Monday, April 30, 2012

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.

Sunday, April 29, 2012

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.

Bank of Canada: House Price to Income Over Norm by 35%

That's just about how much the market needs to correct by. Funny that. Bank of Canada: House price-to-income ratio outstrips norm by 35%
With housing prices to income levels running 35% above historic norms, Mark Carney, governor of the Bank of Canada, had some words of advice to heavily indebted households, telling them Tuesday to use “prudence and caution” because borrowing costs can only go up.

‘Household spending is expected to remain high relative to GDP as households add to their debt burden, which remains the biggest domestic risk’

Saturday, April 28, 2012

Flaherty says CMHC isn't essential in mortgage insurance role

Given how much of an increase this very man orchestrated in the CMHC cap, and how long he's sat on his hands while Canada's bubble has blown larger and larger. I can't see this as anything more than CYA. So when CMHC's name is mud, he can throw up his hands and say, hey I wanted to get rid of it.

CMHC could be pulled out of mortgage insurance business, Flaherty says
“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”
But CMHC has not been insuring just those loans, it has agreed to step in and insure loans — with the premiums paid by financial institutions — for lower-ratio mortgages, or what is called “portfolio” or “bulk insurance.”
“We have quite a bit of information about what the banks do and don’t do. [Superintendent] Julie Dickson had to go to some of them in the last year and say ‘you must ensure that your board policies on residential lending mortgages are carried through,” he said. “She’s quite a strict supervisor which is good for our country.”

If his condominiums are unsaleable, perhaps his condominiums are unsaleable. Full stop.

Carney’s ‘central-banker speak’ raises ire of Senators
Mr. Harb also had some words for Finance Minister Jim Flaherty.

“I have a developer in Ottawa who told me to tell you, governor, so you can tell the Minister of Finance, that it’s great about [interest rate] tightening but he told me ‘I couldn’t sell a condo cause everything came to a stop as soon of the Minister of Finance was talking about strengthening the borrowing and all of this stuff’.”

First, Mr. Carney set the senator straight. ”The Minister of Finance has to take many decisions, but that [interest rates] is not one.”

As for “your developer friend,” the governor said that “if the possible withdrawal of some considerable policy stimulus in Canada” is taken in context with any possible global and domestic risks, “and we would proceed with caution . . . [then] if that possibility means that his condominiums are unsaleable, perhaps his condominiums are unsaleable. Full stop.”
If your business model depends on a future supply of greater fools and the present supply actually realizes that, perhaps you need to find a new line of business.

Friday, April 27, 2012

China's Four Large Banks "Suffering" Slowdown

China's Big Four banks hit by slowdown, costs
Regulators have also closed in on the banks' freewheeling practice of charging fees and commissions, after the volume of complaints from customers and politicians grew louder in the last year. Industrial and Commercial Bank of China Ltd <1398.HK>, the world's biggest bank by market value, reported on Friday a slower 14 percent rise in first-quarter profit, hit by weaker-than-expected fee and commission income.
Only a 14% rise in profit. Tells you how much growth is built into assumptions.
The sheer size that China's banks have grown to is astonishing, when factoring in that the Big Four - Bank of China, ICBC, China Construction Bank and Agricultural Bank of China - were technically insolvent institutions less than a decade ago.
If analysts like Chanos are correct, they are still insolvent, just an accounting mirage makes them otherwise.
ICBC's market capitalization of $240 billion is slightly less than the combined value of Goldman Sachs <GS.N>, Morgan Stanley <MS.N>, Citigroup <C.N> and Bank of America <BAC.N>. ICBC's 2011 net profit alone is nearly equal to Morgan Stanley's entire market worth.
Forget too big to fail. How about too big to bailout?
And in a sign that Beijing is loosening policy reins to support the economy, Chinese banks lent a whopping 1.01 trillion yuan in March in their biggest lending surge in 14 months as the government relaxed credit restrictions.
That will keep the party going for while.

