Sunday 14 December 2014

Oliver says Ottawa exploring ‘steps’ for hot housing market as ministers meet

Oliver says Ottawa exploring ‘steps’ for hot housing market as ministers meet

Finance Minister Joe Oliver says the federal government could take “moderate steps” to address Canada’s strong housing market as he began two days of meetings on Sunday with his provincial counterparts.
The two-day gathering is also expected to reveal the latest figures on federal transfer payments to the provinces as well as explore the effect of plunging oil prices.
On his way to the first meeting, Oliver was also asked about Canada’s rising household debt and the country’s potentially overvalued housing market — two risks repeatedly raised by the Bank of Canada.
“In terms of household debt and the real-estate market, this is a subject, of course, we’re monitoring very carefully,” said Oliver, who reiterated his position that there is no housing bubble.
“So, we’re not going to take any dramatic steps in that regard, but we may take some moderate steps.”
Oliver did not elaborate and added his department had yet to make a decision on this subject.

Canada preparing to return property

China Daily: Canada preparing to return property

"Canada and China are ready to sign an agreement to return illegal assets seized from fugitives of economic crime, including corrupt officials, according to a senior Canadian diplomat.
Canada's Ambassador to China Guy Saint-Jacques told China Daily that the countries have made "good progress this year" in the fight against corruption.
Canada preparing to return property
The agreement "is ready to be signed on the return of property related to people who would have fled to Canada and would have been involved in corrupt activities," the ambassador said.
Once the agreement is signed, "it will serve as a model for other countries. I think on that front we should have good progress," he said.
Corrupt Chinese officials and smugglers seeking shelter in Canada have led to long-term controversy.
In mid November, Asia-Pacific Economic Cooperation member economies decided to set up a cross-border law enforcement network to strengthen transnational anti-corruption cooperation in the region.
Beijing and Ottawa have "good collaboration" and have returned more than 1,200 people in the past three years, including more than 60 who were sought in China for criminal reasons, according to the ambassador.
Beijing has made remarkable progress in repatriating fugitive officials and other economic criminals from destinations worldwide.
At least 428 Chinese suspects had been captured abroad by the end of October under Beijing's Fox Hunt 2014 operation."

Wednesday 10 December 2014

Canada's housing market overvalued by as much as 30%: BoC

Canada's housing market overvalued by as much as 30%: BoC

The Bank of Canada has acknowledged that the country’s housing market may be overvalued by as much as 30 per cent as a long-awaited soft landing remains elusive.

The bank said Canadian house prices have been overvalued by at least 10 per cent since 2007, and may now have overshot by anywhere from 10 to 30 per cent.
The range is significantly higher than estimates by the International Monetary Fund (10 per cent) and Canada Mortgage and Housing Corp., which judges there is a “moderate degree of overvaluation.”
Bank Governor Stephen Poloz acknowledged Wednesday that “some financial vulnerabilities appear to be edging higher.”
These include a growing appetite in Canada for subprime mortgages and risky auto loans, triggered by sustained low interest rates.
About 35 per cent of new, uninsured mortgages by smaller federally regulated banks since the end of 2012 could be considered non-prime, according to the report.

Wednesday 3 December 2014

“Slim pickings for China’s immigration industry in Canada’s new investor migration scheme”

“For years, Canada’s immigrant investor programme was the Chinese immigration industry’s cash cow. A money tree. A goose that popped out golden eggs like a tennis ball machine.
Big commissions (more on this below) and a seemingly endless supply of mainland millionaires covetous of Canadian passports made the scheme the Chinese consultants’ favourite. So when it was axed this year, all eyes were on the promised replacement – would it offer similarly rewarding opportunities?
The new scheme has not been formally unveiled yet – expect that in coming weeks – but sources familiar with the government’s plans are now giving a good idea of what to expect. And it’s fair to say that immigration minister Chris Alexander is being crossed off a lot of Christmas card lists in China.”
“Separately, the Wall Street Journal reported last week that the government was targeting total investments of C$120 million (HK$820 million) under the scheme, with each applicant contributing C$1 million to C$2 million. That implies an intake of 60 to 120.

Fifty, 60 or 120 – it matters not at all, compared to the vast scale of the old IIP, which brought about 37,000 rich immigrants to BC from 2005 to 2012. When it was formally scrapped in June, 60,000 would-be millionaire migrants in the years-long queue had their applications dumped too; about 40,000 of those were likely bound for Vancouver.

The new venture capital scheme looks like being so minuscule as to serve little more purpose than allowing the government to keep its promise to replace the IIP. It certainly won’t provide viable access to Canada for the bulk of the dumped IIP applicants.”

Friday 12 September 2014

West Vancouver may soon curb “monster homes” via zoning and building bylaw changes

Consultation at city hall Sept 15 at 7pm.

This news was widely discussed in local Chinese forums. Some speculate that the new rules will drive down property/lot values in West Van.
Though some also speculate this rule change will drive up existing monster homes’ values.

Monday 8 September 2014

CMHC could force banks to pay deductibles on mortgage insurance

The Canada Mortgage and Housing Corp. is looking at a new formula to push some of its losses on to financial institutions, essentially forcing them to pay a deductible on mortgages insured with the Crown corporation before claims are paid, according to sources.
The Financial Post has learned the Office of the Superintendent of Financial Institutions is involved in discussions with CMHC, which it oversees, while the Canadian Bankers Association is said to be against the measure.

