mcliu

The fact that so many people are calling a bubble makes it suspicious. Sometimes it feels like it's only a true bubble when no one sees a bubble and excess becomes normal. So this could be just the early innings and true euphoria hasn't come yet.

I think his recent results leave much to be desired, but at least he has the decency to admit that his performance was weak and waive (even return) fees. That's unheard of in the industry.

Citi's CEO said this back in 2007. “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” Probably applies here as well. The big banks have to answer to shareholders and keep pumping out profits. What better way to do that than to write ever bigger and riskier mortgages? High LTVs are also preferable since borrowers can buy mortgage insurance. You'll likely get a lower mortgage rate for a high LTV insured loan than a low LTV uninsured loan. RBC for example, almost half of their residential mortgage book is insured, so no credit risk + very little capital needed to support these loans = $$$.

Actually mortgage rates have gone up about 50 bps in the past year or so. But as another poster said, why does that matter when you can make 3,000 bps? Even if you can raise rates 500 bps why would it matter? By the way, to stop things you don't have to hike rates like crazy to brick the whole economy. The government has tools at its disposal to go use more precision based tools to regulate the shit out of real estate and real estate lending without taking down other sectors. But that seems to be unconceivable. Why should real estate speculators suffer and not manufacturers as well? Yes, slightly, driven by higher bond yields, but I think BoC is looking to cut short-term rates than to raise them. http://ca.reuters.com/article/businessNews/idCAKBN16Z1SX-OCABS I think it matters because higher rates makes it harder for people to borrow more and service the debt. Once cash flows get very negative, over-leveraged buyers are forced to sell, and all of a sudden, you'll have much more supply on the market. When net cash flows are positive, speculators have more flexibility to hold on to multiple units and wait for prices to rise. When everyone does this, supply shrinks and it becomes a self-fulfilling prophecy. While, theoretically, there are more precise/targeted monetary or fiscal tools, it's hard to find examples of where that's been implemented successfully. Even in China, where the government has much greater control over markets than most Western developed countries, they're having massive problems regulating real estate prices. Meanwhile, it's easy to find examples of the many cities and countries (that have had loose monetary policy / lending and extremely low real interest rates) that are having trouble dealing with escalating real estate prices, like Australia, Canada, Sweden, Norway, Hong Kong, China, etc. etc. Even with the US housing bubble, it was only until interest rates rose significantly and risky mortgages started resetting at higher rates that large cracks in the market began appearing. Most central banks have learned from that episode and their take-away seems to be to preempt housing corrections by lowering rates ahead of time.

When rates are this low and going lower, borrowers can keep rolling their debts and add more debt. Until we see higher interest rates, the music will keep playing..

Not really going to help if the central bank keeps cutting rates..

Somewhat weird, considering that Mark Wiseman was the guy promoting active management at the Canada Pension Plan Investment Board before leaving for BlackRock. Here's what he wrote shortly before he left: "It has now been a decade since the CPPIB decided to actively manage the CPP Fund, rather than pursue a passive strategy of simply mirroring public market indexes. It’s not a decision we took lightly. Active management requires more resources, and therefore more expenses, than a passive strategy. But we firmly believe that it generates significantly higher risk-adjusted returns for you." http://www.theglobeandmail.com/report-on-business/rob-commentary/yes-please-hold-cppibs-feet-to-the-fire/article30282937/

Maybe short the C$ or Genworth? It's a tough trade all around, like rb said, big carrying costs. Plus, the trend may last a lot longer than anyone expects as EliG says. Until you see a collapse in the Chinese housing bubble or a real tightening/reversal of capital flows, the inflow of hot foreign capital will keep driving prices higher. The problem is the large spread between real estate prices in China and the rest of the world. When someone can sell a tiny apartment in Shanghai/Beijing/Shenzhen/Hong Kong and buy a house in Australia/Canada/US, the trade will continue until the spread closes. Especially when prices are being set by the marginal buyer/seller. It's hard to see when this will happen, particularly as deposit rates in China are set below market rates, forcing people to buy real assets. It also doesn't help when the central banks in Australia/China/Canada keep extending credit into an overheating market.. I guess this is what happens when you allow non-market entities to hold dominant market share in global markets. ::)

Same craziness in Australia: http://www.news.com.au/finance/real-estate/selling/derelict-surry-hills-terrace-on-the-market-for-185m/news-story/1e46bc02c9640e7a07d53289598ba863

There's also no good vehicles to short like CDS in Canada. Saw this today: http://torontolife.com/real-estate/houses/toronto-house-for-sale-252-macpherson-avenue/ Semi-detached bought for $1.4M in 2015, renovated and is listing for $3.3M today :o That IRR though. ;D

