Bears in disarray??

Looking around the RE blogosphere, I sense an air of despondency.

One very useful site has gone off the air, another is hardly posting. Both are big losses to the bear community. Reading the posts on the various RE sites left open I see the same thing...'why isn't the crash happening already??'

Even while the crescendo of news and opinions all around the world is getting louder about our RE bubble and the consequences of it's bursting, one good list/day and we feel deflated. Deja Vu all over again. Once again a small drop in the market will be met with buyers and we will be off to another steroid (cheap money) induced high.

However this is how tops are made. If this is really the top, and we will only know in hindsight, they come not with a bang and a fanfare but they slip in almost unnoticed while everyone is waiting for the bell to ring or another leap up-wards. They come in disbelief.

We have a long way to go to get back to sanity.

Lets look at two listings today for an example of where we are. Both of these are court-ordered sales, something I would not wish on anyone. I chose them because I suspect the Realtor must have priced them down aggressively to try and sell them to get the owner off the hook.

Here is one in Burnaby priced at $828K - MLS V989801

Here is another in Richmond priced at $799K V958124

You can decide yourselves what a pre-foreclosure property like these should be priced for. In Vancouver these are regarded as reasonable prices.

This is one of hundreds of foreclosures I found in Las Vegas which sells for less than half the above two.

Throwing your money over-board

It is sad to see how the government is wasting your money.

The party that claimed in the latest election to be the more fiscally conservative one. the one that hopes to balance the budget is the one doing crazy things like this:

1) Paying $2 Million to a Traditional Chinese Medicine doc  who apparently saw 400 patients a day! That's one every couple of minutes for 12 hours! (hat tip Vancouver Condo info)

and 

2) Paying $6 Million to defend two of it's own fraudsters and then the Chief Justice says the auditor general CANNOT audit the Lawyers bills to see if we have been screwed.

If you feel like you are being managed by a bunch of self-serving incompetent fools in Victoria, you are right. 

And people wonder why less than 50% bother to vote. When the choice is a between an idiot and a ditherer - why bother!

Of course the Conservatives claim to be fiscally conservative in Ottawa too. Except their senators keep putting their hands deep into the public purse (though not as much the above fellow) and they have no problem doubling the CMHC liability - adding $300 BILLION to the anchor around our necks..oh and increasing the debt and deficit at the same time.

We have been fooled...

All this time we have been told by our politicians that the CMHC is safe. 

We have been told that the CMHC is not run by a light weight board of industry insiders. Don't worries that there is no senior financial academics, no well-kown economic skeptic like David Madani, not even a businessman who has run a Multi-Billion dollar corporation...on the Board of the largest financial institution in Canada, racking up $600 Billion in liabilities.

Don't worry...just be happy.

The CMHC can withstand the heaviest storms of the RE market. 

Now we find out from Morning Star that as little as a further 10% drop could send brown stuff into the fan. What!??

No wonder Flaherty has been busy replacing the senior executives. He should, of course, kick out the whole board (IMVHO) and then kick himself out for doubling the size of this frankenstein which has the potential to BK us all.

Here is the report from BNN.ca

Banks, CMHC to feel housing slowdown: Morningstar

Brady Yauch, BNN.ca
2:53 PM, E.T. | May 14, 2013
Canadian, Financials, Real Estate

Another day and another bearish report on the Canadian housing market – this time from analysts at Morningstar, the Chicago-based research group.

The analysts
warn that if housing prices fall by just 10 percent, the country's largest banks and the government-backed Canada Mortgage and Housing Corporation (CMHC) face a "significant risk of losses or impairment to capital levels." The analysts add that the loan-to-value ratio of mortgages at Canadian banks is at the same level it was in the U.S. prior to that country's collapse in real estate values. Loan-to-value ratio is a measure of the amount of borrowed money used to purchase home.

"Canadian banks, as a group, state that the major difference between them and U.S. banks just before the housing bubble is the higher level of equity, on average, that most Canadian banks possess in their residential loan portfolios," Morningstar analyst Dan Werner says in a note to clients. But when comparing the data, he found that the average loan-to-value ratio for Canadian banks is about 45 to 60 percent, while that figure was 54 to 55 percent for U.S. banks prior to the financial crisis.

