Chinese Language Article Summarizing Canadian Housing Bubble Arguments

Chinese Language Article from Canadian Home

Canada's housing market needs deep rate correction, a more powerful indicator. In 2009, the proportion of GDP, residential investment accounted for 6.48%, slightly lower than 6.76% in 2008 and 2007 peak of 7.13%. The previous peak in 1976 and 1989, respectively, 7.26% and 7.18% of what we all know that the last century, the early 80s and early 90s how the Canadian housing market, the tragedy occurred. Percentage of GDP, residential investment peaked, the housing market collapse in a few years will be declared.

How do you say Danger! Danger! Will Robinson! in Simplified Chinese?

Note: there are some issues with numbers/currency getting translated later in the article. (Per Jesse in the comments: 1 million = 10,000.)

More information about CanadaMeet and Canadian Home Network: "Home network is the most popular Canadian immigration and Chinese Web sites, in Canada and China has millions of users.

Monthly unique users in Canada and China: 200 million (November 2010 Statistical Report)
For Canada and China: 55% traffic (110 million) from Canada, 45% (90 million) from China"

Hat Tip: Van MD at VCI

Australia Capital Cities down 2.1% on March Quarter Seasonally Adjusted

Houses down. Rents up.
30 April 2011 RP Data – Rismark Home Value Index Release

The latest RP Data-Rismark Home Value Index results show capital city dwelling values were flat in the month of March (-0.2 per cent s.a. and 0.0 per cent raw). However, over the March quarter capital city home values softened noticeably (-2.1 per cent s.a. and -0.4 per cent raw).

In the non-capital city regions the story has been similar. In the year to end March 2011, ‘Rest of State’ house values were relatively unchanged (-0.5 per cent s.a.). However, the March quarter was a weaker one, with house values declining by -1.8 per cent s.a. (-0.7 per cent raw).

At the end of the March quarter, in the capital cities the national median dwelling price was $455,000. For all regions across Australia, the national median dwelling price substantially lower at $410,000.

This is followed by lots of pixels being spilled praying for a soft landing.

“Clearance rates are bouncing around the low fifty percent mark each week, the number of homes being advertised for sale is almost 30 per cent higher than at the same time last year, and sellers are being forced to adjust down their price expectations. Before there is any real upwards pressure on home values there will need to be some absorption of effective supply and a return of sustained buyer confidence to the market,” he said.

Wait, where's the housing shortage?

“In contrast to the fall in home values, gross rental yields have been improving with apartments and houses now delivering a gross return of 4.9 per cent and 4.2 per cent, respectively, in March 2011 according to RP Data-Rismark’s estimates,” Mr Lawless said.

A normal recommended rental yield is 7%, absent capital growth potential. This doesn't include the tax benefits of negative gearing. Tolerance for low rental yields seems the norm in Australia. There's been noise about changing the negative gearing rules, but I doubt anyone would take such action at a time like this, given the shock it would cause to the market (rents are actually sensitive to supply and demand, so rents won't be the side of this equation to give if negative gearing is no longer favorable).

Teranet Data Is Up for February 2011

No surprises here. February's market was juiced by the announced changes in mortgage rules.
housepriceindex.ca

Up slightly or flat for all but Calgary, which continued the same slow slide.

Perth Prices Continue to Decline

Home prices declined nationally in March quarter: APM

Australia's sluggish housing market remained just that in the first three months of this year with prices falling 0.6 per cent nationally, according to the latest data.

The fall in house prices follows near-record levels of housing stock coming on the market, the period homes are advertised for sale has also lengthened considerably.

Nationally, prices are up 0.2% year on year.

Perth house, unit prices keep falling

According to Australian Property Monitors quarterly house price report, median prices for Perth fell by 1.1 per cent between the start of January and the end of March, and 4.1 per cent across the past 12 months (the second biggest drop nationwide), to $540,978.

Brisbane fell 2% for the quarter 4.3% year on year.
Hobart fell 2.3% for the quarter 1% year on year.
Adelaide fell 4.8% on the quarter 0% year on year.
Darwin fell 2% on the quarter
Sydney down 0.4% on the quarter
Melbourne at 0% on the quarter
Canberra up 0.2% on the quarter

(if I find more year on year numbers, I'll add them in. The ABS data is due out shortly, so it's academic anyway.)