Saturday 6 September 2014

Investors in Brampton house development hit with $30K bill

Via City News

"Investors in a Brampton house development are suffering from a severe case of “sticker shock” after they found out the homes they purchased — originally scheduled to be completed in 2012 — will cost them an extra $30,000 in closing costs now that they are finally done.
Fernbrook Homes is telling the investors in the Castlemore development that if they want the keys to their new homes, they’ll need to pay up.
The buyers are upset since Fernbrook did not apply for a building permit until March of 2013 – one full year after the project was to be finished – and now they have to foot the very large, and unexpected, bill."

Caveat Emptor

Wednesday 27 August 2014

Is Vancouver West High-end Demand Really Weaning?

It's been a while since I posted due to life events, travel, and busy work schedule.
Good to be back!  I did continue to post daily stats and noteworthy news on my twitter account (@greaterfoolvan) however!

Globe & Mail today had this piece

"Is the dip in high-end house sales in Vancouver just a summer blip?"
"He says listings are up in certain segments while sales are looking stagnant. The figures for single detached homes on Vancouver’s west side in the $3-million to $3.5-million price bracket – which is certainly high-end but not quite “luxury” – show 106 active listings and just nine sales, compared with 73 listed homes and 7 sales during July, 2013.“Right now, these numbers are showing blood in the water – and the sharks haven’t sniffed yet,” Mr. Kurland said."

I got my hands on the sales-by-price-range charts of Van West and Burnaby for 2012-2014, figure I'll do some quick math. Here goes:

Jan-July 31 Sales
Vancouver West
2012: 175
2013: 214
2014: 321

Jan-July 31 Sales
2012: 13
2013: 13
2014: 19

We can see thus far in 2014, cumulative from Jan-July there has been more high-end sales than previous 2 years in Van West and Burnaby.

However from some other data sources, there are some indications that the high-end sales are softening in the last 2 months (especially in Burnaby).  Based on the asking vs sold price differential, there seem to be increased bargaining room in the higher end (1.5M+).

Friday 20 June 2014

China's CCTV reports on Canada's high priced housing market, June 2014

Also, Remember the announcement of IIP cancellation? It’s finally in effect:
Terminated programs: Federal Immigrant Investor and Entrepreneurs
On June 19 2014, Bill C-31 became law, and applications still in the backlog of the federal Immigrant Investor Program and Entrepreneur Program were terminated.

Friday 30 May 2014

Almost two-thirds of typically insured homeowners have a downpayment of less than 10%

CMHC decision to disclose more mortgage data wins applause

"almost two-thirds of typically insured homeowners have a downpayment of less than 10%."

“Someone with only 5% down would be left with 88% loan to value after five years of regular mortgage payments,” Mr. McLister said. “With a correction over 10%, many 5%-downers would be left underwater. In other words, it would be difficult or impossible for many to sell their home and generate enough equity to pay off their mortgage, cover expenses and move.”

Friday 28 March 2014

Estimated March 2014 Sales data

Estimated Mar/14 month-end official stats:
Sales: 2640 (+12% YoY) (Feb/14 was +41% YoY)
Inventory: 14450
Months of Inventory: 5.5 (was 5.3 in Feb)
Only other time Mar MOI> Feb MOI was in 2008 (4.8 vs 4.3)

Greater Van 10Y March Avg Sales: 3362
Est. March Sales: 2640 (-21% vs 10Y)
(Feb/14 was -3.8% vs 10Y)
(Jan/14 was +5.9% vs 10Y)

Looks like a disappointing March.  If the sales malaise continues, does not bode well for the Spring market.

Monday 3 March 2014

Daily Reads: 1. Middle Class. 2. Pimco.

The Star: Closer reading of StatsCan report troubling for middle class

Most of the net worth increase in Statistics Canada survey is due to phenomenal inflation in home values, not in income growth.

"First, most of this net worth increase is due to phenomenal inflation in home values. The median value of residences was up almost 50 per cent since 2005, which includes the period in which Canada was in recession (when, other things being equal, one would expect house prices to flatten or decline). Anyone who thinks these increases are normal and will continue indefinitely believes in Santa Claus or still holds stock in Bre-X."

"Do these numbers suggest a financially thriving middle class? Hardly. They paint a picture of a population that has unprecedented access to credit at historically low interest rates. The principal residence has become a new version of the ATM machine, allowing people to access credit against equity in their house to fuel consumption. This is a relatively new phenomenon in Canada. But is it a good and sustainable thing for personal finances and the national economy?"

Pimco takes more bearish stance on Canada
Mar 2, 2014
Pimco, the world’s biggest bond investor, has slashed its exposure to Canada – one of its top country holdings – as it predicts home prices will start to fall this year amid broader concerns that it could be the next global housing bubble ready to burst.”
“Pimco’s flagship $237bn Total Return Fund, managed by Pimco founder Bill Gross, halved its exposure to Canadian debt – which includes provincial bonds – to 2 per cent of its portfolio in the third quarter from almost 4 per cent a year earlier, according to data compiled by Morningstar.”
““I’ve been talking with clients and writing about how the housing market is overvalued,” said Mr Devlin. “The change this year would be that I actually think it starts this year.””

