Thursday, July 18, 2013

Here's one from my week off

I picked up on the Pimco report from Vancouver Condo info.

The National Post has painted this as a don't short Canada piece. I thought I would read the original.

First who is saying it? Pimco. The world's largest bond dealers. What they say counts. 

Have they been wrong? You betcha. They bet big against the US bonds a few years ago as the US deficit exploded and then switched when they realised the US bond rally had legs.

Are they talking their book? From what I could see their Canadian bond funds have holdings from $3 Billion to as low as $7 Million.  Performance is from +9% YTD to -9% YTD, depending on the fund. 

PIMCO has $2 Trillion of assets under management. yes that's Trillion with a T. They are acknowledged to have two of the smartest bond brains that walk this earth....William Gross and Mohammed El-Erian. You don't get to a T without consistent performance.

However as you can see the Canadian funds are peanuts in the PIMCO empire. So while they may be smart, Canada is a side show for them.

So what did Mr Devlin say?

Did he say that Canadian housing will not correct and is not over-valued? 
NO. He said it IS over-valued and DUE for a correction and very much so in the over-heated areas like Vancouver. However he said it will not be the catastrophic event that everyone has been betting on. I HOPE HE IS RIGHT.

We may be housing bears, but we don't want our country to implode. 

Click on the link above and lets look at figure 2. Household debt to disposable income is declining in the US and UK and plateauing in Australia and rising in Canada. This cannot go up for ever. Currently low rates, HELOCs and asset appreciation are making us feel richer and pushing borrowing. We are no different from the Americans.

It is supported by higher wages. This ratio cannot go up forever. Eventually it will hit a hard wall and start down. 

Then there is the CMHC. I did not read any mention of this monster in Mr Devlin's piece. How can one discuss the prospects for a major housing correction without mentioning the CMHC?

A 10-20% correction, which is his benign scenario, will put a lot of stress on the CMHC and in turn the Federal Government which will have to bail it out. This will have to come from somewhere...higher borrowing or cuts elsewhere.

I hope Mr Devlin is right. I hope it will be a gradual deflation of 10-20% and larger hits in the bubble cities. I hope the Canadian banks will take a few quarters of bad earnings to get over it. I hope the tax-payer won't be skewered for the huge debt of the CMHC.

However what annoys me most is that all of this could have been avoided by less Government meddling and a sane interest policy.


  1. 358 new
    226 price change
    231 sold

    7675 detached
    9161 attached

  2. I think with all the things going on we are at the edge of the cliff just need another nudge

  3. Just sold our hood, and become a renter now. So here is my new take as newly-minted renter: The house market will stay until interest rate moves. My rent is now $1800. And my old mortgage is $1200. These numbers really hurt. One can do a lot of math and try to convince renting is a better deal.

    But $1200 vs $1800 is so real and realistic and right-in-your-face. Any renter with a bit of down payment would jump to the housing market. Therefore, you will see builders are building 600sf 2 bedroom + den out in Surrey for $999/mo.

    Meanwhile, GIC is running in 5th gear at zoom-zoom 1%. The rational you knows people are irrational.

    1. You are either a realtor or do not know what you are talking about.

      Anyone with an iota of financial sense would understand that renting is way cheaper in the present environment after you factor in property taxes, maintenance, and other expenses with owning. Only if your property appreciated by 3-4 percent per year, would owning make better sense even with high own to rent ratios.

    2. Your old mortgage was $1200. And the property taxes were... how much per month? And did you have normal regular expenses like replacing the windows, the water heater, the furnace, or the roof shingles?

      Or were you in a leaky condo building, where the exterior repairs cost can cost hundreds of thousands? Where the rules are so strict that you have to ask for permission to fart in your own house? Where you have no rights, except the right to pay hundreds of dollars for elevator service when you move in, or move out. Ah yes, you must miss the pride of ownership.

      Now that you are renting, you are gonna miss the thrill of watching your house value crash.
      A lot of people are going to be wiped out. For many years. But you will have to watch. The horror!

      BTW, if you are "investing" in a GIC,just say no.
      Google "what is an ETF". You can buy all sorts of them at banks, from the same person who would sells the GIC.

  4. 324 new
    196 price change
    203 sold

    7687 detached
    9174 attached

    1. you should read garth turners blog today

  5. for all of you living on the west coast check out
    before you decide to buy

  6. Still buying....

    436 new
    243 price change
    308 sold

    7690 detached
    9166 attached

  7. 344 new
    242 price change
    238 sold

    7699 detached
    9152 attached

  8. 400 new
    169 price change
    260 sold
    7688 detached
    9184 attached

  9. 333 new
    155 price change
    220 sold

    7652 detached
    9181 attached


  10. 310 new
    164 price change
    204 sold

    7653 detached
    9162 attached