Garth Turner - Real Estate in Canada

[Cigarbutt]

Real estate is a weird mash-up of mostly local factors, with some national ones mixed in. I'm pretty sure that anecdote isn't from Calgary, for example. I think you had mentioned once you're in Quebec?

 

Local factors (local economy, net-migration, investment demand, animal spirits, etc) can combine with national factors (interest rates, mortgage policy changes).

 

Interestingly, in Calgary the local economy has been weak for some time, combined with federal tightening which have both hurt local real estate. Now the local economy has green shoots from $65-70 WTI, but real estate isn't improving much if at all.

 

Part of that is foreclosures from a year or two ago finally hitting the market and part of it is sentiment hasn't turned yet.

 

I'd be a buyer in size right now except for concern that a national price decline will hit here in the form of reduced buyer sentiment and tighter lending standards. Price declines have finally caught up with rent declines in my areas.

 

I live in the Montreal area and you are correct in underlining significant local and regional variations.

 

Interesting because if you look at the Calgary (and Edmonton) area real estate index from the National Bank link listed above (p.3), you may find a very close correlation between oil prices and the index with a probable strong causal effect from oil to housing as the most important variable among many.

 

In the reference provided below there are some useful comments that are relevant for commercial real estate. I looked at the CDN oil and gas sector in 2015 and 2016 and felt a rebound was reasonable within a lower for longer environment. Interesting to remember how difficult it is to "forecast" oil prices.

https://www.avisonyoung.com/documents/20342/571064/AYWhitePaperEnergySectorImpactCREMktApr1_15Final.pdf/33928470-d9b0-454e-862e-dd7e801eeb48

 

Despite or perhaps because of "national" trends and risks in housing and real estate in Canada, you may have to include an outlook for oil prices in your intrinsic value and margin of safety assessment in Calgary. One might even say that you may need to include an outlook for political resolution of the pipeline resistance which may stubbornly prevent the differential from closing to historical levels. Good luck.

[EliG]

I live in the Montreal area and you are correct in underlining significant local and regional variations.

 

One expert claims that Montreal is the new destination of choice for the hot Chinese money.

 

https://montrealgazette.com/business/local-business/real-estate/chinese-millionaires-lined-up-to-buy-montreal-real-estate-expert

 

 

[alpha]

 

Seems like the Australian housing market is finally starting to turn, will Canada be next?

 

https://www.bnnbloomberg.ca/the-end-of-the-global-housing-boom-1.1117046

 

https://www.ft.com/content/cf5bcbf8-b0b1-11e8-8d14-6f049d06439c

[alpha]

Real estate is a weird mash-up of mostly local factors, with some national ones mixed in. I'm pretty sure that anecdote isn't from Calgary, for example. I think you had mentioned once you're in Quebec?

 

Local factors (local economy, net-migration, investment demand, animal spirits, etc) can combine with national factors (interest rates, mortgage policy changes).

 

Interestingly, in Calgary the local economy has been weak for some time, combined with federal tightening which have both hurt local real estate. Now the local economy has green shoots from $65-70 WTI, but real estate isn't improving much if at all.

 

Part of that is foreclosures from a year or two ago finally hitting the market and part of it is sentiment hasn't turned yet.

 

I'd be a buyer in size right now except for concern that a national price decline will hit here in the form of reduced buyer sentiment and tighter lending standards. Price declines have finally caught up with rent declines in my areas.

 

Funny I found the prices in Alberta and eastern BC pretty good compared to rest of Canada, I was thinking prices nearly bottomed out with the recent oil prices. And unlike the rest of Canada the real estate prices actually seem to be tied to the local wages and economic health there.

 

I was recently looking at multi-unit buildings along the new LRT line in Toronto, the asking prices on some of the buildings would have required me to get new tenants and increase rent by 40% just to be cash flow neutral, before factoring in any required renovations. And theses were areas with lots of shootings and gang violence.

