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)