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