Marc Faber on China and Australia's Outlook

Faber: . . . The second source of uncertainty is really what will happen in China. There are different views, most economists say we will have a soft landing and so forth. But I have been working in the investment business for 40 years, all the time I've heard about soft landings and no recessions and no crashes and no panics and so forth and so on. Maybe the Chinese economy will decelerate more rapidly than is generally expected and possibly even crash in which case it would have a HUGE impact on economic activity around the world.

Interviewer: And especially in Australia

Faber: Correct. If there is a meaningful slowdown in China then obviously the Australian economy will suffer very badly. I happen to think the Australian economy will suffer REGARDLESS, because we have a very elevated property market that has become unaffordable for a large number of people, and we have already some cracks in the property market, we have a very high household debt to GDP ratio so I am not optimistic about the Australian economy.
The first source of uncertainty was money printing.

Wednesday, April 25, 2012

House Unit Sales Slowdown Creates Gap in Victoria Budget

Housing shortfall hits Victorian budget
The government said revenue from stamp duty was about 10 per cent of the state's revenue each year while this year's $366m downgrade represented an 8 per cent cut.

. . .

"The state has experienced a huge loss in stamp duty, primarily as a result of a material slowdown in the property market since October 2011," he said.

"Since we handed down the budget update in December, we have lost $1.13 billion in stamp duty across the forward estimates, including $366 million this financial year.

Canada's Teranet Release for February Shows Small Drop

Teranet is a different kind of index. It compares pair-wise sales of the same property to look for increases and declines in price. This helps filter out sales mix effects and the impact of gentrification. Data are smoothed over time to eliminate noise. Because of the data collection method, they are always just shy of two months behind.

Declines month on month (January to February):

Victoria -1.09% (peak of June/July 2010 looks secure)

Vancouver -0.32% (steady slide from new peak in July/August 2011) (BTW, this matches Vancouver's old REBGV index, but not the new HPI)

Edmonton -1.03% (accelerating on a new downward leg)

Calgary -0.59% (on a decaying downward slide)

Hamilton -0.84% (recent downturn)

Ottawa -0.41% (another recent downturn)

(Note: recent downturns could be subject to future revision.)

Continuing a slow rise (but almost flat): Winnepeg, Toronto, and Montreal
Uptick: Quebec City and Halifax

Transparency on Foreign Buyers in Australia

Shining a light on foreign real estate investment
In December 2008, the Rudd government announced a change to legislation that it claimed was designed to ‘streamline’ some of the administrative requirements for the Foreign Investment Review Board (FIRB). As part of these changes, temporary residents could purchase real estate in Australia without having to report or gain approval from the FIRB, allowing the FIRB to concentrate on larger issues in the ‘national interest’.
By March 2010, the media was flooded with articles on Australians being outbid by an army of Chinese residents, effectively pricing Australians out of their own housing market. But the ‘streamlining of administrative requirements’ actually meant no records were kept, or more specifically it would seem that these foreign temporary residents no longer needed to lodge applications with the FIRB. There was public outcry and no real data to support just how big or small this issue actually was.
By April 24, 2010 the rules were back in place. And the latest FIRB report shows just under 10k applications approved totalling just under $42 billion.
From the report:
The real estate sector recorded 9,771approvals, compared with the 3,897approvals in 2009-10. The increase is largely attributable to the reintroduction from 24 April 2010 of the screening of temporary residents purchasing residential real estate.
The mineral exploration and development sector was the largest destination by value, with approvals in 2010-11 of $54.9billion. In 2010-11, the other major destinations were: services, with approved proposed investment of $47.5 billion; and real estate, with approved proposed investment of $41.5 billion (see above).
Take a look at the report. This is such a night and day difference with Canada whose government can't even pretend interest in collecting simple statistics.

