Garth Turner - Real Estate in Canada

[Yours Truly]

So basically sales volume is drying up but prices are going up.  Meaning higher valued properties are selling well and skewing the average prices higher?

[KCLarkin]

SFD is not the benchmark.

 

The benchmark prices I posted were for detached only.

 

PS. I don't need anyone to agree or believe me. I am writing what I see. Do with it what you choose.

 

I'm not looking for agreement or argument. I'm just worried about the risks to my portfolio. If home prices are really down 20% over such a short period, I need to make some portfolio changes. If they drop 20% over the next year, I am comfortable riding out the turbulence.

 

[rb]

KC, what's in your portfolio that would be strongly affected by a Vancouver RE price drop?

[KCLarkin]

So basically sales volume is drying up but prices are going up.  Meaning higher valued properties are selling well and skewing the average prices higher?

 

No, Assuming you are responding to my post. I posted the benchmark price for detached homes. This methodology attempts to avoid the skew seen in averages.

 

What I'm seeing is volumes going over the cliff with only slight weakness in price for detached homes.

 

That drop in volume is possibly an indicator that there is a very wide bid-ask spread, as sellers are slow to adapt to new market realities. And buyers are willing to wait them out. This could indicate future price drops, as sellers become more desperate. If my interpretation is correct, it is difficult to predict how deep this correction will be. Calgary had a huge drop in volume but suffered a mild price correction. Of course, Vancouver is much pricier.

[bbarberayr]

Genworth out with earnings - http://investor.genworthmicanada.ca/English/media/news-releases/news-release-details/2016/Genworth-MI-Canada-Inc-Reports-Third-Quarter-2016-Results-Including-Net-Operating-Income-of-93-Million/default.aspx

 

" the Company now expects that portfolio new insurance written in 2017 may decline by approximately 25% to 35% as compared to the normalized run rate after the July 1, 2016 regulatory changes for portfolio insurance"

 

Definitely going to put some pressure on buyers and this will put pressure on prices.

[rb]

I'm also thinking it's a pretty good indication that 25%-35% of genworth's portfolio is made up of mortgages that wouldn't meet the new rules. Food for thought.

[alertmeipp]

http://www.cbc.ca/beta/news/business/real-estate-agents-caught-breaking-the-rules-on-marketplace-s-hidden-camera-1.3825841

 

 

[bbarberayr]

I'm also thinking it's a pretty good indication that 25%-35% of genworth's portfolio is made up of mortgages that wouldn't meet the new rules. Food for thought.

 

Companies like this are probably good short opportunities, but I personally lost a lot of money being too early shorting the US real estate market in 2005/2006 and am hesitant to get involved as it could take longer to play out in Canada than I'd think as well.

[CalvinL]

http://www.cbc.ca/beta/news/business/real-estate-agents-caught-breaking-the-rules-on-marketplace-s-hidden-camera-1.3825841

 

This has been happening for decade. The incentive systems is all wrong in Canada. Some RE agent argues that they are bound by ethic code bla bla bla, but the incentive to block out other deals and favour double ended deals is huge.

 

Always get the selling agent to represent you. The double ended commission ensures that they will go out of their way to seal the deal with you, or at least you wont place the highest bid and then find out that you miss out by $500. Some could easily block out other deals with "accidentally missed" calls and faxes from other bidders. What's worse I've heard is that selling agents are partnering with wealthy relatives to place fake low ball bids. All sorts of market manipulation and real ugly stuff is happening daily.

[Aberhound]

Landcor Q2 price report with some discussion of 15% foreign buyer tax. Too soon to tell  but writer expects lower rate of price increases after a few quarters of adjustment.

 

https://www.landcor.com/sites/default/files/reports/upload/Q2%202016_Optimized.pdf

 

I observe as I walk around my neighbourhood on West side Vancouver that homes continue to sell but at a normal rate instead of the frenzy of the past few years. It is not anything like Phoenix in July 2007 when the market froze and started to plummet soon afterwards as forced sellers in large numbers had to sell.

 

But with Prem dumping his US long term bonds it is likely a good time to pre-approve long term fixed rate mortgages at current rock bottom rates and to convert floating rates to fixed. I personally decided to hedge for falls in real estate with Bitcoin in August and to my surprise the hedge is up over 25%. Bitcoin seems to work like a ratchet with adoption moving to the exponential portion of the S curve.

 

The election cycle is approaching and I noticed the BC government commissioned a report on a tunnel to Sechelt which also means a tunnel to North Vancouver (or a bridge or both). The logical tunnels or bridges are to go across Bowen and Keats islands to Sechelt, a third crossing through the tip of Stanley park bypassing downtown and a 4th crossing at the narrows from Deep cove to Belcarra and another across from near there at the narrows to North Burnaby. Clearly the government expects the population to greatly expand as infrastructure spending has been ramped up. The best investments now are likely the waterfront in East Vancouver which is the logical place to densify after the tunnels and bridges are built.

[wisdom]

Interesting developments in Hong Kong real estate - 30% tax on foreigners and 15% stamp duty on locals.

 

Plus the down payment requirements in cities like Beijing having a huge impact on sales there - 40-70% in down payments.

 

Not sure how this will play out, but governments in Australia, Canada, UK, Singapore, Hong Kong and China seem to be coming down on real estate.

[rb]

Not sure how this will play out, but governments in Australia, Canada, UK, Singapore, Hong Kong and China seem to be coming down on real estate.

Good!