 

 

[rb]

 

Seems like the Australian housing market is finally starting to turn, will Canada be next?

 

https://www.bnnbloomberg.ca/the-end-of-the-global-housing-boom-1.1117046

 

https://www.ft.com/content/cf5bcbf8-b0b1-11e8-8d14-6f049d06439c

Canadian housing market has turned. It just doesn't really sell copy.

[bizaro86]

Real estate in AB is cheap on basically every basis compared to the rest of Canada. It has poor momentum/sentiment though, which is why I doubted the anecdote about a quick high-price sale was from here. I do think there are bargains, especially compared to the rest of Canada. I have a friend selling a four plex that has actual positive cash flow at in place rents, which isn't typical for Canadian RE, imo.

[alpha]

 

This article is about a woman who took out loans against her home to purchase houses for both of her teenage kids in a city near Toronto. She views them as long term investments. Sounds like she currently rents them out at -$1000/month cash flow. The financial details mentioned are a little confusing though.

 

https://www.thestar.com/life/homes/2018/09/14/property-investment-is-how-this-mom-is-providing-for-her-kids-future.html

 

 

[Cigarbutt]

This article is about a woman who took out loans against her home to purchase houses for both of her teenage kids in a city near Toronto. She views them as long term investments. Sounds like she currently rents them out at -$1000/month cash flow. The financial details mentioned are a little confusing though.

https://www.thestar.com/life/homes/2018/09/14/property-investment-is-how-this-mom-is-providing-for-her-kids-future.html

 

This anecdote reminds me of a conversation I had in 2007 with a same-year graduating colleague who wanted to relocate from Fresno, California, who had bought a larger mansion in 2006 and had kept the previous one for "investment" purposes.

https://fred.stlouisfed.org/series/ATNHPIUS23420Q

 

Like the Toronto investor you describe, sometimes I get a feeling that the renter is on the right side of the transaction.

I haven't spoken to this person for a while but I hear that he hasn't relocated because he wanted to stay relatively close to the ocean.

I would bet though that he may still be still underwater.

[Jurgis]

I haven't spoken to this person for a while but I hear that he hasn't relocated because he wanted to stay relatively close to the ocean.

I would bet though that he may still be still underwater.

 

Not sure if this was intentional, but it was funny.  ;D

[Cigarbutt]

The reason for this post:

 

-With enough conviction, I would short a basket of Canadian banks.

-In the meantime, I am scouting real estate (apartment buildings) in my area in order to be ready to buy, given the right circumstances. It is even reasonable to consider the possibility, contrary to the historical trend, that condos could eventually be converted to apartments.

 

The context is the Australian real estate market and the narrative is the parallel development with Canada, New Zealand and some Scandinavian countries.

 

https://lt3000.blogspot.com/2018/09/the-australian-housing-bust-why-this.html

According to the author, the market is priced for perfection and a perfect storm (that's what it would be called in hindsight) combining the economic and credit cycles could deflate what could eventually be called a bubble.

 

https://www.whitehelmcapital.com/wp-content/uploads/2018/05/201805-Feature-Article-Tightening-Lending-Standards-Brief.pdf

The report that confirmed what many suspected. Since then, the mortgage market has tightened and prices have started to decrease but the damage will be "contained" (heard that before?).

 

https://www.rba.gov.au/publications/bulletin/2009/may/pdf/bu-0509-4.pdf

https://www.rba.gov.au/speeches/2018/pdf/sp-ag-2018-02-20.pdf

What I find absolutely fascinating is that "authorities" could explain, in 2009, the Australian exceptional experience during the GFC but apparently fail to appreciate now that the very factors that allowed the relative smooth transition (absence of excessive price and over-extension, "better" regulation and tax policies) then are no longer true. When facts change...

 

https://www.businessinsider.com.au/chart-australian-wages-house-prices-2018-3

(compare graph 14 in 2009 document to above; note that the latter graph does not measure the exact same thing but the proportional change holds.