"More important, the distribution of Canadian mortgage loan/value ratios in 2013 and currently insured by the CMHC indicates a higher proportion of loans in the higher-loan/value categories compared with 2006 levels," he adds. "We think this demonstrates higher risk to the CMHC and banks' capital levels."
He warns that the proportion of mortgages with a loan-to-value ratio greater than 80 percent is higher for Canadian banks than it was in the U.S. prior to 2007. A higher figure for a loan-to-value ratio indicates that more money was borrowed to purchase a home.

Worse still, Werner adds that because a large percentage of the mortgages held by Canadian banks have loan-to-value ratios of 70 to 80 percent, it would take only a 10-percent decline to cause these mortgages to exceed the threshold allowed by the CMHC on new loans. The CMHC provides insurance on mortgages where the borrower has put down less than 20 percent of the value of a home.

"If housing values were to fall precipitously, many of those loans would fall into the higher-loan/value categories," he says.
The CMHC may not be able to handle a major pullback in housing prices, Werner says. With 28 percent of insured Canadian mortgages posting loan-to-value ratios greater that 80 percent, he says the CMHC's liabilities could exceed its equity should home prices across the country decline.

In a worst case scenario, if 100 percent of borrowers defaulted when the value of their mortgage exceeded their home, then a 10-percent decline in home prices "would more than exhaust CMHC's capital."
As for the banks, Werner says National Bank of Canada (NA-T 74.5 -0.21 -0.28%) and CIBC (CM-T 78.54 -0.78 -0.98%) will be hit hardest by a significant decline in prices, while Toronto Dominion (TD-T 82.64 -0.32 -0.39%) and the Bank of Montreal (BMO-T 61.62 -0.42 -0.68%) will be the least effected.

The recent catalyst for the more than decade-long run-up in home prices has been cheap funding, a result of the Bank of Canada maintaining low interest rates since the financial crisis. The Bank of Canada has held interest rates at one percent for more than two years, but has in the past year warned consumers that its next move will be to hike rates – a move that would make it more expensive to service debt.
The debt-to-income level for Canadians is currently at a record 165 percent.
"We think sustained low interest rates will continue to feed cheap funding into the residential real estate sector and drive consumer debt," he says. "However, we continue to think that the growth of household debt to disposable income for Canadians is unsustainable in the long-term."

The Lay of the Land

So where are we now?

We are at decade high inventory.
We are at a MOI of about 6 +/-
We have 3% +/- rates
We have the CMHC with new executives and new restrictions, thank Goodness.
We have a Government who talks the talk, but is still slow and short on action.
Lets see whether they will cut back on amortizations to under 30 years as Garth has promised us.

Recently I have seen some increased Chinese Mainland buying of higher end properties. It always baffles me how a resident of a country that only allows outflows $50K a year per person, can throw down $5 Million on one transaction AND Presumably that is just part of the money they brought here.

Of course the effect of this money is very local, though there will be a trickle down effect into other areas. We will have to see whether this is the start of a new buying spree or just a blip

It is no where near the buying of 2011 which was a frenzy, but there is a little trickle so far.

There are also some well heeled local buyers coming into the market. A few sporadic buys, especially if sellers drop below asking. A recent sale in West Van that sat unsold for many months at Assessed, went quickly once the sellers dropped to $200K under assessed. The MOI is still very high in West Van and Van West.

There are also middle buyers coming into the market. It seems like a 5% drop and lo rates is enough for some people to think they are getting a bargain, or maybe they have other incentives for buying (inheritance etc). rates are low. 3% across the board or less.

As to our local economy, we have seen some significant commodity weakness. Base metals, Gold and Silver have all taken a hit and that will take some of air out of our local promoter crowd. However if the commodity weakness persists, then we are looking at some serious economic weakness in BC which will dampen demand further. Our jobs numbers have been all over the place with a big loss last month and a big gain this...

