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September 14, 2016 | Different here

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.


Just in time for oil to slump below $45 and the Canadian dollarette to drop back into the 75-cent zone, taking Bay Street with it, comes the latest news from the epicentre of our real estate malaise. This will be of particular interest to (a) those with giant dollops of equity in their homes who wish to get some out and diversify and (b) anyone who bought a Van property in the last year with less than 20% down.

We already know at least two of the major banks have pared back on mortgage lending in delusional YVR – and that was even before the Chinese Crash Tax was hastily applied by a desperate premier. Since then the average price of detached homes changing hands declined by $294,000 (about 17% in a single month. Ouch.) and so far September’s been just as intense (sales in Vancouver West down 51%, Vancouver East -80%, Richmond -67%, Burnaby -69%, according to this site).

So if you were an appraiser working in Vancouver, what would you do? How do you put a value on an asset that’s shedding almost $10,000 a day?

The answer: Like horny porcupines. Carefully. The experience in August shocked many, even though sales volumes for detached houses had been cascading lower for a couple of months right across the region. As you might expect, mortgage brokers are now seeing appraisals turn up on their desks a lot lower than a month ago, less than sellers expected, and even below what recent buyers agreed to pay. Whoops.

Particularly vulnerable regions, according to Canadian Mortgage Trends: the North Shore and the Westside.

Also apparently in peril is the ability to tap into 80% of your home equity in order to refinance or set up an investment line of credit. While it’s still possible to do that (as far as federal rules go), lenders are getting squeamish about handing over 80% of the equity built up in a property in the middle of a storm that could end up blowing a good chunk of it away. The advice: “If you need to tap your equity (refinance) to the tune of 80% loan-to-value, or get an 80% LTV credit line for future borrowing needs, you should be filling out your application as you read this.”

Meanwhile the National Bank’s Stefane Marion told an industry conference in New York (of all places) this week, that Vancouver houses will shed “at least” 10% of their value in the current correction. That was a little amusing after last month’s 17% reduction, but I guess it’s the sentiment that counts. “There is downside to single family homes in Vancouver,” the analyst said, calling it “a healthy correction.”

What could turn it into an unhealthy one?

Maybe stiffer rates – although the bond market is probably a couple of months away from forcing five-year mortgages much higher (after the US presidential slugfest). A survey out this week found that over 700,000 debt-snorfling Canadians would fold like cheap suits if the cost of their loans increased by a lousy quarter point. A million people would wail and suffer if rates edged up by a full point. So just add that to all of the astonishing facts that bubble up here on how screwed most people are.

More of a threat to real estate is the overall economy, and jobs.

While more jobs were created in August after a big slide in July, things are actually getting worse. The unemployment rate has increased to 7% (it’s below 5% in the US, although measured differently), the number of hours worked has decreased, and over the past year the country’s created three times as many part-time jobs as full-time positions, with a big increase coming among government workers. Thank you T2 & Rachel.

Meanwhile housing and real estate continue to climb in terms of their share of the GDP, while manufacturing and energy fade. Just what we need. More realtors and fewer lathe operators. Says Bank of America Merrill Lynch economist Emanuella Enenajor: “We are rotating in the wrong direction, we are getting a mix of growth that’s not very healthy or sustainable.” The reference here is to our mountain of household debt, upon which this housing fantasy has been well rotated.

Meanwhile the Royal Bank’s economics guys are calling it “inexplicable” that the country’s export numbers suck as badly as they do when our dollar has plunged from par a few scant years ago to less than 76 pennies today. By the way, 300 more office workers were punted on Monday in Calgary at one of the country’s major energy producers.

In short, there used to be three great real estate markets in Canada. Then there were two. Now there’s one.

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September 14th, 2016

Posted In: The Greater Fool

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