Specifically, the rising "dwelling" price to income measure has certainly thinned the margin of safety to the point of oblivion. A similar conclusion can be reached for LTV ratios which have "improved" lately but with a high starting point (coming back to earth?). Like in Canada for many cities, Australia home affordability is challenging.

 

Coming back to the LT3000 blog thesis, timing is the issue and there is always the possibility that mortgage debt to GDP will just continue on its upward historical trend. ::)

http://www.abc.net.au/news/2017-04-09/mortgage-to-australian-gdp-ration/8429174

 

 

[Viking]

Cigar, if Canada has a housing slowdown or worse the country will be in deep trouble. Real estate has been the road to riches for many. Calculated Risk says to watch inventory closely. When inventory in the US started increasing dramatically (in 2006 I think) he called the top in prices. I am watching inventory in my area and while it has been increasing and is elevated it doesn’t look concerning yet. However, if inventory continues to increase substantially over the next year then perhaps we will see prices start to crack. If the the Bank of Canada continues to raise rates this will also be a risk given how much debt many families have. Interesting times :-)

[SharperDingaan]

Keep in mind that Canadian RE shares little simlarity with the US. Loan structure, recourse/non-recourse, regulatory oversight, and a host of other things are completely different. Hence, you're trying to compare apples to oranges. Yes they are both fruits, but that's about it.

 

SD

 

[Guest 50centdollars]

Keep in mind that Canadian RE shares little simlarity with the US. Loan structure, recourse/non-recourse, regulatory oversight, and a host of other things are completely different. Hence, you're trying to compare apples to oranges. Yes they are both fruits, but that's about it.

 

SD

 

SD - can you elaborate when you say sound regulatory oversight? As someone who works in the compliance world, I think the regulatory oversight in Canada is a joke.

 

What makes you say that the regulators do a good job in Canada?

 

[obtuse_investor]

Cigar, if Canada has a housing slowdown or worse the country will be in deep trouble. Real estate has been the road to riches for many. Calculated Risk says to watch inventory closely. When inventory in the US started increasing dramatically (in 2006 I think) he called the top in prices. I am watching inventory in my area and while it has been increasing and is elevated it doesn’t look concerning yet. However, if inventory continues to increase substantially over the next year then perhaps we will see prices start to crack. If the the Bank of Canada continues to raise rates this will also be a risk given how much debt many families have. Interesting times :-)

 

Interesting...

 

Viking: how do you get inventory numbers for various locations? Is this available to the public? 

[Cigarbutt]

CREA has national statistics on residential market balance with inventory in months and it is possible to look at regional inventory numbers.

http://creastats.crea.ca/natl/

http://creastats.crea.ca/treb/

 

 

Looking for disconfirming evidence but would tend to say that the Canadian mortgage regulatory framework is more "sound" although Timothy Geithner and Ben Bernanke used to give reassurance that was growing alongside implicit and explicit government involvement. And things turned out more complicated than forecasted.

 

-underwriting standards appear to rely on stronger documentation and clearer rules for down-payments and affordability

-mortgage interest is not deductible and lenders have legal authority to go after borrowers

-the mortgage product is less "exotic", no teasers and the principal is scheduled to go down

-the mortgages are less intermediated

 

In contrast to the US where the government encouraged home ownership and the subprime wave, I find that, in Canada, the government has "only" allowed an environment where households became "comfortable" with debt and became used to rising house prices much faster than fundamentals. However assumptions relied, at least in part, on mortgage interest rates remaining low and the regulators now appear to be behind the ball.