Sales should start to taper off over the summer months and once again the MOI will start to rise. Now we will see how firm prices are. The trend is still down, but needs confirmation.

The Kracken...

Below the thunders of the upper deep;

  Far, far beneath in the abysmal sea,

  His antient, dreamless, uninvaded sleep
  The Kraken sleepeth: faintest sunlights flee
  About his shadowy sides: above him swell
  Huge sponges of millennial growth and height;
  And far away into the sickly light,
  From many a wondrous grot and secret cell
  Unnumber'd and enormous polypi
  Winnow with giant arms the slumbering green.
  There hath he lain for ages and will lie
  Battening upon huge seaworms in his sleep,
  Until the latter fire shall heat the deep;
  Then once by man and angels to be seen,
  In roaring he shall rise and on the surface die.

By Alfred Tennyson

Our own Kraken is near the surface too. Having brought our country untold Hundreds of Billions of liabilities and debt it is nearing the end of it's destructive life. The CMHC is very near it's limit. 

 Also we have a new Chairman, a banker who ran the only major New York bank that was not part of the we-will-gamble-with-your-money-now-bail-us-out. Let us hope he pulls tight on the reins of this monster. 

The CEO is also leaving. 

Things are a-changing for the Kracken Monster.

REBGV Stats April highlights- Eye opening!

 A refreshingly honest appraisal of the situation IMO.

"The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver reached 2,627 on the Multiple Listing Service® (MLS®) in April 2013. This represents a 6.1 per cent decrease compared to the 2,799 sales recorded in April 2012"

"Last month’s sales equate to the lowest April total in the region since 2001 and 20.9 per cent below the 10-year sales average for the month."

"The total number of properties listed for sale on the MLS® in Greater Vancouver is 16,730, a 1.2 per cent increase compared to April 2012"

"The sales-to-active-listings ratio currently sits at 15.7 per cent in Greater Vancouver. This is the second consecutive month that this ratio has been above 15 per cent. Previous to this, May 2012 was the last time this ratio was above 15 per cent"

I had posted that from what I had seen the median (hence benchmark with which it should approximate) was down. REBGV has noted this. Kudos to them for not fudging. Some RE boards which shall go un-named have average and median down and yet the benchmark UP! That would seem mathematically impossible.

"The MLS® Home Price Index composite benchmark price for all residential properties in Greater Vancouver is currently $597,300. This represents a decline of 3.9 per cent compared to this time last year "

"The benchmark price for detached properties decreased 5.2 per cent from April 2012 to $914,000."

"The benchmark price of an apartment property decreased 2.6 per cent from April 2012 to $365,900"

"The benchmark price of an attached unit decreased 3.5 per cent between April 2012 and 2013 to $455,200"

Have a look at the areas for 5 year return. You will be shocked. Some are in a world of pain with -10% or lower returns. No surprises...Whistler (look at apartments down 40%!), Maple Ridge, Bowen (which was being priced as West Van alternative), West Van apartments, Squamish. 

Only Van Est and Van West are (barely) positive for apartment benchmark over 5 years. The meme of rising prices can no longer be maintained. Absent some lunacy from the policy-makers or a resurgence of Chinese buying (which will only effect certain areas) we are on a clear downward path. The weakness is coming in from the periphery and we have lower jobs and lower commodities to add into the mix. Do we want a crash...no! Do we want an end to the insane prices..yes!

The whole package is here

Numbers out

Thanks as always to Larry.

Bit of a mixed bag for us bears as you can see.

MOI is 7 for SFH, 5 for attached and 6.3 for apartments.

These are not crash numbers but should bring more downward pressure. I expect the Median to be lower and the HPI, if not too manipulated, to be lower too.

Had lunch with a realtor today who specializes in the higher end, (everything is higher-end at these prices!) who said the market was definitely much weaker. Psychology of sellers was shifting to 'what can I get', rather than 'what do I want'.

Big piece on CBC radio about the drop in sales and weakening home prices across Canada. Ground zero was reported as Vancouver. Calgary was bucking the trend. They had Le Poidevin saying banks have been pulling back from the more expensive, higher leveraged deals.