Canadian real estate prices are acting a little skittish. The Teranet–National Bank House Price Index, shows real estate prices stalled across the country. In addition, the index is making moves we haven’t seen outside of a recession.
Tera-What?
If you’re a regular reader, feel free to skip this. For those that don’t know, The Teranet-National Bank HPI is a different measure of real estate data, that relies on property registry information instead of sales. Many misinformed agents refer to this as a “delayed” measure, but that’s not the case. The use of registry data means that the information is “late” compared to the MLS, but it’s more accurate.
Using registry information means only completed sales are included. In contrast, the MLS uses just sales. In a hot market, few sales fall through, so the MLS is definitely a faster read. In a cooling market, sales can start to fall through, as some buyers look for a way out while prices drop. This is often not reflected in MLS data, since a transfer occurs 30 to 90 days after a sale. They each have their trade offs, and neither is better or worse than they other. If you’re really into housing data, it’s best to check both to get a real feel for the market.
Better Dwelling. Source: Teranet, National Bank of Canada.
Canadian Real Estate Prices Are Unchanged
Canadian real estate prices didn’t do a whole lot in March. The 11 City Composite index remained virtually unchanged compared to February. Prices are up 6.61% compared to the year before. National Bank analysts noted this is “the first time outside a recession when the March composite index was not up at least 0.2%” It was also the first time that only 4 out of the 11 markets saw an increase, outside of a recession. The unusual move is definitely worth noting from a macro perspective.
Source: Teranet, National Bank of Canada. Better Dwelling Calculations.
Toronto Real Estate Prices Are Flat
The Toronto real estate market has no idea what to do right now. The index showed prices remained flat from last month, and up 4.31% from last year. Prices are down 7.3% from the July peak when adjusted, and 7.9% when non-adjusted. This is the lowest pace of annual price growth since November 2013.
Source: Teranet, National Bank of Canada. Better Dwelling Calculations.
Funny thing to note is experts, including some bank executives, are saying the correction is over. Technically speaking, a correction hasn’t even begun according to this index. A correction is when prices fall more than 10% from peak, in less than a year, which we haven’t seen yet. If I didn’t know any better, it would appear that mortgage sellers bank executives are misinformed. How strange.
Vancouver Real Estate Prices Hit A New All-Time High
Vancouver real estate prices, driven entirely by condo appreciation, hit a new all-time high. Prices increased 0.5% from the month before, and are up 15.43% from the same month last year. Prices on the index showed monthly increases in 13 of the past 15 months. Teranet-National Bank analysts noted that gains are tapering, and this is “consistent with the Real Estate Board of Greater Vancouver.”
Source: Teranet, National Bank of Canada. Better Dwelling Calculations.
Montreal Real Estate Prices Drop 0.2%
The market brokerages have been attempting to rocket, appears to be a failure to launch. The index showed that prices declined 0.2% in March, and are up just 4.27% from the same month last year. Annual price increases peaked in December at just under 6%, and has been tapering ever since. Technically speaking, Montreal has yet to outperform the general Canadian market. Despite what you may have read in Montreal media.
Source: Teranet, National Bank of Canada. Better Dwelling Calculations.
Canadian real estate prices are acting unusual compared to movements typically made outside of a recession. However, they are moving in a typical real estate cycle. A gain as large as we’ve seen nationally, has never not been followed by a negative price movement. Try to act surprised when you see it. Bank economists will.
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“First movement outside of a recession”
Silly Canadians, you’ve been a recession since 2015, when your GDP is priced in USD. The Canadian peso, and therefore your labor, is being devalued rapidly to keep you competitive. The kleptocracy continues.
Currency movements are not the same as economic output. When the loonie was at $1.10, did that mean our economic output was 40% higher than now? Was our standard of living 40% higher? Of course not.
A RE agent told me that if the leafs win this year toronto prices will jump 20%. Go leafs go
Also, that’s the only way to prevent a recession. Pressure is on.
On a more serious note, it’s very disappointing that “experts” have turned into industry shills. Crashes lead to faster recoveries. Slow growth leads to a slow long period of decreasing economic activity.
Crashes only lead to faster recoveries if they are allowed to play out. Japan had a crash, but then started intervening furiously to negate the negative effects. 28 years later, the intervention is just as extreme as ever.
It’s actually more extreme than ever there. Japan’s Central Bank now owns 40%+ of the whole domestic bond market and 75%+ of all domestic ETFs.
No price discovery, no liquidity, purely manipulated markets.
On the top of that government spends 25% of its budget on government debt interest repayments and that’s when they have close to 0% interest rate.
