wisdom

http://www.financialexpress.com/article/industry/banking-finance/ordinary-canadians-turn-bankers-as-shadow-mortgage-lending-rises/98032/ anecdotal evidence on how these purchases are being financed.

Fascinating - flipping properties and fear of missing out. http://business.financialpost.com/personal-finance/mortgages-real-estate/luxury-home-buyers-in-vancouver-flipping-houses-to-other-desperate-buyers-before-ink-even-dries-on-sale-contracts

Happy Birthday!!

http://finance.yahoo.com/news/fairfaxs-watsa-buy-indian-logistics-035558426.html

I am relying on my memory so could be wrong on the numbers - 50% of all mortgages in Canada at this point are insured. That implies there was something missing in the underwriting - either the 20% down payment wasn't there, there was no proof of income, etc. The 3 insurers are CMHC, Genworth and Canada Guaranty. CMHC had virtually pulled out of the market because after the crisis they had insured 50% of all mortgages in Canada. I believe that 50% of mortgages would amount to over $600 B in a country with GDP of $1.7 trillion or so. Maybe this is rational, maybe it isn't. Maybe it is prudent, maybe not.

I should add that this was further re-inforced because I was able to be opportunistic in 2008/2009 and 2011. Most individuals who have chosen to participate in real estate have not done as well even though they have used leverage and the market has been very favourable. These individuals need to let me know that they live in million dollar homes. Because I do not have any physical asset to show they feel that there must be something wrong with me as I cannot figure out what is obvious to everyone here - buy a house and become a millionaire. My conclusion is because human nature dictates that a million dollar house needs to have furnishings/lifestyle/vehicles/kitchens, etc that match the million $ house, the majority end up spending the equity. My best read is most of this has been financed as a result of which networth has not increased at the rate one would expect. But, again it is only anecdotal and one persons opinion. But this could also be the reason why 40% of people living in Vancouver want to leave but can't bring themselves to do what is best for them - human nature is interesting to say the least. And it is possible that I am fooling myself because I already came to this conlusion and reality is that everyone else is right that - an average house in Vancouver is going to $3 mil by 2030 and we will be the first city where only multi-millionaires live.

I think otherwise, but, that is ok. I see a lot of risk and it could just be that I am very risk averse. We can keep going back and forth and never agree because the outcome is in the future. Based on my limited understanding all I care about are the following: 1) asset is overvalued based on long term historical measures - 5.5 x median household income/sub 3% rental yield 2) leverage is involved - highest debt levels 3) everyone is talking about it or involved - 70% ownership v 63% We can keep talking about all the reasons in the world why this time will be different but I don't care because I have no ability to know why it has to be different this time. I prefer to be opportunitic rather than rely on my forecasting abilities. All the history I have read says avoid the above scenario. It is always possible that this time the outcome will be different. But, in the end I would have learned why this time was different and hopefully be smarter as a result. I do not think enough time has transpired to change my mind. Or maybe I have my head buried in the sand. We will know at some point in time.

But, it can vanish. How much of it is just luck? I would not take on a$500-700k mortgage and hope. But, I am sure we are gamblers.

The way I see it, the owners are subsidizing renters. I like to be the one who receives the subisdies rather than the one subsidizing others. If you factor in maintenance and vacancy on top of other costs, I think the returns are negative in a lot of cases. Similar to Sir Templeton - make money by helping others - buy when they want to sell and sell when they want to buy. I see the subsidy the same way. I will buy when renters again start subsidizing home owners. Yes, I am not seeing the gain in networth that the owners are because of leverage. But, I think of that as speculation as I cannot count on the gains and I am not smart enough to get out in time. Those leveraged gains on inflated assets dissappeared awfully fast in the US and some European countries. BTW - nothing stopping us from investing those savings into other assets.

In Vancouver the reason is because it has been in the top 3 places to live in the world according to one survey. Thus, everyone here believes that you do not need to be able to afford the mortgage, all that matters is that everyone around the world will move here and pay any price. You do not need jobs, just be rated the best place to live. Meanwhile, this Ipsos Reid survey was released yesterday. 40% of people living in Vancouver want to leave - most common reason - high cost of living. http://www.vancouversun.com/business/Vancouverites+feel+priced+town/11146479/story.html

Liberty while it will not be ever, it could be a while before rates go up. Think about this - 1) unless commodities bounce back - just had a 15 year run 2) housing continues booming - has been booming for 15 years 3) manufacturing comes back - it will take time before manufcturing starts coming back. Where do blue collared workers who lose jobs in the resource field get jobs that pay as much. At the sametime, we have the highest debt loads in recorded history. The only way they can counter it is by having the loonie at a low level v USD. Beggar thy neighbor. At this point I don't know how to think about it because if the loonie drops too much that could lead to inflation and thus, higher interest rates. The authorities have chosen to be risk averse and take the easier route in the last 20 odd years, so I expect them to choose lower rates rather than have the population deal with the pain of defaults and higher interest rates. While I say this, I realize these things are impossible to predict. EDIT: I was reading an article about those big yellow trucks at mining sites. The drivers are paid $200,000 a year. And a lot of companies are in the process of buying self driving trucks over the next 5 odd years. No one is going to pay a truck driver $200,000 anywhere else.