Tuesday, April 24, 2012

Australian Consumers Paying Down Debt

Mortgage appetite back on the rise
Appetite for mortgages has risen for the first time in two years, unofficial data show, offering hope that home prices may lift in the months ahead.
. . .
Despite the hopeful sign on mortgage inquiries, other readings on the property market suggest that headwinds remain.
Riddle me this, if rising home prices are "wealth" why is so much debt a necessary precursor to this "wealth"? And why always the happy tone about more debt?
Official Australian Bureau of Statistics data showed that after the number of seasonally adjusted owner-occupied loans rose for nine months ending December 2011, they began to fall again in the new year, dropping by 2.5 per cent in February.
Veda said overall consumer credit dropped by 4.8 per cent in the year to March, while credit card applications sank by 8 per cent in the same period. Personal loans applications also slipped by 1.4 per cent in the year to March.
. . .
Total household debt, which peaked at 154.4 per cent of household disposable income in the middle of 2010, has slowly fallen under 150 per cent of household disposable income, he said.
This is great news. If a soft landing is ever possible, consumer balance sheets need to be as healthy as possible.
The key to a sustained upturn in Australian house prices is a recovery in confidence,” he said. “That may not occur while the news from Europe remains downbeat and local media bash the domestic economy’s weak spots.”
Blow that bubble up again. That's our only hope!

Monday, April 23, 2012

Big Banks Exit Nonprime Market

Nonprime (isn't that a nice word? so much less scary than "subprime") is a $200 billion market, making it 18% of the total mortgage market. Canada’s big banks flee nonprime market amid signs of housing downturn
Canada’s banks have been exercising more caution on higher- risk mortgages after Bank of Canada Governor Mark Carney warned that record household debt remains the biggest domestic risk to the economy. Carney this week signalled the potential for interest rate increases that would cool off a housing market that has seen prices almost triple in some Canadian cities over the past decade.
“We see opportunities with people that are really high- caliber borrowers with good proof of income, but their circumstances are a little different,” said Chairman and Chief Executive Officer Gerald Soloway, who was interviewed with Reid. “We haven’t had to go down the credit scale; we’ve been able to go up the credit scale, which is an unusual phenomenon.” (bold mine)
This is interesting. Is this a fully risk off effect sending quality borrowers into nonprime credit issuers, or is the market itself also sending them there?

Above is the Economists Clicks and Mortar chart showing rents versus price. You have a choice in the Canadian market, rent and accept the subsidy the market provides when the landlord is banking on ethereal future price gains, or buy and accept paying more for shelter. In the past when prices were in line with rents, high quality, non-traditional borrowers could afford to purchase using their own means (cash, loans from relatives, posting other collateral). Given the elevation in prices, high leverage is now the only way into the market.

Toronto-Dominion Bank, the country’s second-largest lender, stopped originating non-prime residential mortgages as of March 31, spokesman Mohammed Nakhooda said. The loans, offered through TD Financing Services Home Inc., represented about 0.2% of the bank’s mortgage portfolio.
“This decision was based on a number of factors, including a regular review of our secured lending risk management strategies,” Nakhooda said. “To remain competitive in the business in the current environment would require us to increase our risk profile, something we concluded was no longer in our risk appetite.”
Interesting counter opinion on these borrowers. The nonprime lenders are looking at ability to repay (look at these great customers they are sending our way!) and the banks are looking at collateral (any decline in prices and this mortgage is underwater so we aren't writing this unless the taxpayer backs it). They can both be correct and 180° differing in opinion.
Home Capital had record profit of $190.1 million last year and adjusted return on equity of 27%. It was the 14th- straight year the company had a return on equity of 20% or higher.
“I don’t think there is any sign anywhere from people on the ground in Canada that foresees the bubble,” said Soloway. Economists predicting a collapse in Canada “have been wrong for years; my prediction is that they’re going to be permanently wrong.”
Future footnote: It was great while it lasted.