Wednesday 26 February 2014

Some Thoughts on What CMHC May Announce on Friday

As CMT noted, “CMHC will be making an announcement Friday at 11:00 A.M. EST. They’ve notified reporters well in advance, which is somewhat unusual.”

I agree that it is somewhat alarming that CMHC has summoned the media for this “announcement”. In the past, Flaherty has been the one announcing mortgage rule changes. However, right now Flaherty is in Australia for G20 Summit.

This could mean:
1. CMHC will announce low-impact news 
(eg raise insurance premium, tighten debt serice ratio etc), not important enough to require Flaherty to be the one giving the speech. However, if this is simply a low-impact announcement, why make the unusual move to summon the media well in advance and then delay the announcement from Thursday to Friday?

2. CMHC will announce moderate-impact news
possibly mortgage rule changes. These “mod-impact news” may very well directly impact the public (eg down-payment requirement) rather than some internal bank rules that the public don’t quite get, that’s why they’re requesting media presence to give the reporters a chance to ask questions on behalf of the broad public. (I doubt CMHC would’ve summoned media just to tell them they’re tightening MBS)
Why do they pick a time when Flaherty is out of the country to do this? Perhaps the new CMHC leadership and recently appointed Board want to make their faces seen in public, an attempt to salvage their public image by appearing like they’re “proactively making changes to reduce tax-payer risk”.

3. CMHC will announce high-impact news. 
Potential impact (& public backlash) is so high that they had to time the announcement to After the Budget, and During the time when Flaherty is out of the country, so that Flaherty could later say “look, I wasn’t even in the country when this happened!”  ;)


On separate (but not sure if related) note,

"RBC has just eliminated all of its advertised “special offer” rates today" (first reported by @CdnMortgageNews )

eg. on its website, there is no longer any “discounted rate” of 5Y 3.49% Fixed mortgages, just the “posted rate” of 5Y 5.14% Fixed mortgages.

(Sure, this could be just RBC updating its computer database to prepare for their next promotion, but this timing is interesting a day or two before the CMHC announcement)

Wednesday 19 February 2014

A Crisis of Faith? - The Emergence of Ex-RE Bulls

(archived from my forum posts today)

Remember yesterday I said I had heard from 10 people in the past few days saying they think Vancouver home prices will drop?
Well, make that 11.
While chatting with my new landlord, he said “I think Vancouver home price will be dropping for next couple years, now that they removed the IIP. We were about to buy a $1M house in Vancouver few weeks ago, glad we didn’t. Vancouver real estate is not worth investing anymore” (landlord was from China but had been in Vancouver since late 1990s.)


There is the hard stats aspect of RE, things like Current Inventory, monthly sales, new lists, months of inventory, etc. These values are useful for retrospective analysis of already completed sales, from which we may have a glimpse of the near-term price movement should current market momentum stays course.
Then there is the soft “investor sentiment” aspect of RE which is difficult to measure. When my family, in-laws, friends, colleagues, even landlords who were previously adamant that “Vancouver RE will never go down” now have respectively changed their minds, “predicting” RE will go down and “advising” me to wait a bit before buying, it almost felt like they were all suddenly brain-washed in unison.

Then I realized that the truth is in fact the opposite. They were brain-washed by media and RE industry to believe that Vancouver RE was untouchable Because thousands upon thousands of Rich Chinese are coming. No matter how we attack their ideology with stats, figures, reason and logic, their belief in RE was immune due to the impregnable shield of HAM-delusion. After Feb 11, this HAM Shield Generator which was grinding along for 28 years had abruptly been shut down. The (perceived) backbone of Vancouver RE had been broken. What these ex-RE Bulls are experiencing, is a Crisis of Faith – and it can be terrifying.

Imagine them opening their favorite local Mandarin Chinese newspaper and finding the RE Headline that reads “Rich Chinese Now Abandoning Vancouver, Swarming Seattle Instead”. Hardly believing their eyes, they opened their favorite local Cantonese newspaper and found the exact headlines. 

Feeling shell-shocked, they turned on their computers and surfed Hong Kong news instead. Lo and behold, both Oriental Daily and Sina Finance are putting the same news on their RE headlines.

Discouraged, they opened another window for China news, only to find China’s XinHua Net is printing the same news.

Not wanting to give up, they surfed to Taiwan newspapapers, only to find several prominent Taiwanese newspapers bashing Vancouver RE.

It almost seemed like the Entire World is against them…

Tuesday 18 February 2014

Can you beat my Price-To-Rent Ratio? ; )

Just moved into a new rental house.

Good time to talk about Price-to-Rent Ratio (Price/Annual Rent)

According to Investopedia
Ratio 1-15:   better to buy than rent
Ratio 16-20: typically better to rent
Ratio >21:    much better to rent

My old place~ 26 (assessed price ~$700k)
My new place~ 32 (assessed price ~$800k)

Rent’s slightly lower (after we bargained the asking rent down by $350/month – the perks for being a “desirable tenant” with a wife who can probably teach a course on bargaining) 

Living area increased from ~1700sf to ~2000sf, house also <10 years old, better view, pleasant landlord looking for long-term lease. Overall a comfortable place to watch the RE drama unfold.