 

So, the mortgage markets are different animals when one compares the US and Canada. In 2006-7, an argument can be made that the subprime sector imploded, spread to the rest of the mortgage sector and then the economy went south. For the above reasons, IMO the Canadian real estate market is unlikely to turn badly on its own but different measures show a relatively high degree of vulnerability if the economy experiences a cyclical downturn (for whatever reason). Asset busts are much more painful and longer than the typical cyclical economic busts.

https://www.bankofcanada.ca/wp-content/uploads/2015/12/fsr-december2015-cateau.pdf

see pages 55 and 56 of the document, including Box 1.

But nobody really knows until we find out. Sometimes objects in mirrors are closer than they appear.

 

It is possible to envisage the possibility of "deep trouble" but the banks should make it through considering that public entities would rapidly rescue and back-stop with the undesirable potential side effect of preventing the deleveraging from bearing its fruit. 

[Viking]

Obtuse, here is what i use to see what is going in my part of Vancouver (called the Fraser Valley).

 

http://www.fvreb.bc.ca/stats/

 

I continue to believe that we have a housing bubble in Vancouver and Toronto. I have been wrong for many years and may continue to be wrong :-) The US had a housing bubble and it popped; this does not mean what happens in Canada is the same (why we have a bubble and what may eventually pop it). One key to me is interest rates. If mortgage rates in Canada continue their march higher higher interest costs will eventually start to bite.

[Viking]

Quote from RBC report on the Canadian housing market; released today. The Bank of Canada continues to increase interest rates. I think we are getting close to an inflextion point. Either economic growth slows, which would then reduce the need for more interest rate increases. Or, as mortgage rates continue higher, house prices start to come down.

 

“To carry a home bought in the second quarter of 2018 would have taken up 53.9% of a typical household’s income. This is up sharply from 43.2% three years ago Blame interest rates for the rise in ownership costs in the past year… Unaffordability is off the charts in Vancouver, Toronto and now Victoria. Interest rates have a big impact in these high-priced markets… It’ll probably get worse. We expect further interest rate hikes in the period ahead. This is poised to drive ownership costs even higher across Canada. Household income increases will soften the blow for buyers.”

[SharperDingaan]

Keep in mind that Canadian RE shares little simlarity with the US. Loan structure, recourse/non-recourse, regulatory oversight, and a host of other things are completely different. Hence, you're trying to compare apples to oranges. Yes they are both fruits, but that's about it.

 

SD

 

SD - can you elaborate when you say sound regulatory oversight? As someone who works in the compliance world, I think the regulatory oversight in Canada is a joke.

 

What makes you say that the regulators do a good job in Canada?

 

In Canada. The vast majority of mortgages are issued by federal FI's regulated by OSFI, working closely with the BOC and provincial regulators. Financial stability is maintained by OSFI /BoC stress testing FI capital against various scenarios, and changing the rules as required (new mortgagers passing a 200 bp stess test before the morgage is issued). You do as you're told, when you're told, as your federal FI operates at the 'pleasure of her majesty'. A Provincial FI is subject only to the rules of the Province, usually a lot less strict. But if the Provincial FI is selling mortgages to others outside of the Province, there will be an OSFI 'overlay'. 

 

So long as a Province 'X' FI meets local requirements it can originate a mortgage in Province 'X'. It can re-sell it to anyone it wants, but a Federal FI will have limits on how much of these Province 'X' mortgages it can hold (originate or purchase). Hence you can originate as much dog-sh1te as you want, but you need an other than federal regulated FI to buy the bulk of those mortgages. So you securitize what you couldn't sell, and it becomes the mortgage investors problem - not that of the Canadian financial system.

 

The US doesn't have anywhere near this crisp a level of seperation. So when there's abuse - it's easier to achieve system wide 'contagion' and force a financial system 'bail-out'. We burn the investors, and originating Province instead. A scottish thing.

 

SD

 

 

[alertmeipp]

There are billions of shadow banks and p2p mortgage up there.

Median income of 60 70k, average house price near 1m.

50 percent of condo buyers are investors not end users. Half of those are in negative cash flow position.

 

It’s going to be very ugly.