Sunday, April 22, 2012

New Zealand Points at Canada's Bubble

The Kiwis (who are in the midst of a massive housing bubble) would like to point out that the Canadians are in the midst of a massive housing bubble. Neville Bennett is worried a major housing bubble in Canada may cause international distress
I think Canada is in for a terrible fall because it is gripped with a manic fervour for real estate.
Funny the clarity of an outsider. Watching the bidding wars and line ups in Toronto reminds me that bubbles don't end without a) bold intervention (see China) or b) having already sucked in every last possible participant. The explosion won't burn out until it runs out of fuel. Only this explosion doesn't leave behind ash, but debt.
Canada has weakened lending criteria too much. Private debt is huge in NZ and Canada (about 150% of GDP). This degree of debt lowers credit worthiness. Standard and Poors have revised NZ’s Banking Industry Country Risk form Group 2 to Group 3 (with Italy, the US and UK). Private debt also lowers consumption and deepens recessions.
CMHC seems to be highly geared: it had only $11 bln of assets in 2000, and most of its assets now are MBS insured by itself. It seems as leveraged as Fannie Mae which had US$2.3 trillion in guarantees backed by a mere $44 bln in assets as it folded. CMHC is very vulnerable to a small fall in house prices.

Consumer confidence rises when house prices rise. Consumers borrow to expand their spending. In less than 10 years, consumer spending has risen from 58% to 65% of Canadian GDP.

In 2011 homes became ATM’s, and the average homeowner had only 34% equity in their home, a fall from 55% only 4 years ago. Meanwhile, Canadians owed $1.53 for every dollar they brought home. Canadians have pulled $220 bln out of their homes in revolving home equity lines of credit (HELOCs): on a per capita basis, this is about three times as much as the Americans borrowed at the peak of their boom.
I could keep quoting. But I do want to note problems with the graph he cites from The graph compares home price to family income. But it does not adjust for the accelerating income gap in the 2000s that left the middle class with less income relative to inflation. Not more. The US market is still overvalued, not undervalued as that graph shows.

Hat Tip: Epte at VREAA

Friday, April 20, 2012

Desperate Local Governments Coercing Workers into Contributing to Development Trust

Chinese Local Governments Are Forcing Workers To Invest In Bubble Schemes
Sina reports a ridiculous story of teachers (and many others) in Liangshan, Shandong, are being asked (or forced) to buy a wealth management product issued by a trust, apparently (does it ring a bell?). The one-page document on this particular product (shall I call it a prospectus?) said the government is trying to raise RMB200 million, with a maturity of 3 years, and interest rate of 10%. The money being raised will be used for “urban construction”. One teacher said he was asked to invest in RMB10,000 of this thing, which is a huge amount for him (worth half a year of his salary). Other teachers and staff are being asked the same, and are being warned that they will have no chance of being promoted if they do not buy these products. According to the report, Liangshan county government is not the only one which are trying to force people into lending money. Many other countries’ and cities’ local governments are doing similar things. Very desperate indeed.
Google Translation of original article here
Liangshan County, trust and wealth management products to understand the paper clearly written, issued a total of 200 million yuan, products period of three years; annual interest rate of 10%; Interest is paid yearly, the principal one-time payment due. 200 million funds will be used for urban construction, some workers have questioned only for urban infrastructure construction financial products, how to achieve a profit and pay interest of 10 per cent of a year? Mr. Lee: 10% a year, this non-profitable investment in urban infrastructure. Investment in urban infrastructure, this rate of return, he said three years, ten years can not be. Trust and wealth management products, 10 percent of the Facilitation is relatively high. The high-yield corresponds to the high risk. The two Liangshan County, trust and wealth management products to understand the paper, no mention of the investment risk. At the same time, many workers said their units do not have to do more presentations on the Trust financial products. Therefore, it seems, Renmin University of China School of Finance, Professor Tu Yong, the government in this form of sale of trust and wealth management products, and not fully disclosed the risks of investing, there is mandatory financing and fraud suspects.
At least someone is questioning that the returns are out of line with an infrastructure product.