- If you have time, check out The Province's piece on P-R Ratio for Greater Vancouver

As an aside, I had heard from almost 10 people (including my mother-in-law, my parents, Chinese clients (who are home owners), friends) in the past few days telling me (without being asked) that they think Vancouver home prices will drop. Could the tide really be turning this time?

Saturday 15 February 2014

Sob Stories coming in post-cancellation of Immigrant Investor Program

in today’s Sing-Tao Daily (One of biggest Chinese newspapers in Canada): 

(I’ll attempt to translate below)

After IIP was abolished, there are fears that not only Greater Vancouver RE will be impacted, but also sectors such as education, retail, tourism, etc. We (Sing-Tao) will launch a series of reports to investigate in-depth the economic impact of this new immigration policy.

1. [Mr Zhong] is a Taiwanese businessman working in Shang-hai. He applied for IIP in 2010, however his case has been stuck on wait-list. To move forward on his children’s education, he sent his children to study in Coquitlam in July 2012 as international students (Dr Charles Best Secondary & Como Lake Middle). His wife accompanies his 2 children, currently renting near the schools. Mr Zhong thus became an “astronaut.” The Zhong family was about to purchase a $400k condo in Coquitlam last few days prior to Budget announcement.

Upon hearing that IIP is abolished, the Zhong family’s plan was in complete disarray. First, they immediately cancelled home purchase plans. Second, Mr Zhong is now planning to send his children either back to Asia, or to U.S. to contiue with their education.

When asked if he will consider applying for immigration via the upcoming “immigrant Investor Venture Capital Fund pilot project”, Mr Zhong thinks that 90% of money invested will likely be gone, and people who choose that route will most likely lose money. “If local businessmen are already having a hard time making money, for foreign capital to make money doing business here, is most likely difficult, if not impossible,” said Mr Zhong.

2. [Mr Zhong’s Friend] is also a “Victim” of IIP abolishment. His child is also studying as an international student while his family awaits IIP application approval. Mr Zhong’s friend purchased a $800k house in 2012. Now that IIP is canceled, he is going to sell his home.
“However, Canadian Dollar has depreciated against Chinese Yuan in the last 1-2 years. My friend will stand to lose the equivalent of $100k CAD, just from selling his house,” said Mr Zhong.

It is important to note: (which I forgot to mention when commenting on IIP cancellation last couple days):
- It is common practice for parents who’re on waitlist for IIP to send their children first as “International Students”.
- These students will occupy housing space, they could be renters (but more likely owners).
- We know that there were “45,000 rich Chinese families on the waitlist eager to come to Vancouver” as of last week.
- Some or many of these parents already sent their children to Canada, whether to study in grade school or to “claim an intention to study” and came in via “Student Visa” (rules will be tightened by Jun 1st, btw)
- Therefore, we should not just look at the loss of “2000 wealthy IIP families/year to Vancouver” starting 2015. We should also consider the RE that’s already purchased/occupied by thousands, if not tens of thousands of waitlisted applicants’ families (thanks to no foreign ownership restriction).
- These families will no longer be able to settle in Canada (at least can’t immigrate), and they will have to make major decisions whether to seek greener pastures (eg Australia/US, even back to Asia).

- The cancellation of IIP, per se, will not only reduce future demand but also actively increase housing supply in the near future.

-HAM: easy come, easy go.

Mainland millionaires turning backs on Canada and looking to the US & Europe, say migration agencies
Feb 14, 2014
“A rising number of wealthy Chinese are moving to the US and Europe because their once-favorite destination, Canada, has been scaling back entry, migration agents say.
Hong Kong-based immigration consultants are also trying to provide would-be migrants with alternative programmes after the scrapping of Canada’s investor visa scheme.
Hu Xiaofeng, a Chinese banker who obtained PR in the US last year through an investment programme, said “I wanted to move to Canada, but my agent told me the process was more complicated and the chances of obtaining Canadian residency status were slim.” “The important thing is to move away. I don’t speak English so the destination really doesn't matter.”

Wednesday 12 February 2014

News from Flaherty's 2014 Budget & Some of my forum comments

B.C. property market hazy after 'millionaire visa' scrapped
Real estate agents in Vancouver say property prices could take a hit, after Canada scrapped a program which allowed wealthy immigrants to fast-track the visa process.

"I deal directly with these people who bring a lot of wealth, who are creating lots of jobs for local Canadians — builders, trades, architects, realtors like myself," said Debelle.
"Most of the buying is coming from Chinese immigrants who are wealthy, so if we make it difficult for them to come into this country, we have killed 80 to 90 per cent of the buying in West Vancouver."
Immigration lawyer Richard Kurland agrees.
"When you suddenly stave off the intake of literally hundreds of millionaires in the Vancouver property market, prices can only go one way and that's down," said Kurland.

Federal budget 2014: Ottawa plans boost for small banks
“They are capping a whole bunch of lines of business,” said Mr. Ian Lee, a professor at the Sprott School of Business at Carleton University. “I think they have a plan for CMHC which they haven’t disclosed yet. They are either going to shrink CMHC incrementively or prepare it for privatization.”

