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June 1, 2017 | Payback

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.


The poster child of Canada’s rapidly-escalating real estate correction, teaching millions that it’s never Different This Time, could be Home Capital. The nation’s biggest Alt lender is now a frog without a prince. The stock’s lost 60% of its value. Regulators are up its butt. Its burn rate is atrocious. And depositors have been flying out the door, cashing in their GICs and Hoovering out high-interest savings account cash.

It’s the HISA money which really hurt – because every dollar gone is one less buck of corporate liquidity. Despite the fact most depositors have CDIC insurance (to $100,000 per account) there’s widespread nervousness about Home going paws-up in the months to come, and the excessive time it might take to actually get your cash back.

So, yesterday this showed up on my fancy, corporate financial-advisor-type email…

Good afternoon,

Home Trust has made a change to its High Interest Savings Account (HISA) to dealers.

Effective May 31, 2017, Home Trust HISA rates are as follows:

* 1.50%* on the Class A Fund HOM100 (Home Trust Company) or HOB100 (Home Bank) (increased from the previous rate of 1.00%) – pays a 25 bps trailer to the dealer
* 1.75%* on the Class F Fund  HOM101 (Home Trust Company) or HOB101 (Home Bank) (increased from the previous rate of 1.25%) – pays no trailer
*Rates are per annum and are subject to change without prior notice.

Thank you for your continued support, Home Trust Deposits.

Well, compare that to the 0.5% being paid on HISA money at the Big Six banks, and don’t forget to add in the quarter-point bonus Home is willing to pad advisors just to park client money (at least for those who, sadly, collect the trailer payment). It means Home is actually forking out 1.75% for deposits of no fixed duration and therefore, making nothing. In fact, the funds may come at a loss – but at least it’s money. Liquidity. Life blood.

As this company’s desperation shows, all things real estate are quickly getting worse. On Monday the Toronto Real Estate Board is set to release stats which will give a taste of what’s coming. Listings swollen. Sales starved. Month/month price decline.

Whatever the realtors numbers show, the reality is prices in the country’s largest market have declined at least 5% and possibly 15% in just the last four weeks. And it’s May, for God’s sake – the height of the hormonal Spring rutting season. The meme is spreading that (a) if you buy now you’ll pay too much and lose money, (b) sellers will soon be begging for offers and (c) it’s payback time for five years of bidding wars, blind auctions, certified cheques, bully offers, realtor arrogance and unbridled, historic vendor greed.

For sellers, the hunt for greater fools kicks into high gear. It’s now or never to tap into peak pricing, because after this the slide will likely gain momentum. For recent buyers, especially those yet to close, this is a difficult moment. If they consummate the transaction, it may take years (or decades) to get their money back. On the day they take title – losses. If they walk, the deposit’s gone, there’ll be lawyers to feed and unknown damages to pay. If they throw in the towel and hide behind bankruptcy, the consequences could be life-altering and career-wrecking.

Together we now owe $1.45 trillion in residential mortgages, and almost all of them will be renewing in 2018 and beyond at higher rates. Given two more Fed increases in 2017 and a rapid pop in Canadian GDP (plus inflation) most economists now see the Bank of Canada starting to tighten in the first half of 2018. Between now and then, of course, bond yields will snake higher. And as detailed here yesterday, subprime mortgage rates (affecting as much as a quarter of all borrowers) are already 7% or higher – and rising because of Home Capital’s mess.

Appraisers for major banks like RBC are apparently being told to submit reports with valuations that are 30% below street levels – which are already sunk from April. The reason? That’s the projected level of overall decline lenders are budgeting for – eerily close to the 32% drubbing which ate the American middle class, starting twelve years ago.

So trapped in the middle are recent buyers, recent sellers expecting defaults, speculators jamming the exits and untold numbers of flippers who should now launch a class action against HGTV.

Reports blog dog Jay:

People seem to be paying a lot of attention to the bagholder panic in the 905 as the tide washes out on the massive number of speculators there, but I can assure you that there are tons of speculators downtown as well.

In the West end of Toronto, construction waste bins in front of houses have recently become as common a sight as man buns and mini Aussie shepherds. One or two houses are being gutted on virtually every block.

On a walk yesterday, I counted on a single block 4 new houses in the process of being built and 5 or 6 existing houses with posted building permits or where renovations are obviously ongoing (the block in question is Crawford St. between Bloor St. W. and Harbord St.). Most if not all of these houses will hit the market soon, and I feel bad for all of the aspiring real estate tycoons.

Well, I see Donald Trump just trashed Paris. Now we can worry about the ark market instead.

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June 1st, 2017

Posted In: The Greater Fool

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