 

Btw, BC is cracking down millions of illegal money that are tunnelling throughout real estate as well.

 

 

[Guest 50centdollars]

Keep in mind that Canadian RE shares little simlarity with the US. Loan structure, recourse/non-recourse, regulatory oversight, and a host of other things are completely different. Hence, you're trying to compare apples to oranges. Yes they are both fruits, but that's about it.

 

SD

 

SD - can you elaborate when you say sound regulatory oversight? As someone who works in the compliance world, I think the regulatory oversight in Canada is a joke.

 

What makes you say that the regulators do a good job in Canada?

 

In Canada. The vast majority of mortgages are issued by federal FI's regulated by OSFI, working closely with the BOC and provincial regulators. Financial stability is maintained by OSFI /BoC stress testing FI capital against various scenarios, and changing the rules as required (new mortgagers passing a 200 bp stess test before the morgage is issued). You do as you're told, when you're told, as your federal FI operates at the 'pleasure of her majesty'. A Provincial FI is subject only to the rules of the Province, usually a lot less strict. But if the Provincial FI is selling mortgages to others outside of the Province, there will be an OSFI 'overlay'. 

 

So long as a Province 'X' FI meets local requirements it can originate a mortgage in Province 'X'. It can re-sell it to anyone it wants, but a Federal FI will have limits on how much of these Province 'X' mortgages it can hold (originate or purchase). Hence you can originate as much dog-sh1te as you want, but you need an other than federal regulated FI to buy the bulk of those mortgages. So you securitize what you couldn't sell, and it becomes the mortgage investors problem - not that of the Canadian financial system.

 

The US doesn't have anywhere near this crisp a level of seperation. So when there's abuse - it's easier to achieve system wide 'contagion' and force a financial system 'bail-out'. We burn the investors, and originating Province instead. A scottish thing.

 

SD

 

Have you asked yourself why the stress test was brought in? I'll tell you. It's because they found out that mortgage fraud is a serious problem in Canada. There is a reason why CMHC is asking the CRA for people's incomes now. https://business.financialpost.com/real-estate/mortgages/exclusive-canada-housing-agency-pushes-for-better-income-checks-to-catch-fraud. It's because its very easy in Canada to lie about your income and most mortgages brokers out there get paid on volume so they don't care whether you can really afford the house or not. Many people were doing this.

 

The OSC and OSFI were tipped off by whistleblowers about the mortgage fraud going on at Home Capital a year and a half before shit hit the fan. They sat on the information and did absolutely nothing. They only acted on it when the information was leaked to the Globe and Mail and it was published in an article. Is that good oversight to you? Now, even today, most people think Home Capital was a short and distort lol and the reason they do is because OSFI doesn't give the information to the market. The only way you would know this is if you knew an OSC/OSFI employee or someone who left Home Capital, which is how I know. The CMHC knew Home Capital was a problem. They knew there was a lot of fraudulent mortgages pumped into CMHC but even they did nothing. They kept approving them. Not sure how that is good oversight?

 

Things don't get done on the frontpage of the newspaper in Canada and you will never hear when there is a issue in the financial world unless it is leaked. The reason for this is because OSFI believes that our financial system is small and because it is small, our system can collapse a lot easier. If one bank goes down in Canada, were fucked. If one bank in California goes down, doesn't mean the US banking system goes down. Now, you can argue whether this is the right way to do it or not but I believe all information should be given to the market so people can make informed decisions. People were going long home capital thinking it's short and distort and I don't blame them because how would they know? It wasn't short and distort, there was serious fraud going on there.

 

Home Capital is just one example where mortgage fraud is a problem. There are others but the market doesn't know about them yet. You will find out when this cycle ends.

 

The other major problem in Canada is money laundering. The money laundering departments of all FI's in Canada are dog shit. I'm not sure why they even have these departments because the employees in them don't do anything. And I'm talking about the big banks, not casinos in BC. The regulators know about this but don't do anything lol. Even the compliance departments at most banks are a mess. They're mostly country clubs.