1. Applicants must enroll in and continue to pursue studies in Canada. Failure to do so could lead to removal from Canada. (previously only needed to “Intend to” study)
2. Study permits will only be issued to successful applicants who are pursuing studies at an educational institution that has been designated to receive international students. (previously was “any educational institution”)
3. A study permit becomes invalid 90 days following the completion of studies unless the foreign national also possesses a valid work permit or another authorization to remain in Canada. (previously they could stay until study permit expires, even after graduation)

How Canada’s new immigration rules could slow high end real estate sales
Ottawa also announced it has eliminated the so-called immigration trust, which had allowed wealthy immigrants to shelter their investment income from taxation for their first five years of residency here.

My comments Feb 11-12
Guess what the top 3 threads today in local chinese RE forums are about? Over 4000 views on the thread titled “Canadian government abolishes immigrant investor program. Over 40000 waitlisted applications cancelled. Very Bearish for Vancouver RE”
People are speculating that the next step might very well be limiting/taxing foreign ownership.
Realtors/Pumpers wasted no time to dish out their pump piece, saying “Rich people can still come to Canada on a 10 year Visa. RE won’t be affected”.
Realtors/pumpers based in outlying areas were quick to bash West Van / Van West, saying there will be no more “greater fools” to pass the baton to. While “RE in other areas of greater vancouver will continue to appreciate due to local demand”
They were countered by people commenting: “Rich people / officials from China care most about foreign citizenship status for their family. The major incentive to buy expensive RE in Canada has just been removed. Granted there is still 10-year super-Visa, but you would still just be a visitor, not a permanent resident”
“How can other areas of vancouver not be affected if Van West RE plummets?”
If I were a betting man, I’d bet All major local Chinese newspapers’ headline tomorrow will be about the end of Immigrant Investor Program.

@#13 Just a quick follow-up to yesterday’s post.
As expected, “Canada Axing Immigrant Investor Program” makes front page headlines in major Chinese papers like World Journal and MingPao.
The Chinese RE forum thread titled “Canadian government abolishes immigrant investor program. Very Bearish for Vancouver RE” now has close to 10000 views.

We know that a sizable part of Vancouver’s economy (not just RE) flourished in recent years due to the influx of wealthy immigrants.
Looks like times may be changing for some of these industries.
An article at 24 Hours Vancouver today:
“Vancouver immigration lawyer Tim Bailey said the loss of the program means immigrants can no longer store money in offshore accounts for five years — out of reach by Canada Revenue Agency.
Bailey said that means funds in trust will be taxable as of next year. He added lawyers who work in immigration could feel the pinch.
“There are a number of legal practitioners who have been seriously impacted by this decision, ironically in much the way that refugee lawyers were when (Multiculturalism Minister Jason) Kenney took a chainsaw to the refugee system,” Bailey said. “They are going to have to expand their practice, adapt, or disappear.””

Another thing, we know that there are multiple drivers behind the Vancouver RE boom in 2001-2012. Loosening mortgage rules, declining interest rate, population growth, etc. Influx of wealthy immigrants was but one of the factors, with effects most pronounced in Van West, West Van, parts of Burnaby, and Richmond (until 2011); however this “HAM” factor had been over-hyped by the RE industry and media, giving people a false belief that because of “HAM”, “fundamentals don’t matter,” “it’s different here.”
Now that this “HAM factor” has suddenly been weakened, people might begin to question their “faith” or confidence in Vancouver RE. Perhaps will result in some of them taking action on their negative cash flow properties?
The removal of Immigrant Investor program per se, will result in ~1k-2k reduced demand for luxury RE purchases per year, mostly in Van West/West Van areas. However, the loss of “faith” in Vancouver RE may prove much more damaging.

Saturday 8 February 2014

Some (rough) thoughts on Vancouver RE for 2014 Spring

Unlike 2013, I'm not going to do a "%" prediction of RE price changes for the whole year. There are too many factors which can cause short-term changes of RE market. in 2014 I will try to do a RE status update and projection every 3-4 months.

Life and work have been extremely busy (and will continue to be so for the better part of 2014), please excuse me for the relative slack.

POSITIVE Short-Term Factors for Vancouver RE: SPRING 2014
1. Fixed rates has been trending down, however not as low as Spring 2013 levels. Variable rates will likely continue to stay similar to current levels for 2014.

2. Positive/bullish RE sentiment carried over from Summer/Fall 2013.

3. Depreciating Canadian Dollar makes Canadian RE "cheaper" for foreign investors.

4. So far, OSFI & CMHC rule changes have had only moderate impact. Banks & Credit Unions can circumvent some rule changes (eg offering 30Y uninsured mortgages, cash-back mortgages, etc)

5. CRA starts tracking international money transfers of >$10000CAD by 2015. It is possible people will transfer larger sums of money into Canada (eg from China) in 2014, before CRA's new system kicks in.

6. Canadian government plans to increase enrollment for international students.

NEGATIVE Short-Term Factors for Vancouver RE: SPRING 2014
1. Canada and Canadian Dollar losing status as "safe haven". Depreciating Canadian Dollar (vs USD) will cause international investors to invest their money elsewhere (eg U.S.). Eventually, declining Canadian Dollar may cause decreased interest in Canadian Bonds, causing Yield to rise. Fixed mortgage rates could be on the rise again later this year.

