 2.2% year-on-year in October. More alarming, that number includes government investment in affordable housing that was meant to ride to the rescue as private investment slowed.

This certainly implies that the big central government push for affordable apartments has failed.

Can China Rescue Its Economy?

Most worrisome, it appears that the factory sector is shrinking due to weakness in domestic, as opposed to export, orders.

Unfortunately for Beijing, its technocrats have already expanded their money supply to stratospheric levels. China’s M2 was 34% larger than America’s at the end of last month, even though its economy was less than half the size of ours. China’s money supply increased rapidly in the last three years, creating today’s high rates of inflation. Inflation, which came down rapidly last month according to the Bureau of National Statistics, is still uncomfortably high, perhaps more than twice the official figure.

In view of this, Beijing’s only real option is to buy GDP growth by direct spending, what some call “tidal wave investing.” The center can spend, but China has already built its “ghost cities” and other unviable projects, from one end of the country to another. A signal from Beijing that it was spending again would definitely buoy sentiment, yet technocrats no longer run a command economy and have limited means of forcing investors into projects that look unprofitable.

Ordos Has Fallen from up to 13,000CNY/sqm to Average of 3,000CNY/sqm

So says the HK Standard.
Stay cautious as bubbles burst amid tighter money

Real estate prices in Ordos are said to have dropped sharply to an average 3,000 yuan per sq m. So not only is de-leveraging occurring in Europe and the United States, it is in China too to a certain extent.

Don't underestimate the effect on Hong Kong, where the stock market plunge has caused investors to lose huge amounts in the past few months.

Meanwhile, property developers have started selling flats below secondary market prices.