Thursday, April 19, 2012

Bidding Wars Drive Prices Over Appraisal

Bidding wars can leave you with cash shortfall (They also always leave you with a reality shortfall called Buyer's Remorse.)
here's a little something to ponder before a bidding war: Will the bank agree with how much you just paid for that home?
One would generally hope they don't agree. The house has an actual economic value based on rents and it has the pricetag a frustrated, house hungry, overleveraged, competing throng will drive it up to. Those have little to do with one another.
Appraisals are coming in below purchases price on some deals, with the potential to scuttle a transaction, lose a deposit or, at the very least, force buyers to look for other sources to cover the shortfall.
Amazing to think there is one piece of the Real Estate industry enforcing some tiny piece of sanity.
Mr. Gaetano wonders whether some appraisers have become more conservative and are al-most anticipating a rapid drop in prices.
So . . . if the current prices are only supported by 12 bidders per house and record low interest rates, what happens if either of these things ceases to be true? The "value" of a house is entirely driven by interest rates and psychologically maximizing buyer emotion.
It's up to your financial institution to decide if it wants an appraisal unless you have less than a 20% downpayment, in which case you need mortgage default insurance and an insurer like Canada Mortgage and housing Corp. takes on the responsibility.
Your fellow taxpayers take on the responsibility. Think about that next time someone in your office or your family comes in all flushed with winning a bidding war. You are on the hook.
he had a client who recently bought a property in Toronto's trendy high Park area for $1.6-million and the appraisal came in at $1.1-million, forcing the client to juggle some other investments to cover the shortfall the bank would not cover.
As opposed to taking the hint? Maybe banks should pre-approve a property's price before the bidding begins.
"Anytime you get into a seller's market where you are looking at multiple offers, the market in that place at that time increases the value of the property."
"Value" is not the right word here. "Price" is good. "Price" is market sensitive. "Value" implies something inherent.
The message to consumers is to tread carefully when they make an offer and make it conditional on financing.
Conditions? On a purchase offer? Ha ha. You'll never win a house that way. Oh, perhaps that's the idea . . .

Wednesday, April 18, 2012

BNN Chat about Carney Speech

BNN clip let it keep playing. Hat tip: Best Place on Meth

Friday, April 13, 2012

Canadians get deeper into debt, mostly buying cars

Canadians Dig Themselves Deeper in Debt
A consumer credit report released Thursday by Equifax Canada showed that Canadians pushed their non-mortgage debt 3.4 per cent higher in the first quarter than a year earlier. The numbers were driven largely by a 9.7 per cent rise in auto financing. The Equifax report, which looks at credit in the form of bank loans, lines of credit, credit cards and auto loans, showed that credit card debt actually fell, by 2.1 per cent, and has decreased for the past five quarters.

Thursday, April 12, 2012

Vancouver Island Prices Down 8% Sales Plummeting

I love the title. Slightly? 8% is Slightly? If you put 5% down you are stuck. If you put 10% down you still can't cover transaction costs and need to bring a big check to closing. Housing prices fall slightly on the Island
The drop was in all six zones, with Nanaimo, Comox Valley and Port Alberni reporting the least drop in property values, at -5% compared to a year ago, while Campbell River reported the greatest change at -11%. Sales volumes also dipped, with Port Alberni volumes down -20% in Port Alberni, up to -38% in Cowichan Valley. Sales fell 22% in Nanaimo.
They don't report total inventory so there is no way to calculate Months of Inventory (MOI)