 

The stress test was way too late. That should have been brought in years ago but I'm glad they did it and I hope they get even more strict. They waited way too long. Regulators in Canada have to be tougher. They have to show their teeth. Sadly, most of the time, they don't really do anything.

 

 

 

[SharperDingaan]

Keep in mind that Canadian RE shares little simlarity with the US. Loan structure, recourse/non-recourse, regulatory oversight, and a host of other things are completely different. Hence, you're trying to compare apples to oranges. Yes they are both fruits, but that's about it.

 

SD

 

SD - can you elaborate when you say sound regulatory oversight? As someone who works in the compliance world, I think the regulatory oversight in Canada is a joke.

 

What makes you say that the regulators do a good job in Canada?

 

In Canada. The vast majority of mortgages are issued by federal FI's regulated by OSFI, working closely with the BOC and provincial regulators. Financial stability is maintained by OSFI /BoC stress testing FI capital against various scenarios, and changing the rules as required (new mortgagers passing a 200 bp stess test before the morgage is issued). You do as you're told, when you're told, as your federal FI operates at the 'pleasure of her majesty'. A Provincial FI is subject only to the rules of the Province, usually a lot less strict. But if the Provincial FI is selling mortgages to others outside of the Province, there will be an OSFI 'overlay'. 

 

So long as a Province 'X' FI meets local requirements it can originate a mortgage in Province 'X'. It can re-sell it to anyone it wants, but a Federal FI will have limits on how much of these Province 'X' mortgages it can hold (originate or purchase). Hence you can originate as much dog-sh1te as you want, but you need an other than federal regulated FI to buy the bulk of those mortgages. So you securitize what you couldn't sell, and it becomes the mortgage investors problem - not that of the Canadian financial system.

 

The US doesn't have anywhere near this crisp a level of seperation. So when there's abuse - it's easier to achieve system wide 'contagion' and force a financial system 'bail-out'. We burn the investors, and originating Province instead. A scottish thing.

 

SD

 

Have you asked yourself why the stress test was brought in? I'll tell you. It's because they found out that mortgage fraud is a serious problem in Canada. There is a reason why CMHC is asking the CRA for people's incomes now. https://business.financialpost.com/real-estate/mortgages/exclusive-canada-housing-agency-pushes-for-better-income-checks-to-catch-fraud. It's because its very easy in Canada to lie about your income and most mortgages brokers out there get paid on volume so they don't care whether you can really afford the house or not. Many people were doing this.

 

The OSC and OSFI were tipped off by whistleblowers about the mortgage fraud going on at Home Capital a year and a half before shit hit the fan. They sat on the information and did absolutely nothing. They only acted on it when the information was leaked to the Globe and Mail and it was published in an article. Is that good oversight to you? Now, even today, most people think Home Capital was a short and distort lol and the reason they do is because OSFI doesn't give the information to the market. The only way you would know this is if you knew an OSC/OSFI employee or someone who left Home Capital, which is how I know. The CMHC knew Home Capital was a problem. They knew there was a lot of fraudulent mortgages pumped into CMHC but even they did nothing. They kept approving them. Not sure how that is good oversight?

 

Things don't get done on the frontpage of the newspaper in Canada and you will never hear when there is a issue in the financial world unless it is leaked. The reason for this is because OSFI believes that our financial system is small and because it is small, our system can collapse a lot easier. If one bank goes down in Canada, were fucked. If one bank in California goes down, doesn't mean the US banking system goes down. Now, you can argue whether this is the right way to do it or not but I believe all information should be given to the market so people can make informed decisions. People were going long home capital thinking it's short and distort and I don't blame them because how would they know? It wasn't short and distort, there was serious fraud going on there.

 

Home Capital is just one example where mortgage fraud is a problem. There are others but the market doesn't know about them yet. You will find out when this cycle ends.