Grantham: 25% Chance China Will Stumble by Next Year

China Stocks Drop for 5th Day, Post 2011’s Longest Losing Streak

Jeremy Grantham said there is a 25 percent chance that China will “stumble” by next year over imbalances such as too much capital spending, an overheating real estate market or accelerating inflation.

“You could have a financial stumble, a housing stumble, a stumble from rebalancing of capital spending, or any combination thereof,” Grantham, chief investment officer of Grantham Mayo Van Otterloo & Co., said in an April 26 interview in Boston.

Sydney's Housing Market Shifts Unexpectedly

Property sales are heading west as the east slumps

SYDNEY'S great property divide is being turned on its head, with the wealthy Eastern Suburbs suffering a shock 15 per cent slump in property prices, while values in the city's west continue to soar.

The most prominent indicator is new housing finance which is now 30 per cent below levels reached in the first-home buyers frenzy of 2009. This reluctance to buy is also shown in the numbers of first-home buyers looking for property - only about 96,000, compared to 190,000 at auctions in late 2009.

Housing sales have also tumbled. Ray White Real Estate said the value of the houses it sold in March was 16 per cent down on March 2010 figures. Agencies also believe the number of houses on the market is at the highest level ever recorded in the city.

Property monitors and analysts are stunned by the sharp reversal in fortunes in traditional real estate hot spots, claiming the nine-month plunge has wiped billions from the collective wealth of the city's richest homeowners.

ARGH! It's not wealth. Unrealized paper gains on real estate are not wealth any more than debt is wealth, although at least the debt can claim to be real.

Let's say there is a little town called Two Rivers. It has 100 houses, all alike. Houses sell for $100,000 in Two Rivers and have done so for years, making the collective valuation of the town come in at $10,000,000. But one day this nice lady in a big yellow hat drives through town and she sees this little street of houses lined with tulips. Yellow Hat Lady adores tulips. She offers $150,000 for two houses (one for her and one for her dog) and the owners sell. By the standard of real estate valuations, every house in Two Rivers is now worth $150,000 and the collective valuation is now $15,000,000.

Truly, is that rational? One crazy buyer, or handful of buyers, or a mortgage fraud ring, get to decide the value of an entire swath of property? Crazy Yellow Hat Lady doesn't have an econ degree, may not even be able to balance her checkbook, but because she has more money than sense she gets to decide, in one fell swoop, that Two Rivers is now $5,000,000 wealthier. Seriously. That's how real estate "wealth" works.

If you think the moment Yellow Hat Lady took hold of the keys to her two houses that $5,000,000 of wealth suddenly materialized in the town square of Two Rivers like it was beamed in by Mr. Scott's transporter, then sure, you probably also agree that Sydney lost "billions of collective wealth".

Nice Summary of Bubble Arguments in the Star

Housing prices to drop 25%, forecaster predicts

“The recent housing boom has resulted in the largest rises in house prices ever seen in Canada, which have been similar in magnitude to those during the recent boom in the U.S.,” said Capital Economics analyst David Madani in a report released Thursday. “Unfortunately, the subsequent falls in prices could also be just as severe as those elsewhere.”

And the bubble denier:

“The price run-up in Canada has been based on strong economic fundamentals and demand from owner-occupants, whereas in the U.S., housing production was in excess of the demand that was justified by economic conditions,” said Toronto housing economist Will Dunning. “There was a large element of speculation in the U.S. that has not been present in Canada.

Everyone said this in the U.S. too. Problem is, speculators holding houses hides the oversupply. As well, anyone who buys in fear of "being priced out forever" IS a speculator, whether they plan to live in the house or not.

As in the U.S., financial innovation and very low interest rates have allowed Canadian consumers to take on more debt, and house prices are high relative to income, says Madani.

Anytime you see the words "financial innovation" substitute "ponzi scheme". You'll do better.

China's Black Market in Forged Backgrounds for Immigrants to Canada

You know what really shocked me? Investigative journalism! More of this, please.

How China’s ‘crooked consultants’ help the rich enter Canada

He [the Globe and Mail's invented persona] has the required minimum of $1.6-million in assets. What he doesn’t have are the documents Canadian immigration officials want: neither banking and pay statements to show that his wealth has accumulated gradually and legitimately nor proof that he has paid taxes on it. He also doesn’t have the necessary two years’ experience in managing employees.

In China, however, manufacturing a personal history that will satisfy Immigration Canada is no problem for almost anyone willing to pay

An estimated 400 firms based in China offer their services to prospective immigrants. Of the 22 approached by The Globe’s fictitious client, no fewer than 18 advised fabricating documents to produce the required background.