2. Foreign investors of Canadian RE already lost money (in USD or CNY terms) vs 1 year ago. With limited upside growth of RE appreciation, some foreign investors may decide to cash out of CAD RE and seek better returns elsewhere.

3. OSFI B-21 mortgage insurer rules are due to be implemented in 2014. Mortgage qualification could be getting tighter.

4. Finance Minister Flaherty and Bank of Canada Governor Poloz both publicly stated they want a "soft landing" of Canadian RE. They see a gradual decline of RE as "healthy for economy". However, Canadian RE only showed mild sign of slowing (even picking up steam in some markets such as Vancouver) so far. It is likely that Flaherty/OSFI will introduce tighter mortgage rules in Spring 2014. If they do decide to tighten mortgage rules, the following changes are possible:
A. Eliminate 30-year uninsured mortgages (via OSFI) from banks
B. Requiring more paperwork and proof of income for mortgage applications
C. Reduce CMHC maximum-insurable home price from $1 Million down to a lower level, eg $800k. (Or set regional caps, eg $900k for Greater Vancouver & Toronto, $800k for rest of Canada)
D. Further tighten HELOC application requirement and reduce loan amount.
E. Increase minimum down payment from 5% to 7-10%.
F. Further increase CMHC insurance premium.

5. Employment numbers continue to deteriorate. Unemployment and Under-employment will continue to drag BC & Canada's economy growth.

6. Decline in Gold and precious metal prices will continue to negatively affect Vancouver's mining industry. Expect layoffs in this sector if Gold continues to decline.

7. Tightening immigration rules (including recent changes in Canada Experience Class) and language requirement may negatively impact # of immigrants from non-English-speaking countries such as China.

8. Several Banks (TD, CIBC, Scotia) and Bank of Canada already warned in late 2013 that the recent "warming up" of Canadian RE was due to pulled-forward demand from fear of further rise in Fixed rates. If they are correct, we may see decreased demand in Spring 2014, due to a large amount of potential 2014 buyers already bought in Fall/Winter 2013.

Some things of note:
- Greater Vancouver Sales and Benchmark price of Detached in Jan 2014 were higher than Jan 2013
- Greater Vancouver Detached HPI Benchmark price in Jan 2014 is still 4% lower than the all-time high of May 2012.
- Finance Minister Flaherty will reveal his annual Budget on Tuesday Feb 11. There is a possibility he may reveal some sort of mortgage rule change on that date. (Although in past few years, mortgage rule changes can happen as early as mid January, and as late as July)

Monday 3 February 2014

CMHC Board Change - too little, too late?

CMHC Appoints New Directors
Feb 3, 2014
“The Honourable Jason Kenney, Minister of Employment and Social Development, Minister for Multiculturalism and Minister Responsible for CMHC, today announced the appointments of Sandra Hanington, Louise Poirier-Landry and Bruce Shirreff to the CMHC Board each for a term of four years.”
“Minister Kenney also thanked outgoing Board members, Sophie Joncas, Anne E. MacDonald and James Millar for their service on the Board.”

1. Sandra Hanington: Executive VP, BMO Financial Group
2. Louise Poirier-Landry: Financial security and strategic project advisor. previously held positions as Vice President and Chief Investment Officer at AXA Canada.
3. Bruce Shirreff: Senior VP, TD Bank

1. Joncas: Chartered Accountant. “Professional experience in the public and private sectors, including construction and real estate firms”
2. MacDonald: Lawyer, General Practice.
3. Millar: “career public servant” “worked in several government departments, including the Privy Council Office, Manpower and Immigration, the Public Service Commission, and Transport Canada.”

(original CMHC director bio here and on CMHC main site)

Related (old) news re: CMHC Board:
1. CMHC takes first steps to new identity
May 8, 2013
“Let’s consider CMHC’s 12-member board. The directors, who meet a minimum of five times a year, are appointed by the government of the day for a term of four years, except for the chairperson and the president and CEO who are eligible for reappointment. Among them is an Ottawa-based consultant, a chartered accountant at a home building company, the president of a real estate group in Montreal, a lawyer from Nova Scotia, an accountant with a privately-owned venture capital company based in Edmonton, and a partner at a London, Ont.-based plumbing company who is also a member of a local home builders’ association. Two others are bureaucrats – the deputy minister of Finance and the deputy minister of Human Resources and Skills Development, which currently oversees CMHC. And the outgoing interim chair is a chartered accountant and an administrator with a television production company and an economic professor at a college in Saint-Hubert, QC.”
““They are out of their league.” Leblanc says that while many of the current directors lack the skill sets required by OSFI, they are at a further disadvantage because the set four-year terms means they don’t have the chance to develop expertise. ”

2. Former Goldman Sachs investment banker appointed to head CMHC
Dec 20, 2013

Wednesday 29 January 2014

PIMCO: Canada’s Housing Market Correction Will Begin In 2014

PIMCO: Canada’s Housing Market Correction Will Begin In 2014
January 29, 2014
Ed Devlin, head of fixed income giant PIMCO’s Canadian portfolio management, just released his 2014 economic outlook.