 

The other major problem in Canada is money laundering. The money laundering departments of all FI's in Canada are dog shit. I'm not sure why they even have these departments because the employees in them don't do anything. And I'm talking about the big banks, not casinos in BC. The regulators know about this but don't do anything lol. Even the compliance departments at most banks are a mess. They're mostly country clubs.

 

The stress test was way too late. That should have been brought in years ago but I'm glad they did it and I hope they get even more strict. They waited way too long.

 

Just for completeness ...

 

Yes Home Capital had mortgage fraud. But the possibility of mortgage fraud is part and parcel of the morgage issuing process, every issuer is exposed to it, and how much of it there is in the given FI is controlled by the FI's management. When the FI's management isn't acting to contain it, you get whistleblowers. A very good thing.

 

Home Capital was a big fish in a niche business, but the proportion of their issued morgages compared to all mortgages issued in Canada was small (<5%). A problem for Home Capital, but not a big enough problem to immediately bring down the Canadian financial system. The smart response is to publicly do nothing, privately investigate system wide, quantify and develop potential solutions, 'sniff test' against the major players, THEN make an announcement. But to the whistleblower nothing seems to be happening.

 

Yes Home Capital was a problem - but it was defused very elegantly.

C-Suite changes, broker network changes, standby pension fund & 'others' investment , tighening of mortgage issuance criteria, and a great many employees jobs saved. Employees that would lose their livelihoods, yet had nothing to do with it - they just worked for the wrong FI. That didn't just 'happen', it was planned.

 

FI stress testing is an on-going quarterly (or more) process, than has gone on for decades. The tests are done by both the FI, the regulator, and 3rd parties in other jurisdictions. All the people involved know their stuff, know how to 'hide' the undesirable, and serve as a check on each other. You might be able to beat them, but you have to be extremely good.

 

Of course good analytics don't mean anything, if you can 'politic' your way out instead.

Much harder to do in Canada versus the US, as it's a much more 'one-sided' conversation. There's 'flexibility' but you'll do as you're told, when you're told. Or we'll find someone else.

 

Grating to a US audience but perfectly in-line with the scottish 'clan' system (mafiosi in skirts ;)) of Canadian banking.

Hence what happened in the US is not really comparable.

 

SD

 

 

 

[alertmeipp]

Mortgage fraud

Fake income statements pay stubs

Moving money around from relatives just before mortgage approval.

Fake employment letter

 

Were the norm

 

The motto was get in before it’s too late.

 

Now it’s too late.

[Guest 50centdollars]

I'm not sure how you can say the regulators did a good job when they knew about the mortgage fraud at home capital and did NOTHING about it until 1.5 years later when it hit the newspapers. They weren't going to do anything about it otherwise. If that is sound regulatory oversight I don't want to know what bad is and Home Capital is not the only place it is happening at. There are many others.

 

The problem is that once its get entrenched in the system you can't do anything about it. Mortgage fraud is legal in Canada.

 

 

 

[Cigarbutt]

...

The stress test was way too late. That should have been brought in years ago but I'm glad they did it and I hope they get even more strict. They waited way too long.

...

Hence what happened in the US is not really comparable.

 

When "reflecting" on the housing bubble, US "wise" men suggested that they could have done better, maybe… (government and regulations). But who wants to take the punch bowl away these days? Read this morning, article title: "Why are so many Canadians obese? There’s not an epidemic loss of willpower" and from the article: "Blaming people doesn’t do us any good...it just makes it worse". In fact, discussing this financial obesity issue is really only possible on an anonymous board such as this one.

 

What happened in the US was different mainly because of securitizations and some mass scale deleterious aspects of many mortgages but key ingredients are shared: ultra-low interest rates, very significant credit expansion and IMO irrational expectations about home prices. Whichever way one looks at this, home prices have decoupled from sustainable earning power of significant segments of buyers.