Japan just need to grow some balls and declare state bankruptcy. That’s the only choice they have.
Wait for the rate hike in April, people will start to squirm. Then October rate increase is going to cause panic.
some people will hold back thinking there will be a rebound and then get caught next spring with rates almost a percent higher. most investors will start to panic come June if asset appreciation does not continue.,which it won’t. Need to see how May plays out but it isn’t looking pretty. Tick tock.
Would like to see another rate hike, but early data points are showing the economy is already starting to slow down faster than expected. I fully expect the next few GDP updates from StatsCan to reflect the wash on numbers we’ve received from seasonal adjustments.
I would argue the BoC will view this as a positive impact of their policy and continue with their mandate. Whether we see 2 hikes in 2019 will be impacted by the next two quarters so they may taper their increases if 2018 comes screeching to a halt. I agree that the slowdown is coming quicker than expectations but we need to get the bad money out first to see the net impact.
I want to see another rate hike, but I just can’t see Poloz doing it before July. I hope I am wrong. He’s surprised me before.
I was surprised at the last hike too, but the data came afterwards to support it. Maybe they know we’re doing better than we think?
With the fed raise in March and one more coming for sure the BoC risks being left behind if it doesn’t follow suit. I don’t think there is an macro reasons not to and if the US is getting frothy we’ll need stimulus come 2021 or 2022. We’ll see but something seems rotten and we could be surprised by the decisions Poloz takes.
I’m still waiting for the data on impact of the minimum wage hike. As far as I can see it it’s one of the best possible boost to the spending(which leads to economy growth) . And it’s also quite inflationary by its nature. Low CAD is also inflationary thing.
If those drivers overweight crashing housing markets and other risks BoC may keep raising it.
We also can’t stay too far behind of US in rate hikes due to CAD/USD exchange rate. Again if CAD drops it will drive inflation up and the whole purpose if interest rate hikes to keep inflation in check (below 2%)
Like in all extreme situations, the spiral effect on minimum wage is interesting to say the least.
Would love to hear from other business owners, but what i have been told by some is the spill up effect since this increase was surprising. Other levels within a company now earning a minimal delta from the min wage person….now wanting a raise, and so on and so on…I then asked where do you go to make this up? Response “Raise Prices”
Was cruising through many Markham neighbo’s last weekend blasting some Tribe Called Quest. Noticed an astonishing number of open houses with no cars to be seen.
Many people around me putting there just renoed investments on the market. 1-3 DOM, so too soon to tell. But they are in the more extreme markets in York Region and Durham.
Meanwhile Suncor hits new 52 week high….with small cap energy up what 15-50% over last week. Guess I should have listened to all those RE Gurus in Toronto a few weeks back huh =P
Ya hear me?
When comes to rates, I think you’re absolutely correct. People still believe we won’t see any hikes this year … quite delusional. Let’s not forget that 47% of all Canadian mortgages are up for renewal this year. No more shopping around for better rates (unless willing to go through stress-test) which means mortgages will be definitely more expensive to service.
On top of this, RBC warns about first cracks in Canadian credit bubble … quote “The roll rate — the percentage of credit card users who “roll” from early stage delinquencies to 60-89 day delinquencies — reached the highest since 2008 for one credit card program, while delinquencies for another program were above the 10-year average”.
RBC doesn’t equal all banks however. I believe they’re over leveraged and more worried about their own book. But data shows we’re at the lowest level of credit card delinquencies since 2015. I don’t see it going much lower, but it’s not really a “crack.” It’s more indicative of a crack at his bank.
These are credit card delinquencies … that’s how it starts, from bottom up.
I agree. High cost instruments that are easily accessible(credit cards, unsecured lines of credit, car loans, etc) tend to be the first to go because naturally they are harder to service and represent disposable purchases. Alt lending will be hit, which seems to be the case already, and the ripple continues but like a tsunami I think alt lending will make the pain exponentially worse. To put in perspective back in the day all lending was from the community but banks took over as the amount of risk is enormous… If someone has to borrow at 9% from their brother-in-law just to stay afloat that is a major fucking issue.
People have been “paying off” their credit cards for years by rolling them into their mortgages (“re-fi”) or by rolling them into HELOCs. That is now off the table for tens of thousands of debtors, perhaps hundreds of thousands.
One more chair taken out of the game. Music is slowing. Tick tock.
Can’t remember the exact percentage, but considering a large percentage of total mortgages are up for renewal this year. I suspect that POLOS might hold off for the next couple months. I still expect him to raise 2-3 times this year, I just think it will be more consecutive raises towards the end. Strategy would be to try an allow as many people as possible to lock in on some term at a reduced amount.