Assuming houses appreciate at roughly the same rate as inflation, you are taxing "phantom gains". At the end of 20 years, you own the exact same house as you bought (actually a bit worse for wear). It makes no sense that should also need to pay tax on this "gain". Capital gains on stocks make some sense, since the retained earnings are taxed at a lower rate than dividends. So the real value of a company increases over time. There is still a stealth inflation tax though. Which is why capital gains taxes should be much lower than dividend or income taxes. Mortgage deductibility subsidizes borrowers, not homeowners. So if I have paid of my house, I pay the stealth inflation tax. But I don't get to deduct interest. Not sure if that's entirely true. I actually think houses should appreciate faster than inflation. (I could be wrong though.) If you look at it from a yield perspective. Price = Rent (or CF) / Cap Rate * (1 - Tax). The numerator would grow at something like nominal income growth (real income growth + inflation rate). The denominator would fluctuate based on interest rates. Also, certain prime locations are limited in supply and would appreciate more than those underlying factors due to scarcity.

I don't think you can really time these things..

I agree with the folks that believe taxes are important. IMO society may not function as well if wealth continues to accumulate to the few. Eventually it may lead to revolutions. However, getting the amount and type of taxation right is difficult. I do think they should get rid of things like the principal-residence exemption. Even up the playing field instead of favouring one asset-class over another. Especially when that market is clearly overheating.

On the other hand, wouldn't it be truly a top when 5 out of 5 banks rate real estate a buy? That's when you really know everyone's bought the story and there are no skeptics.. ::)

No way the CAD can fall that much. Canada actually has a real and productive economy should. Should CAD fall even a relatively small part of what you're calling far our exports would shoot through the roof which will stabilize CAD. In addition declines in CAD do not alleviate the housing costs for Canadians and make Canadian real estate cheaper for foreign investors in their currency. So I don't really see how a CAD decline fixes a bubble. Unless you're talking about foreign investors getting scared shitless by currency mark to market. Decline in the currency will probably be a result of monetary and fiscal easing to reduce the impact of a housing crash. (Like QE123.) The CMHC will need a bailout in a severe scenario. Housing gets propped up with ever lower interest rates. The government would probably want the effects to disperse through the currency rather than the real economy. Financially prudent Canadians take the hit in their C$ savings. (See Euro and GBP.)

Did Ireland having something equivalent to CMHC?

This report is interesting: http://www.demographia.com/dhi.pdf Page 38's comparison between Greater Toronto and Dallas Fort Worth Area may be worth considering. It also shows that there's still significant room for prices in Toronto and Vancouver to get go even higher if you use Sydney and Melbourne as comps. :o Mortgage rates are also almost 200bps higher in Australia than Canada.. Would whatever happen to Australia will serve as a good indicator of the fall out should a crash ever happen in Canada?

If that's the case, why invest in stocks at all? Why not just put all your money into Canadian housing and watch it double every 5 years? ;D

3) Debt service ratio: I stand corrected by Liberty on the total DSR, which is currently a bit higher than its 25-year average. Interestingly enough, the DSR on mortgages are right at its historic averages so the increase in total DSR is due to the rise in DSR of non-mortgage loans - likely due to more auto loans and substitution of credit cards for cash based payments. RBC report on Stats Canada DSR ratios: http://www.rbc.com/economics/economic-reports/pdf/other-reports/currentanalysis.pdf The DSR is probably significantly higher for Toronto and Vancouver than for Canada as a whole. This RBC Housing Affordability report shows Ownership Costs as a % of Total Income on a city-by-city basis. http://www.rbc.com/newsroom/_assets-custom/pdf/20161221-ha.pdf It shows Canada at 45%. Toronto over 60%. Vancouver over 90%.

What do you think the risks are here? Would higher interest rates impact the business since these investments use a lot of leverage? Also, would there be an impact from potential changes to carried interest taxation?

I guess, the difference here is, there's only one plane, and we're all on it. ::)

Not sure if this means anything but apparently the COO of BMO and CEO of Scotia are putting their houses on the market. ::) http://torontolife.com/real-estate/houses/bmos-chief-operating-officer-is-selling-his-house-for-11-7-million/ http://torontolife.com/real-estate/houses/scotiabanks-ceo-is-selling-his-swanky-church-conversion-condo-for-4-million/

Not sure if you're referring to these reports, but these RBC affordability studies are still being published: http://www.rbc.com/newsroom/reports/rbc-housing-affordability.html

the bank is not taking on much risk $10m first mortgage on a property worth $30m bank only needs to recover the $10m or 33% of purchase price. can Vancouver real estate fall 66%? I guess, the other question is whether that property is really worth $30 million? Isn't the scare that that house was only worth $10 million in the first place, but the "greater fool" came along and paid $30 million for it? Meanwhile, the banks are using the $30 as the "value" to lend against instead of the $10 million that it should be valued at. I mean, if someone else comes along and buys the same house tomorrow for $300 million and takes out a $100 million mortgage. Is the house really worth $300 million? And is the bank really only at a 33% LTV?

How do they get mortgages for these properties? Where's the income coming from? If there's a default, is there recourse?