 

IMO, the real estate outcome is baked in the cake. In another life, I was asked to prepare reports/testimonies on the validity of cause and effect relationships. In some cases (baked in the cake), an outcome happens and one tries to allocate for a trigger factor. In these cases, one can use the practical example of an apple that is ripe enough to fall. When sitting under a tree (thinking of a gravity theory or whatever) and seeing an apple falling, you may think that it's the wind, people walking around or even you looking at the apple...But, one may need simply to realize that the apple was ripe for detachment. I would say that the best time to harvest apples is during the fall, which I plan to do today. :)

 

Opinion: Public oversight should be more pro-active and counter-cyclical but who wants to be a party pooper?

Canada real estate was not ripe in 2007 but IMO it is now.

Contagion goes both ways.

[Guest 50centdollars]

...

The stress test was way too late. That should have been brought in years ago but I'm glad they did it and I hope they get even more strict. They waited way too long.

...

Hence what happened in the US is not really comparable.

 

When "reflecting" on the housing bubble, US "wise" men suggested that they could have done better, maybe… (government and regulations). But who wants to take the punch bowl away these days? Read this morning, article title: "Why are so many Canadians obese? There’s not an epidemic loss of willpower" and from the article: "Blaming people doesn’t do us any good...it just makes it worse". In fact, discussing this financial obesity issue is really only possible on an anonymous board such as this one.

 

What happened in the US was different mainly because of securitizations and some mass scale deleterious aspects of many mortgages but key ingredients are shared: ultra-low interest rates, very significant credit expansion and IMO irrational expectations about home prices. Whichever way one looks at this, home prices have decoupled from sustainable earning power of significant segments of buyers.

 

IMO, the real estate outcome is baked in the cake. In another life, I was asked to prepare reports/testimonies on the validity of cause and effect relationships. In some cases (baked in the cake), an outcome happens and one tries to allocate for a trigger factor. In these cases, one can use the practical example of an apple that is ripe enough to fall. When sitting under a tree (thinking of a gravity theory or whatever) and seeing an apple falling, you may think that it's the wind, people walking around or even you looking at the apple...But, one may need simply to realize that the apple was ripe for detachment. I would say that the best time to harvest apples is during the fall, which I plan to do today. :)

 

Opinion: Public oversight should be more pro-active and counter-cyclical but who wants to be a party pooper?

Canada real estate was not ripe in 2007 but IMO it is now.

Contagion goes both ways.

 

I agree with you cigarbutt. Nobody wants to take the punchbowl away and I'm sure that the people at the regulators own a home too and don't want it to go down. Same thing with regards to politicians. They wont do anything either because they will be voted out. However; as a regulator you're supposed to make sure that there is oversight and you stop problems from becoming big issues. If you don't do that, what are you doing?

 

I spoke to an ex-wells fargo executive around 6 months ago and he told me that it wasn't the big problems that caused the bank's issues, it was the small problems. People cut corners here and there and small issues snowball and become big issues and once there big you can't stop them anymore.

 

I am disappointed in our regulators that they learned nothing from the financial crisis. It's the same thing with sales practices at the branches. The regulator came sniffing around the banks when the CBC started publishing articles about it. At that point, it's too late to do anything about it. In compliance, we knew it was a problem but nobody wanted to do anything about it because the bank makes money off of it. Everyone looks the other way and takes their cut.

 

You think money laundering is only happening at Dankse Bank? They had an ethical employee who tipped off the regulator to the money laundering going on. That's how they got caught. You think the executives didn't know it was going on? They got good bonuses to look the other way. Money laundering is a big problem in Canada and no one seems to want to do anything about it. It's probably because its entrenched in the system now and its part of our GDP and it can't be stopped. What do you think would happen to BC's economy if they clamped down on money laundering?

 

It's too late to stop these issues when they get big. Like you say, the regulator needs to be proactive but they never are.