The flip side to that. Is by the end of the year it might be evident that we are in a recession. Raise quickly now so that you have something to pull back from when shit does hit the fan.
47%. Thanks Lessdanadalla
Hmm…good hypothesis, I could see that considering the media flack. Keeps the heat off of the liberals in Ontario… Not a political comment but just a potential thought process for why they would delay their mandate until later in the year. We’ll know soon… Tick tock.
Mind you the BoC is completely separate from anything political (i.e. Poloz term is from 2013 – 2020) and it’s generally acted that way throughout history. He has nothing to do with the Ontario Liberals and/or any other party.
Joe – if you believe that the Bank of Canada is not political, I’ve got some swamp land to sell you. Poloz is taking his orders.
Grizzly, temporary excessive tightening won’t do any good if you see recession on horizon.
I agree, by the end of the year we may see real troubles in the economy since Vancouver inventory just reached 6.5 months.
I don’t expect more than one hike this year and won’t be surprised if they won’t hike at all.
Central banks don’t really need to have a buffer in interest rates anymore (that’s what they think) because they have QE and negative interest rates cards in their sleeve.
You could be right and I could be way off here, this is definitely above my pay grade, I just don’t think we have that much independence from the fed. My theory above, is based on the assumption that we have to follow them one way or another (for better or worse). They have already gotten a few hikes ahead of us, so when do we try to close the gap? If we were to go negative, or to implement QE without the Fed doing it at the same time, I assume that could/would result in the destruction of our dollar (another punishment for those that saved rather than jump in the debt orgy). Could happen, I just think things would have to be REALLY REALLY bad for us to try that. Thinking terrible debt deflationary spiral.
If we can delay the hike(s) until the end of the year. It will provide relief to some of the households that are able to renew beforehand. If just say the BOC knew they were going to have to hike twice this year, anyone renewing in 2019 is going to be doing so at least .5% higher, regardless of when those hikes happen in 2018. Two consecutive hikes at the end of this year would I assume allow the bulk of the 47% of mortgages to get in slightly lower.
Two consecutive hikes would put more pressure on variable debt like CCs and HELOCS, but what would the difference of 3-4 months really make for these people anyway? I guess maybe a bit more time to sell off assets.
You logic is correct and quite understandable. I completely agree that under normal circumstances Canada should follow US in the rate hike path. However we should remember that BoC and Fed focus their policy on inflation targeting only. Which means they don’t really focus on everything else (RE markets, levels of debts etc.) if their calculation shows inflation will spike in spite of RE slowdown or loan defaults – they will hike anyway. What makes it more difficult that they must predict future because you can feel effect of rate hikes only 1-2 years after it’s implemented but not immediately. On the top of that if for some reason BoC will be late with rate hikes and inflation will spike above 2%- it will be a huge problem because it may quickly run out of control an turn into hyperinflation (game over).
To summ it up BoC is trying to achieve almost impossible task to set up an interest rate such as it will lead to exactly 2% inflation in 1-2 years, assess all current risks and make sure all those are accounted for in their interest rate decisions. They only care about controlling inflation – that’s their job.
If BoC is way behind Fed on the rate hike path that means right now they see troubles with our economy in the future. They will only follow Fed if the future is bright, employment and economy are getting stronger and overweight all risks.
If BoC will do a surprise rate cut – that means they see a very real chance of recession in the future and trying to prevent it.
So everything is possible. They can hike twice or don’t hike at all in 2018. Since we believe our future is not as bright as US’ due to housing and credit issues I assume we should see less rate hikes than US. But again, we have minimum wage hike and low unemployment so nothing is really obvious.
Poloz announced that overall plan is to continue raising interest rates and as far as I know he hasn’t changed his stance yet.
Where are you seeing 6.5 months of inventory for Vancouver? I just want access to a good source of information for that market too.
I use zolo, not sure how reliable it is but that’s the only real time statistics source I’m aware of. For monthly stats I’m using official reports from TREB and REBGV.
https://www.zolo.ca/vancouver-real-estate/trends
It was 6.5 yesterday, now it’s back to 5 months (active listings / sales). It’s pretty much real time and changes through the day. But the graph is clearly shows that the inventory is constantly raising and was only 2.5 months a year ago.
Anything about 5 is considered as a “correction risk” zone.
Xelan – Poloz will not have a choice – at all.
In before Blue.
Forgot to hit refresh. I eat my words.