Economists Reassure Homebuyers for the Vancouver Courier

Economists discuss Vancouver housing bubble
For instance, the average March price for a detached house in Greater Vancouver was $1,155,521, while the benchmark price was $1,056,400—almost a full $100,000 apart.) . . . The other market segment —let’s call it The Rest of Us —will buy homes when there’s optimism about job security and continued income. That’s a much larger market segment.
I love this. The "rest of us" buy what affordable property? But no, a segue into how jobs are great.
B.C. is doing well on the job front, says Jestin. It has outperformed the national average consistently, and he believes that over the next year, B.C. will outperform Central Canada and the Maritimes and see employment growth.
Actually, according to BC Stats it's nowhere near as good as during the booming 2000s.
BC's unemployment rate in March 2012 was 7.0% and Canada overall was 7.2%, not exactly a striking difference.
Muir says those studies leave out one factor in the calculation: interest rates. We’re at lifetime lows—the bottom of a 25-year decline in interest rates, which means you can borrow more for the same payments.
Ha ha ha. I love it. This is such a shift from two years ago when anyone mentioned that short term mortgages in Canada resembled the teaser rate ARMs of the U.S. (in a market previously ruled by 30 year fixed) people would get defensive and say, no, no, we're not qualifying on that basis. Total debt load is what really matters. Well, we've reached the point where at least everyone is being honest. No one cares one whit about total debt load or what all these families are going to do when rates rise and now they freely admit it. Party on. Flaherty doesn't at least make a symbolic increase of 25 basis points, just to slap economists like this upside the head, he better be tarred and feathered at a later date. A little pain now would send a badly needed warning shot into this lost-sight-of-all-reality market.

Wednesday, April 11, 2012

Chinese Lending Scam Business is Liquidated

Liren Group owed 700-800 million dollars to 7000 creditors. The crash came when they failed to obtain bank loans to pay back the creditors. A bit of the reversal on the usual playbook where businesses obtain bank loans at low rates and turn around and lend it out in the shadow banking system.

More than half of nearly 3000 businesses surveyed in Zhejiang had sought loans from the shadow banking system.

Liquidation begins for firm embroiled in lending scam
Authorities also warned local officials who are Liren's creditors not to abuse their power to grab the liquidated assets in advance or to put themselves as prioritized creditors to be repaid first.
 Liren's downfall has raised concerns about private financing risks, an issue that has become particularly relevant in Zhejiang, where private businesses have become a pillar of the prosperous local economy.

Friday, April 6, 2012

Canadian Financial Regulator Says Banks Don't Always Follow Board Policies

Color me shocked. How do you rack up the same debt as Americans and run house prices to nearly double that of the U.S. without some fudging around the edges?

Banks execs get measured on performance today. Every percentage of market share stolen by a competitor who is fudging more that month is a hit on performance. Banks engage in a race to the bottom or they lose business.

Financials regulator says bank executives don't always follow board policies
ORONTO - Bank executives in some cases have not been following policies set down by their boards of directors, raising the possibility of undue lending risks, Canada's banking watchdog said Thursday. Julie Dickson, head of the Office of the Superintendent of Financial Institutions, said the federal agency has created a new safeguard against such practices as part of a slate of proposed new guidelines. "Going forward senior management will have to provide a declaration to the board that the financial institution is in compliance with the OFSI guideline (that they are following board policy)," she said.
According to the article 42% of bank assets in Canada are real estate.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2005
These financial and economic conditions left an imprint on banks' balance sheets. The relatively low level of fixed mortgage interest rates and the rapid climb in the prices of residential and commercial real estate spurred the demand for bank loans secured by real estate, and the share of bank assets attributable to real estate loans rose to nearly one-third.
The U.S. banks were pushing nearly 33% right before the crash and Canada is at 42%? Seriously folks. Did you miss that blood bath suffered just south of you?

Checking in with Australia...

From Steve Keen
You can also see in this chart how badly the bubble sucks down other development funds that might actually be directed into something economically productive.

Majority of Canadians Don't Intend to Buy a House

73% report they are unlikely to buy in the next two years. Given that ultra low interest rates have already pulled far more households into ownership than in the past (see chart, and probably safe to assume that overall trend continued upward for 6 more years), it's unclear who the remaining potential buyers actually are. New grads? Second home buyers?

This bubble has to scrape the margin another round to sustain itself. This survey implies the remaining margin comprises wishful thinkers and speculators.