Although many suggested he ask someone who owns a company to create the income and tax documentation, eight said they could produce the papers themselves. Two even offered to have a Canadian company speed the process by hiring the applicant, if only on paper.

The minister acknowledged that embassy officials struggle with the sheer volume of applications from China – which accounted for more than 32,000 of the 45,000 the program received in total last year.

Interesting, the consultants blame the system itself for being too choosy and competitive.

But a veteran consultant who divides his time between China and Canada argues that honesty has become a handicap. He said the investor system is now so rife with fraudulent applications that anyone who fails to add some “polish” almost certainly winds up at the back of the line.

- According to the state-run China Daily newspaper, about 2,000 of the applicants [in 2009] were from China and they transferred nearly $1-billion into Canadian banks.

Leveraged at 20:1, that's enough to cause some serious house price inflation.

Canadian Households In Trouble, or Not?

We've not heard anything out of CAAMP lately. Usually there is some kind of April/Spring report. This matters only because various blogs and outlets have been quoting the November 2010 report in support of those wise, highly cushioned Canadian households.

Ability to Afford Interest Rate Increases
Given that interest rates in Canada have been at very low levels for a prolonged period, concerns have been expressed that many home owners may be unable to afford their payments when rates inevitably rise.
. . .
This issue of CAAMP’s “Annual State of the Residential Mortgage Market” further explores the issue. It confirms, again, that a vast majority of Canadians have substantial capacities to afford higher interest rates. The survey asked mortgage holders to indicate “the amount at which, if your monthly mortgage payment increased this much, you would be concerned with your ability to make your payments”. The responses indicate:

• The average amount of room is $1,056 per month on top of their current costs.
• Just 2% indicated that they have no room (the affordable increase is $0).
• A further 2% indicated their room is $1 to $99.
• 5% indicated that their room is $100 to $199.
• 6% reported room in the range of $200 to $299.
• This leaves 84% whose capacity is $300 per month or more.
• Even for those who originated the mortgage within the past year, the distribution of answers is essentially the same.

There is a sizable minority (about 350,000 out of 5.65 million, or about 6%) who would be challenged by rate rises of less than 1%, and a further 225,000 (5%) have thresholds in the range of 1.00% to 1.49%.

I don't know why this report was seen as great news. 575,000 households are living on borrowed time. If expected rate increases pushed half of these households to sell, that alone would whack the market. Remember, real estate prices are set on the margin, a few percent out of line, up or down, sways a lot of valuations.

Now we have a survey done by TD, just out:Canadians struggling to save and pay off debt

In the report, 38 per cent of Canadians surveyed said they had no savings at all.
. . .
One-third of Canadians who responded to the recent online survey also said they didn't have enough money to cover living expenses like rent or food bills.

The survey found that 54 per cent of the 1,003 people who took part in the survey said it was a real struggle or impossible to save.
. . .
On the flip side, 30 per cent of respondents said they had enough money saved to cover living expenses for at least four months.

The fiscally healthy 1/3 aren't going to save you, by any means. In the U.S. roughly a third rent, a third own outright (this used to be true in Canada but has fallen to something around 25%) and a third own with a mortgage. That housing disaster in the U.S. was caused by a mere 1/3 of the households.

Back to the CAAMP survey. As to the $300 a month cut off. That applies to the average mortgage across Canada. If we take an average house price of 345,000 as a mortgage at 3.5% interest rate, that's $1550 a month. At 5% interest rate, that's $1850 a month. Sure enough, $300 with no margin for error in the interest rate hike. But Vancouver and Toronto are far above the average price. Under the same terms, at the average price, the jump in payments will be $700 in Vancouver and $380 in Toronto. $80 might not sound like a lot, but given that 225k households are pushed over the fiscal edge by an additional .5% interest rate hike, that higher average will accentuate the panic selling in those cities when households get into trouble.

China's Wealthy Less Interested in Property Investment

China's rich less enthusiastic about property investment in early 2011: report

Investment by the country's rich in the real estate market took up 14 percent of their overall investment portfolio in early 2011, 4 percentage points less compared to the same period last year, according to a report jointly released Wednesday by the China Merchants Bank and Bain & Company business consulting firm.

The report said the number of people with assets worth more than 10 million yuan in China reached about 500,000 by the end of 2010, up 22 percent compared to the end of 2009. This number was expected to rise to 590,000 by the end of this year.