“At PIMCO Canada, we have been bearish on housing for a while from a secular perspective, but this is the first time we are forecasting a cyclical decline in the housing market. ”
To be clear, Devlin is not calling for a precipitous decline in Canadian home values this year.
Rather, the firm thinks the market will start to “roll over,” with a correction that occurs over several years.
Here is a summary of PIMCO’s case against the Canadian housing market:
-Valuations are stretched;
-Mortgage credit tightening is helping to cool activity; and
-The cost of capital for Canadian banks will increase this year, and these costs will be passed along to consumers.

Sunday 26 January 2014

OSFI's potential B-21 changes worries mortgage brokers

Brokers apprehensive about potential B-21
15 Jan 2014
"Brokers may not buy into Realtor optimism, with two industry players taking to’s comments section to air their fears of the impending B-21 guidelines.

“This time the insurers are said to be the target and this could mean anything from increasing the down payment amount to a minimum of 10 per cent or 15 per cent, affecting mostly first-time buyers, to limitations on bulk insurance which is bound to affect almost everyone else,” Lior Hershkovitz of Mortgage Edge said. “With the banks required to hold a greater portion of the risk on their books, mortgage approvals will become more stringent."

"Expected to be opened to public comment in March, the B21 guidelines will require the three mortgage insurers – Genworth, Canada Guaranty and CMHC -- to more stringently police the mortgage default insurance loans they provide.

And brokers are already speculating about the affect the potential guidelines will have on the industry as a whole."

"“Let's face facts, B-20 did not make mortgage lending any easier for mortgage brokers; it's a good bet B-21 will be just as painful,” Butler said."

Wednesday 22 January 2014

TD's Mortgage Clause change creating big stir

“One broker said he is getting nowhere in trying to find out why TD has altered the fine print in its VRM contracts for conventional mortgages – specifically around when a spike in LTV triggers demand for a lump-sum payment or a new appraisal.”

Under the terms of the new clause, if, at any time and for any reason, the loan-to-value on a conventional mortgage exceeds 80 per cent, the bank has the right to direct the borrower to bring it under that 80 per cent threshold or to obtain an appraisal proving the fair market value is indeed higher. The new wording replaces a similar clause that sets that trigger at 75 per cent but limits the scenario to instances where interest rate fluctuations have driven LTV over that 75 per cent mark.
Mulhern believes that new, wider clause speaks to the lender’s concerns about a possible market correction and its power to drive down property values.

“In the new clause, it states that if at any time the principal balance exceeds the max LTV.” he said. “This protects the lender in case of property devaluation. “

TD's Mortgage Clause change creating big stir. Catches mortgage industry by surprise.

Canada Losing "Safe Haven" Status

2 articles in a couple days re: Canada's fading status as "safe haven"

 1. Bloomberg: Canada Loses Haven Status as Dollar Doesn’t Spark Exports

Jan 22, 2014

"Canada was the envy of developed economies following the global recession, boasting the world’s soundest banks and a robust housing market that helped push its currency above parity with the U.S. Those days are gone. The dollar plunged to the lowest in more than four years today and returns on Canada’s benchmark stock index were less than half of U.S. equities last year, underscoring an economy beset by the slowest rebound in exports since World War II. Consumers are tapped out with record household debt and governments are more focused on erasing budget deficits than providing stimulus. With the outlook for other major economies improving and “the lack of job growth and economic growth here in Canada, comparatively I think we’re going to be sub-par for a little while at least"

 2. Yahoo (w/ Madani)Canada’s economy losing ‘haven’ reputation: report

20 Jan, 2014

An underperforming stock market, the falling loonie and the amount of money being pulled out of the country by foreigners are reasons to believe Canada may be losing its lustre. “Attracted by relatively low government debt, a stronger economic recovery and its healthier banks, foreign investors took a shine to Canadian assets in the aftermath of the financial crisis,” said Capital Economics analyst David Madani in a new report. “More recently, however, those assets appears to have lost their shine a little, as Canada's safe haven appeal has waned.”

Vancouver ranks 4th in North America for high rise construction.

Wednesday 15 January 2014

Australia posted terrible job numbers, AUDUSD plummets.

"The Australian Bureau of Statistics has just released the December employment report, which was a terrible number no matter which way you cut it.
Employment in Australia fell by 22,600. But the huge fall in full-time unemployment of 31,600 is the big shock for markets, and puts a big question mark on the recovery at the moment.
But it is the contracting participation rate (think people in the workforce or actively looking for jobs) which is really holding the unemployment rate below 6%."

AUDUSD down 3% in 3 days. Sounds familiar?

Thursday 9 January 2014

加币如预测继续贬值 / CAD Continues its descent, as expected

GF 早在2012年就看空澳币及加币

在加币兑美金过par 时 (2012下半年),GF 已把过半 当时手上的加币换为美金。
总投资portfolio 在2013年初 约60%为美金/美股

澳币从2012年春已对美金下跌了 18%。
加币从2012年底对美金已跌了 11%
GF 继续看跌加币,且将在未来加币短期回涨的时机购入更多美金。


Brief Translation:
As early as early 2012 I had been bearish on AUD and CAD.