[bbarberayr]

Some indications Vancouver prices have peaked:

 

https://betterdwelling.com/city/vancouver/demand-for-single-family-homes-in-vancouver-drops-over-50/?utm_medium=pushnotification

 

https://betterdwelling.com/city/vancouver/timberrr-vancouver-real-estate-selling-for-less-than-purchase-price/

[Cardboard]

http://www.theglobeandmail.com/real-estate/the-market/vancouver-home-sales-drop-nearly-33-in-september/article32229083/

 

15% tax on foreign buyers since August 2 and major tightening around mortgage rules.

 

If the real estate bubble deflates or worst pops, along with still weak oil & gas activity, what is going to be supporting Canada's economy? Imagine the effects of a banking crisis...

 

Cardboard

[Liberty]

[cwericb]

"15% tax on foreign buyers since August 2 and major tightening around mortgage rules.

 

If the real estate bubble deflates or worst pops, along with still weak oil & gas activity, what is going to be supporting Canada's economy? Imagine the effects of a banking crisis... "

 

Add to this possible changes to NAFTA, softwood lumber deal, the auto sector, etc. 

[Cardboard]

"Add to this possible changes to NAFTA, softwood lumber deal, the auto sector, etc."

 

Softwood lumber deal is the most vulnerable IMO. On the other hand, I do believe that Trump has a positive view of Canada and the benefit of our exchanges which are fair. Mexico is another ball game. Anyway, that is my belief based on my past involvement in the Canadian manufacturing sector and working a lot with Americans.

 

Trudeau wanting to pass a carbon tax now is a much bigger threat to the entire Canadian economy than any reasonable NAFTA change.

 

Cardboard

[cwericb]

I agree. But I wonder how Trudeau can back off on the carbon tax and not lose face. I also think Trump tends to look favorably towards Canada and that Mexico is his primary target for the time being. Also - people can say what they want about NAFTA, but every agreement has benefits to both sides. It is easy to use it as a target politically, but when it comes down to the nitty gritty there has to be advantages to the US as well in that agreement.

[Liberty]

http://www.theglobeandmail.com/report-on-business/sudden-rise-in-rates-could-send-home-prices-reeling-cmhc-warns/article32883563/

[rb]

I agree. But I wonder how Trudeau can back off on the carbon tax and not lose face. I also think Trump tends to look favorably towards Canada and that Mexico is his primary target for the time being. Also - people can say what they want about NAFTA, but every agreement has benefits to both sides. It is easy to use it as a target politically, but when it comes down to the nitty gritty there has to be advantages to the US as well in that agreement.

I'm not that worried about NAFTA. The fact is that the US has plenty of benefits already from Canada-US free trade. Moreover a lot of the benefit goes to places in the mid-west. They may want all the benefit and none of the cost but that's not really how it works. Canada also has a history of retaliating hard in trade wars so I'm sure they have that in mind.

 

Now whether the trade negotiations will be conducted by competent people who use facts, figures, and all that is a separate issue.

[wisdom]

Vacancy tax approved - 1% and $10,000 a day penalty if not declared.

 

http://www.cbc.ca/news/canada/british-columbia/city-of-vancouver-approves-empty-homes-tax-1.3853542

 

It will be interesting to see if this increases the rental supply and drops rentals.

 

My view remains that the shortage is because of the local developers holding multiple properties.

 

All 3 levels of government have enacted laws/rules to shut this down and the rising interest rates to top it off.

 

 

[Liberty]

But in a speech to a private audience at the Bank of England’s offices in London, CMHC CEO Evan Siddall called the move an “initial step” and said the government may need to look to raise minimum down payments even further to offset the effects of low interest rates and lean against new programs introduced by some provinces to help first-time home buyers that threaten to fuel more housing demand. This month, Ontario said it would double the land-transfer tax exemption for first-time buyers in the province to $4,000. ...

 

“I have yet to be convinced that people in our country “need” access to 19:1 leverage to buy homes,” Mr. Siddall said. “In fact, it may be a fool’s bargain with the extra demand simply feeding higher house prices: the benefits of the policy accruing to wealthier home sellers rather than to the young first-time homebuyers it purports to help.”

 

http://www.theglobeandmail.com/real-estate/the-market/cmhc-chief-says-higher-down-payments-needed-to-battle-housing-risks/article32923702/

[scorpioncapital]

How do they enforce the vacancy tax? Do they now hire an army of secret police like the KGB to stake out apartments? If they monitor power, you can say you are a monk and do not use modern technology :)

 

 

 

[JBTC]

Interesting developments in Hong Kong real estate - 30% tax on foreigners and 15% stamp duty on locals.

 

Plus the down payment requirements in cities like Beijing having a huge impact on sales there - 40-70% in down payments.

 

Not sure how this will play out, but governments in Australia, Canada, UK, Singapore, Hong Kong and China seem to be coming down on real estate.

 

Question for the locals - it seems prices of single family homes are too high in Vancouver, but what about the apartments? Are they pricey relative to income, rents, and historical prices?

 

Prices in Sydney and Melbourne remain very strong.

 

Prices in many cities in China are up about 40-50% in the past year but now have slowed post numerous purchase restrictions since Oct.

 

Hong Kong prices will probably cool, but tough to know the extent. The HK government first raised stamp duty in 2013, which caused prices to fall by single digits over a few years but the fall was essentially reversed this year. Part of what triggered the panic response by the government two weeks ago was a Mainland developer bidding almost twice the amount of those local developers for a piece of land, leading to fear that prices may soar in Mainland fashion.

 

[gurpaul88]

How do they enforce the vacancy tax? Do they now hire an army of secret police like the KGB to stake out apartments? If they monitor power, you can say you are a monk and do not use modern technology :)

 

In a downturn i think this type of policy would be hell.