Home ownership rates Canada
Most Canadians plan no home buying in next 2 yrs-RBC
However, 46 percent of those polled expected mortgage rates
to stay at ultra-low levels next year, up sharply from 30
percent in 2011. The poll also found that nearly 60 percent felt
this year was a good time to buy a house, compared to 41 percent
that felt 2013 would be better. 
60%? Speaking of wishful thinkers...

Bubble in New Zealand Hits New Highs

Property sales in Feb up 37% Year on Year
Listings up 8% Year on Year.
Property asking prices in New Zealand reach record levels
The seasonally adjusted truncated mean asking price for listings in March rose again to a new record level of $429,865 up $3,300 from February. This pushes the asking price up to another new high. The trend in the last three years very clearly shows an accelerating growth in asking price over the recent 12 months as compared to 2010/2011. ‘Eagerness to buy matched to availability of attractive financial support is however not being met with a consistent and sufficient supply of new listings. This scenario continues to drive this sellers’ market, where it is clear those homeowners who are putting their property on the market are expecting to see a higher sale price as flagged by the new record level of asking price in March,’ says the report published by

Tuesday, April 3, 2012

Chinese Heavily Shopping for U.S. Property

When the credit taps in China, Canada and Australia get cut off, I expect the U.S. market to start another downward leg. It's still overpriced by 7%. Chinese Buy Expensive U.S. Homes
In the U.S., the Chinese are now the second-largest foreign buyers of homes, behind Canadians, accounting for $7.4 billion of sales in the 12 months ended March 2011, up 24% from the previous 12 months, according to the National Association of Realtors. Buyers from China and Hong Kong also spent $1.71 billion on commercial property in the U.S. in 2011, more than quadruple their investment in 2008, says Real Capital Analytics.

Those numbers likely understate Chinese investment, as investors may buy property under business entities they've set up in the U.S., says Patrick O'Neill, founder of ONeill Group, a Hong Kong-based company that helps Chinese buyers find U.S. property.
One of her recent mainland Chinese buyers paid $5 million for a 5,000-square-foot home in Pasadena that the family expects to occupy for one month a year, she says. "They treat it like a hotel without room service," says Chang, who estimates that a quarter of shoppers in the $3 million-plus market in her area are from mainland China.

Mainland Chinese also account for a third of the buyers at luxury home builder Toll Bros.' new home development, The Heritage in Vista Del Verde in Yorba Linda, Calif., southeast of downtown Los Angeles. In the San Francisco Bay Area, Realtor Stanley Lo of Green Banker real estate says mainland Chinese — a third of his clientele — are looking for homes priced at $800,000 and up. Most of his clients are Chinese business executives, who can afford second homes. They follow friends, relatives or work colleagues to the suburbs between San Francisco and the Silicon Valley.

. . .

In New York City, mainland Chinese are increasingly paying cash for $20 million "trophy apartments," says Pamela Liebman, CEO of The Corcoran Group, a residential real estate brokerage company. Based on current trends — and the increasing numbers of mainland Chinese buyers — Liebman expects they'll account for one in 10 uber-luxury buyers in the next year or two.

High Inventories in Vancouver

Vancouver is at high inventories for March. New listings just yesterday were 450. Falling sales, increasing inventory.

REBGV March 2012 Statistical Report
The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver reached 2,874 on the Multiple Listing Service® (MLS®) in March 2012. This represents a 12.9 per cent increase compared to the 2,545 sales recorded in February 2012, a decline of 29.6 per cent compared to the 4,080 sales in March 2011 and an 8.4 per cent decline compared to the 3,137 home sales in March 2010.

March sales in Greater Vancouver were the second lowest total for the month in the region since 2002 and were 16.8 per cent below the 10-year sales average for the month.
Full package can be found at the blog of Realtor Mike Stewart.
Greater Vancouver MLS Inventory (Note some data late 2007 early 2008 interpolated because REBGV stopped reporting total inventory during this time.)
Vancouver Home Sales
Vancouver Home Prices

New Zealand Nibbles Away at Edge of Consumer Debt Bubble

New loan shark laws unveiled
Among the proposed changes, the bill would make it illegal to lend someone money whose loan repayments would be likely to result in substantial hardship.

