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July 7, 2016 | Surprise!

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

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Regular readers, who have no life and come here out of pathetic addiction, will know I am under siege. Daily. My argument is that Canadians have kneecapped themselves by over-reaching for home ownership and in the process become sautéed in debt, Hoovered their financial assets and now are at fat risk because they’ve put all their net worth on one toss of the dice. A single-asset strategy, I keep saying, is extreme. And nobody made you do it.

The critics and house-humpers say phooey, claiming none of this is the fault of honest middle-class people. Instead, blame government and, especially, Chinese dudes. Government, in the infamous words of one dumbass poster here, is “giving out Canadian citizenship in vending machines in China.… And all the Asian investors here are money-launderers and corrupt officials, solely responsible for property prices no honest locals can afford.

Well, not so. This blog has already coughed up all the available data — surveys of Vancouver realtors, estimates from the BC government plus the provincial real estate association, along with actual market data on deals on the Island. Every one came to the same conclusion: offshore buyers account for about 5% of trades. Locals are responsible for 95%.

Under political pressure from this urban myth of bad-Chinese, the BC government got serious about data collection and on Thursday unloaded the first barrage of stats. Guess what? I was wrong. The Chinese dudes (and other foreigners) account for only 3.3% of deals. But I was still right — this amounts to 5.1% of transactions.

Here are the key points, as reported by the breathless (but disappointed) Van MSM:

Main findings include, between June 10 and June 29, 2016:
*  10,148 residential real estate transactions in B.C., totalling more than $7.6 billion.
*  337 transactions (3.3%) involved foreign nationals, worth $390 million (5.1%).
*  In Metro Vancouver, there were 5,118 transactions worth nearly $5.4 billion, of which260 involved foreign nationals (5.1%), worth $351 million (6.5%)
*  In the City of Vancouver, there were 1,139 transactions, totalling more than $1.6 billion. 47 of these involved foreign nationals (4.1%), worth $64 million (3.9%).
De Jong (the finance minister) broke down the numbers in four communities:
* In Metro Vancouver, foreign nationals accounted for five per cent of transactions…of which 234 transactions were by mainland Chinese buyers, followed by five by Korean, five by Taiwanese
* City of Vancouver, foreign nationals accounted for four per cent
* Richmond, foreign nationals accounted for 14 per cent
* Surrey, three per cent
* Burnaby, 11 per cent

Well, there ya go. It’s official. You’ve nobody to blame but your own dumb self for jumping into the middle of the biggest asset bubble in national history — one which has a zero chance of survival. The Chinese dudes did not make you do it. Their market influence has been too minor to push overall prices higher. They are not responsible for an epidemic of flipping and speculation now gripping the market. And the fact prices have spiked while sales volumes have declined should — along with this report — scare the poop out of anyone who recently borrowed big to “buy now or buy never.…

Of course, the regulators know this. The real culprits of this piece, feeding a bubble of immense proportions, have been central bankers depressing market interest rates, CMHC with its reckless mortgage insurance program and the bankers who are over-lending and under-scrutinizing.

So now wonder this week we’ve seen a threesome of events: (a) realtors in Van and the GTA reporting average insane price increases of 30% and 17% respectively, (b) evidence this isn’t the result of offshore money and (c) a withering directive from the country’s bank cop, telling lenders they’re courting disaster.

The regulator is OFSI (Office of the Superintendent of Financial Institutions). The warning contained in its rare, open letter is blunt.

“The current macroeconomic environment in Canada is characterized by elevated financial risks and associated vulnerabilities for Canadian financial institutions. Persistently low interest rates, record levels of household indebtedness, and rapid increases in house prices in certain areas of Canada (such as Greater Vancouver and Toronto), could generate significant loan losses if economic conditions deteriorate. Financial institutions can sustain losses both through the potential inability of borrowers to meet their debt obligations, as well as through declining values of the real estate properties pledged as collateral in mortgage loans.…

What’s the regulator grousing about? In a word, greed. Lenders have been shorting the rules for ages, lending vast amounts of money to house-horny souls who clearly constitute elevated risk. The bankers have not been careful enough about verifying incomes or enforcing debt-service ratio guidelines. They’ve been sloppy about appraisals, too heavily influenced by rising valuations, too generous with loan-to-value calculations and generally accepting too much risk in their overall mortgage portfolios.

“Given the current economic environment in Canada, with record levels of household indebtedness and growing risks and vulnerabilities in some housing markets, OSFI’s supervisory scrutiny in the area of mortgage underwriting will continue. Moving forward, OSFI will place an even greater emphasis on confirming that financial institutions conduct prudent mortgage underwriting, and that their internal controls and risk management practices are sound and take into account market developments.…

Too many people have borrowed too much, using it to overpay for assets which are inflated in value at a time when interest rates are at historic lows. They continue, based on greed (speculation and profit) plus fear (of being priced out). As volumes thin and prices wobble higher — with foreigners off the table — the true nature of this risk emerges.

Get out.

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July 7th, 2016

Posted In: The Greater Fool

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