I don't think interest rates are going anywhere with what is happening in Alberta. If job losses continue how can BoC raise rates. I would expect loans to start going bad later this year or early next year - the jobs in the oil fields pay a lot more than jobs elsewhere. I would not be surprised if we go lower rather than higher.

A person who has lived in Canada can use a similar no income verification program if they are self employed. BC has the highest rate of self employment in Canada.

Sorry, that should have said the same rates as everyone else that qualifies using income and credit history.

There is also a reason why BC's per capita non-mortgage debt levels are 2x the Canadian average - around $39,000. Allows the locals to enjoy the ride.

My understanding is they get posted rates. There is no adjustment for risk other than 35% down.

Gary, I have raised this a few times and I will repeat - you do not even confirm income overseas. All they need to do is have a reasonable explanation about their source of income. Why, because it is really not that difficult to provide fake documents and a Canadian employee would not know any better. In addition, a Canadian bank has no recourse on income or assets outside Canada. Mainland Chinese have not experienced falling prices in RE so far, ever since they were allowed to own RE in China. They have only seen them go one way in China. To a lot of them this is a one way bet with no risk. Look at the number of risks they are taking on - 1) foreign exchange - income in China and investment in China 2) interest rate 3) leverage 4) over valued asset It is likely that when they move, a lot of these factors will move against them and the losses are going to be quick and big which could spread panic. I cannot imagine making a bet with this many variables that could potentially go against me. Either they are sure they will get out in time or they do not understand the risks they are taking on. We will see - making money in Vancouver RE has been easy for 15 years now. The longest uptrend so far that I have been able to find - historically, it has been around 7 years in Vancouver. I guess, people can still find reasons why Vancouver RE will keep running up.

What does everyone think of what is happening in the bond markets? Could this be the beginning of the bond bubble busting? As other's and Roubini recently have commented there is a mismatch in bond ETF's - liquidity - could this lead to things getting out of the central banks control?

http://www.moneycontrol.com/news/business/thomas-cook-india-arm-quess-corp-to-obtain-49-staketsq_1396233.html Quess buy in Qatar

SD you should check out how many locals own 10 to 40 properties and are leveraged all the way. I would recommend not falling prey to media stories that this is all Chinese money. Maybe Vancouver is the next London, maybe not. The jury is still out.

SD obviously that is happening. But, if the CAD drops 20% it is not as safe. And this has nothing to do with a real estate market that has gone one way for 14 years now. On top of that if bonds are in a bubble and interest rates reverse, the calculations on real estate might change as well.

Gary not sure what the right thing to do is. If this is a bubble, it is one of the longest in Canada. At some point most people will buy into it. The other thing that scares me in the number of individuals relying on the real estate market for income. Majority of people I talk to - anyone from doctors, IT professionals to cab and truck drivers - everyone is building on the side. They seem to be doing exactly what your friend is doing. Buy houses for a $1 - 2 mil and build a new home and flip it. I have 2 concerns - 1) What if majority of the sales in the last few months have been to developers rather than real demand? 2) What happens in 2 years time when all these houses are completed and put on the market and there are no buyers? (If immigration or China slows/Canada is in a recession or interest rates are higher) 3) Since so many individuals rely on this process for income - what happens to their mortgages and multiple properties when the cash flow (music) stops? It truly scares me when I look at how far it has fed into the local economy because of how long this has gone on. Could the shortage in lots being available be due to these builders buying at this time rather than real demand. But, this may continue for a lot longer - who knows. EDIT: Because it is difficult to get good employment - most immigrants - Indians, Iranians and Chinese are very heavily reliant on this process for their incomes - building a home if you have capital (self employed), trades until you have capital (immigrants are cheaper) and work longer hours in general.

East Van is right. Condos are not included in Single detached prices. What I am trying to point out is that is a small section of the population of immigrants not the majority. But, it gets all the headlines. The investor class of immigrants is a very small number - you can look up the numbers and majority of them settle in Toronto.

The average price for Vancouver is $1.3 mil not including any of the suburbs.

Traditionally, an immigrant used to take 3 to 5 years to establish themselves in a new country. And it was on average in year 10 that they would end up buying their first house when they had a down payment ready. What the new immigrant program seems to have done is front loaded the whole process. Most immigrants now buy within the first year of landing in Canada. I also feel there tends to be a high correlation between recessions and slow down in immigration in a democratic society. Canada could be on the verge of a slow down. Funnily enough the protest and talk about professional locals not being able to afford a house are starting at the same time as the slow down. We shall see if it turns out differently this time.