wisdom

The 20% drop is from the peak in June. Thus, it will not show up in the YoY numbers until next year. But it is coming. I am not sure most people understand the gravity. They are really in denial or are so used to it bouncing back everytime over the last 16 years, they think they just have to wait a few months and it will be back to the good old days.

Speaking to realtors and developers. I had started hearing that prices were down 15% by September end but was waiting for more people to confirm. Now I have spoken to enough people and I am confident in what I am saying. Banks that used to do 65% financing for foreign nationals with no income and credit in canada. I am hearing from internal sources that has stopped. Earlier a foreigner could land with $5 million and the banks would give them a $10 million mortgage. Thus, the top of the market has been taken out. Even for locals getting 65% financing is tightening up. You could live at home with low networth and low income and still buy a revenue property using rental income. Now it isn't consider prudent. FI's have started hitting their caps on lending to developers because the cities had slowed down approvals. Thus, they are unable to lend to these developers even though they have several homes that they purchased earlier this year during the frenzy and need to close on them in the near future. At the Same time, the demand has disappeared because of the tightening. So not sure who will buy the completed homes. And if they can't sell their completed homes, I am unable to figure out how they pay their mortgages on properties they own. Shadow banking was handled by brokers. Their money came from investors who had borrowed against their homes and their earning was the spread. If prices continue dropping, this capital could be written off and individuals who thought this was easy money will be left with no income on the capital but will have their outstanding mortgage/HELOC against their primary residence. New rules that start to role out next week will require banks to hold more capital against mortgages. I expect this to make mortgages unprofitable unless rates are increased. Thus, I expect banks to start pulling back even more starting next month. Realtors, etc believe this to be temporary because they can not believe the government will let things collapse. All this is happening in a economy that has a very high reliance on real estate. Any business that is housing related will have a tough time going forward -Reits, banks, retail sales (no home equity as ATM), etc. In my opinion, this is the last pillar holding up the Canadian economy and it too is on the the way down. We should feel the ripple effect right across. Not sure if there will be any safe place to hide other then exporters and businesses that benefit from a low loonie.

SFD right across the board is down 20% in Vancouver and suburbs. Financing is drying up. Time to hold on, it is about to get ugly.

I believe BMO Harris does provide Canadians financing for US real estate - up to 70% of the value. Maybe TD does too, but I am not sure about them.

Privately borrowing for downpayment has been fairly common, but it comes at a price 12-14% plus fees. People were happy to pay it when the bubble was in full swing but the market for SFD houses has slowed dramatically in Vancouver. People aren't going to pay 12% plus when they have come to believe that prices pay not continue rising. This bubble is done by the looks of it.

I am starting to get interested in the Chou funds. It is great to see the pessimism build. Keep it coming!

http://globalnews.ca/news/2887766/data-is-the-metro-vancouver-real-estate-market-in-free-fall/ Not sure if it has begun, but, sure starting to feel like it has.

To understand the Vancouver market, one has to realize that most properties have been bought by so called developers (5-20 properties) that have paid over $1.2 million hoping to demolish, re-develop and to sell to Chinese buyers at $2.5 mil. If the Chiniese buyer disappears because of the tax the so called developer is scewed. Now these so called developers are in 1,000s in Vancouver because the bubble has been so good to them and it is 30% of local GDP. Look out below the day the music stops playing. Only a matter of time, no matter what stories someone can come up with about Chinese demand or not. In the end even the Chinese will buy high and sell low as do all other people.

I did hear similar stuff on Monday - the day the tax was proposed. I hear more fear and panic as people in the industry are starting to process the possible outcomes as I believe everyone believes that it is a bubble. It is just that they will get out of it before everyone else. Who knows how it pans out? just need enough people to panic and head for the exits at the same time.

The first day this news was released, the local real estate industry was in denial. Some actually argued why this would lead to a increase in prices. The last 2 days there has been a change, they are starting to squeal and put pressure on the government to make amendments as they are now worried. Apparently, some pre-sales/sales have been cancelled because of the tax, etc. They are complaining that it will result in job losses - 30% of local GDP is construction/real estate related. They did not need any amendments when the government was stimulating - as always.

I believe majority of the buyers to be locals who have taken on ridiculous amounts of debt in the belief that foreigners will keep buying at any price. My understanding of a bubble bursting is that the belief that is creating the rush to buy breaks down. The market locally has already slowed down considerably since April. Houses already sit for a while now. You don't have houses going up $100,000 in a day or even a month anymore. Most people who bought earlier in the year were expecting the prices to keep running. Not only has that stopped, but, now there is this law that attacks their belief. Most locals cannot imagine paying another $150-200,000 on top of the current prices and taxes. This is why I believe that this is the end.

Game over - 15% tax for all foreigners in Vancouver starting Monday. http://www.edmontonjournal.com/news/politics/premier+unveils+foreign+buyers+metro+vancouver+real+estate/12081555/story.html Average house is over $1.7 mil.

Happy Birthday!

This is a big deal psychologically. But, not sure if this ends the mass delusion or not. We could always add more debt to keep the music playing.

http://vancouversun.com/opinion/columnists/vaughn-palmer-nightmare-housing-scenarios-good-reason-for-government-caution A good read. The numbers are along what I expected.

Gary, do these people you refer to, understand the penalties and how they work? You have to live in a house for 18 months before flipping for the principal residence exemption to apply if you are a serial flipper. Even then CRA can question whether it is income or capital gains. In addition, CRA can question your past taxes for 7 years. Now it is different that individuals who don't understand the consequences often cheat. So much so, that I have even come across couples who claim to have 2 principal residences. But, good luck to them if they are caught.

Genworth if insured. Otherwise, private mortgages or fraud either by lenders or borrowers.

http://www.news1130.com/2016/05/31/bank-mortgage-metro-vancouver-scotiabank/ Scotia has been backing off on Vancouver and Toronto markets.

http://www.rosskay.com/vancouvers-ponzi-scheme.html Found this interesting. Not sure how good these guys are.

I stated on the previous post - yes, but they would have a cap on the exposure they would have on an individual. The $9.9 mil mortgage should tell you what the cap might be. There are a few banks that have been very aggressive in this market and others have followed suit recently. http://www.cbc.ca/news/business/rbc-mortgage-limit-size-1.3299631 PS. the Canadian and Vancouver market are built for speculators. Downside is limited to your 35% deposit if your income and assets are not in Canada. Upside has been huge.

In Canada, banks will lend to you with insurance with 5% down for the first $500k, and then 10% for the next $500k. At that point you need 20% down. As a new immigrant you need 35% down with no Canadian source of income or assets other than the down payment in Canada.

Virtually all have mortgage's. It is a myth that foreigners are paying cash - only a very small minority are not borrowing. Even in this write up on the $31 mil purchase there was a $9.9 mil mortgage. Why only $9.9 mil because the FI probably hit a cap. In most cases the financing is 65%.

Recognizing foreign income - What is the FI's recourse? The purchaser wins big if there is appreciation and walks away if the market goes the other way. A perfect set up if I were to attract speculation.

http://www.theglobeandmail.com/report-on-business/canadas-banks-fall-behind-us-europe-lenders-in-strength-gauge/article29950134/ Could we be building towards the perfect storm? This might force Canadian banks to tighten lending at the same time we are potentially peaking.

Spoke with mortgage brokers - 1) they can't believe the prices and the amount being borrowed 2) they see this as the time to make as much as they can to set themselves up for the rest of their lives. So they don't care as long as others are buying.