The legislation would also require complete disclosure of loan terms and extending the period during which borrowers can cancel their loan.

"These will be the biggest changes to consumer credit law in a decade. It is time for a significant shift in lending laws to increase protection for borrowers and target irresponsible lenders," Tremain said.
Given the massive increase in household debt there are a lot of potential prey for lenders.
Household debt New Zealand

Oversight Increases on CMHC

Looks like Harper and Flaherty are going to step back and let OSFI handle letting the air out of the bubble. Politically safe move. Ottawa to toughen CMHC oversight
“The issue that pushes them near their lending limit is the desire of some of the financial institutions to purchase portfolio insurance for their low ratio mortgages,” Mr. Flaherty said.

“That’s not the way most people usually think of CMHC.”

Just three years ago, CMHC had $450-billion in loans it was backstopping and had to go to the government to get that increased to $600-billion.

“A legislative framework will support financial stability”

CMHC currently falls under the jurisdiction of the minister responsible for Human Resources and Skills Development Canada. But sources have indicated the Crown corporation could soon fall under direct supervision of the Office of the Superintendent of Financial Institutions — a powerful financial regulator with the power to enforce a broad range of changes at a financial institution.
It's unfortunate that CMHC was not used to manage access to housing credit when interest rates fell (which would have had a net effect of funneling more money to business and encouraging consumers to pay down debt), instead of the opposite (adding more fuel to the household credit fire).

Monday, April 2, 2012

RBC in Trouble Again with U.S. Regulators

This looks like it violates the letter of the law being applied, less so the spirit. Also, it seems like RBC doesn't seem to realize that the climate has, you know, perhaps shifted a bit on financial shenanigans between 2005 and present day. U.S. regulator accuses Royal Bank of ‘wash trade’ scheme
The Commodity Futures Trading Commission, which regulates derivatives trading in the U.S., said in court documents Monday that senior officials at RBC created “a wash trading scheme of massive proportion” that enabled it to earn Canadian tax credits.

The scheme is the largest that the CFTC has ever brought forward based on the value of the securities traded, which it said were in the “hundreds of millions of dollars.” But the bank issued a statement strongly denying the charges, saying it sought clearance from the CFTC as far back as 2005 to make the trades in question. A bank spokeswoman said the impact of the case was “not a financially material event.”
Just the latest trouble . . . Royal Bank of Canada's Reputation Takes Hit
In September, RBC Capital agreed to pay US$30.4 million to settle U.S. Securities and Exchange Commission civil charges of misleading five Wisconsin school districts that lost US$200 million invested in risky securities. The SEC said RBC didn't fully disclose the risks in 2006 when the school districts bought the investments. RBC neither admitted nor denied wrongdoing.

Last July, Massachusetts's top securities regulator sued RBC Capital Markets LLC and Michael Zukowski, a former RBC employee, for allegedly selling complex exchange-traded funds to clients that didn't understand them, causing 35 investors to lose almost US$800,000.

Toronto Buyer Files Complaint Over Realtors Driving Bidding Wars

Toronto real estate: First foray into bidding wars leaves homebuyer bruised
Gallant thinks RECO should be reviewing what have now become commonplace practises in the GTA: brokers “underlisting” properties for far less than their market value and then holding off accepting bids until there is a frenzy of demand that many believe has helped fuel the bidding war frenzy and driven up prices.

Bidding wars are no longer just a City of Toronto phenomenon, according to a recent ReMax study. They are impacting househunters in suburban areas, as well as some cities in resource-rich provinces such as Manitoba, Alberta and Nova Scotia.

“I’ve gotten to the point where if they are holding back offers, I won’t even bother to go see the house,” says Gallant, who’s been looking in earnest for a month now in the Vaughan and Newmarket areas with her fiancĂ©.
More buyers need to learn to walk away.