Back when CADUSD>1.00, I had already converted over 50% of my cash/investment holdings into USD.  As of early 2013, 60% of my entire investment portfolio was in USD.

Since Spring 2012, AUDUSD had already declined 18% vs USD
Since Late 2012, CADUSD had already declined 11% vs USD

I continue to be mid-term bearish on CAD and plan to purchase more USD when opportunities arise down the road.

If you are an owner of investment properties in Vancouver, and are also at least mid-term bearish on CAD, you should know what to do next.

Sunday 5 January 2014

Sample Calculation: Projected Net Worth 2013-2016 - Renting vs Buying

For those of us renting by choice, we need to regularly reassess whether this "choice" is still financially sound.

I had just drafted a rough spreadsheet comparing renting vs buying, in relative approximation of my personal situation.

The values in this spreadsheet assumed the following:
1. "Annual Savings Pre-housing" = After-tax income minus all expenditures other than housing-related expenditures
* due to privacy reasons, the income & current savings amount have been altered somewhat

2. Current rental accommodation = 4BR SFH worth ~800k market value.  Rent had stayed the same for 2 years & expected to stay fixed for foreseeable future due to myself being a "desirable tenant".

3. Target property is newer SFH in Van East / Burnaby & Surrounding neighborhoods, current market value ~$1.3-$1.5M.

4. Despite my prediction that Vancouver RE in my target price range will decline in value in the coming years, let us just assume here that $1.4M-range Van E / Burnaby SFH price will stay unchanged between 2013 and end of 2015.

5. For simplicity, assume annual income & non-housing expenditure stay the same.

6. If I buy in 2016, I will place a larger down payment (500k) than in 2013 (350k), due to the money saved by renting.

7. Assume the renter's Return on Investment of his savings = 3%/year (let's be conservative)

8. Assume the home-owner's repair/maintenance cost at only $2000/year (in reality often higher, unless brand new homes)

A. We can see that if I stay renting from 2013-2015 inclusive, and if the $1.4M target property price stays unchanged, my networth by the end of 2015 will be over $100k higher renting (551k) vs buying (448k).

B. In Scenario 1, where I purchase the property at same price as 2013, but mortgage rate increased from 2.89% to 3.09% (fixed rates may already be higher, but variable rates can very possibly stay low even by 2016), by end of 2016 my networth will be $62k higher by delaying home purchase to 2016, than buying in 2013.

C. In Scenario 2, where Target Property price falls 10% by early 2016 vs 2013.  By end of 2016, my networth will be $543.8k if I buy in 2016, vs $337.6k if I bought in 2013.  A difference of $206k.

D. In Scenario 3, where Target Property price actually gains 5% by early 2016.  By end of 2016, my networth will be $537k if I buy in 2016, vs 548k if I bought in 2013.  In this case buying in 2013 wins vs delaying purchase.

E. In Scenario 4, where Target Property price remained unchanged, but mortgage rate increased to 3.39% (let's say that's variable rate mortgage), in terms of networth, delaying purchase still beats buying early.

To conclude, as long as Target Property appreciates <5% between 2013 and end of 2015, then buying in 2016 beats buying in 2013, in terms of personal networth, in this particular case.  If price stays the same, then the renter beats the 2013-buyer by over $100k in networth.  If price declines 10%, then the renter beats the 2013-buyer by over $200k in networth by end of 2015.

Thursday 2 January 2014

BC Assessment Roll is out (w/ my short spreadsheet tracking 2012-2014 assessments of a few properties)

I did keep a small spreadsheet tracking the assessment prices of certain buildings since 2012.  Most of those buildings are either close to ones I've lived in before, or are close to addresses of my relatives/friends.

A. Let’s start with my current rental house (put up for rent in 2012, where landlord/builder tried to sell for $860,000 but no takers):
2012: 815000
2013: 809000
2014: 793000

B. Condo in E Van: (2012, 2013, 2014)
2101-3663 CROWLEY DR 472000 436000 423000
(bought 455000 2/20/2011)
502-3663 CROWLEY DR 336000 309000 299000
(bought 318000 1/28/2011)

C. Condo in Burnaby: (2012, 2013, 2014)
607-7088 18TH AVE 394000 391000 387000
(bought 406000 5/2/2011)
1902-7088 18TH AVE 483000 479000 473000
(bought 462000 5/15/2011)
701-6688 ARCOLA ST 443000 446000 441000
(bought 470000 5/31/2011)
1105-6688 ARCOLA ST 411000 406000 402000
(bought 460000 7/12/2011)

D. Townhouse in Richmond: (2012, 2013, 2014)
8-5580 MONCTON ST 711000 703000 688000
(bought 735350 5/7/2011)
10-5580 MONCTON ST 706000 697000 683000
(bought 740950 2/24/2011)
11-5580 MONCTON ST 711000 703000 688000
(bought 668000 5/3/2011)

E. SFH in Marpole (2012, 2014)
7907 SELKIRK ST 1450000 1387000 (bought: 1570000 5/29/2011)
8043 Montcalm St 1164500 1110600(bought: 1150000 1/18/2011)
8131 CARTIER ST 1333000 1280000 (bought: 1408000 4/19/2011)
8008 CARTIER ST 1548000 1524000 (bought: 1573000 4/19/2011)