Lol…there is always Monday…
I read that toronto is going to get 2 million more people in the next 25 years. with green belt limitation the real estate is going to keep gaining in the future. if you are short term investor then it is a problem. if you are long term I think you will make out great no matter when you enter market. my parents bought some investment properties 30 years ago and they now are retired and have over $10M in equity. They were regular people with decent jobs but their windfall is due to 1. luck 2. believing real estate will go up over long periods of time. they were not educated enough to understand the stock market and therefore put all there extra savings into real estate. in my job and how real estate is going i will never make out even close to that.
It would be nice to repeat the success of the last 30 years but alas that is in the past and cannot be repeated even though we would all like it to. At a minimum this site helps us not make bad decisions when it counts the most. BD4L.
Your final sentence contradicts your earlier thesis – that TO RE will just keep rising long term.
A massive bubble has been inflating for 20 years. It may take nearly that long to fully unwind. Will we have another bubble after that? Who knows?
Here we go again … immigration influx will keep the pricing trend upwards indefinitely. Really??? This real estate mantra was debunked a long time ago. If you dare to analyze the real socioeconomic and financial parameters, you’ll learn that 95% of newcomers aren’t able to afford house purchase in first 5-10 years after arriving to Canada. Add to this our stagnating economy which means that jobs required to push and support elevated/overpriced RE market are scarce or disappearing all together.
The crap we’re in right now can’t be compared to any oscillations we’ve seen in the past 30-40 years. Why? Because as Bluetheimpala said and I concur, this bad money must leave the system first before we can move forward.
Exactly. Immigration was high throughout the 1990s, but many newcomers couldn’t even find well-paying jobs (ditto for many locals) let alone buy houses. X number of newcomers does not equal X number of homebuyers in any given year – or decade.
More to the point, home construction has exceeded new household formation in the GTA over the past few years. So it wasn’t lack of supply pushing prices up. It was rampant speculation as people tapped their rising home equity for down payments on “income properties”. That’s classic Ponzi borrowing – using equity from a rising asset to support more debt so you can buy more of the same asset.
I agree. I think we’re going to find within the next two years that there is an oversupply of housing despite what “experts” have been saying over the past few years.
The wilful ignorance in the industry is mind boggling. The i/o numbers from Toronto aren’t a secret, and are based on data analysis, not the gut feelings of realtors.
There was not a mysterious massive influx of new buyers to the region last spring, and now with increasing availability, a raft of houses and condos suddenly popping out of the ether.
However innumerable articles in the mainstream press would have us believe otherwise. Under financial siege, the media has been on a slippery slope with this stuff all along. It’s increasingly hard to tell the difference between the in-house articles and paid advertorials.
You frequently see ludicrous comparisons between apples and oranges, intermingling national stats with regional stats, etc.
The Globe has always had a loftier than thou vibe, but it seems to be amongst the worst offenders.
Lessdanadalla and Alastair – exactly what I remember in the 1990’s. Good posts!
Perhaps when the ‘experts’ finally understand economies, they will understand what is happening.
It’s all about exuberance, what creates it, and where it ends up.
‘Exuberance’ is, or more precisely is caused by, the excess of money to the total amount of ‘stuff’ it can buy. It is the means and the tendency for people to spend more money on something than it is worth. In a truly balanced economy, the amount of ‘stuff’ available to purchase would equal the amount of circulating money available to purchase it. Homeostasis – no inflation, no inequity, but no expansion or contraction. Absolutely no exuberance. Everything has a value, and everyone pays exactly that value for.
Exuberance is generally created by two main factors – interest and profit. When someone pays $12 to use a $10 bill (the essence of interest) there is $2 of exuberance. Someone is paying more for something than it is worth. A $10 bill should only be able to buy $10 of stuff, not $12. When someone pays $12 for something that only costs $10 labor and materials to make (the classic definition of profit) there is $2 of exuberance. Someone is paying more for something than it is worth (in input costs).
Exuberance is usually seen by economists as a necessary thing, because it is what drives expansion. Excess exuberance is usually a very negative thing.
In our American-centric economy, the first two non-violent traditional stabilizing factors to excess exuberance (inflation and investment in new production) have been nullified. Instead of production expansion, we are going through production contraction. Exuberance is not being absorbed in wage and employment increases, and so prices can not go up because there is no new money in consumer hands to do so. Exuberance is being hoarded.
So this exuberance has to be absorbed somewhere. All of this excess money has to be reflected in the price of ‘something’.
Some of the main players in the absorption game are bond markets, bank account balances, real estate, and the stock market. The first two have been eliminated.
The stock market, and the housing market, will only ‘cool’ when something else comes along to absorb all the excess exuberance from profits and compound interest.
What will it take? Either an absolutely exponential round of mega-inflation; a new economic sector opening up (like space colonization – in the past, it was absorbed by colonization of ‘new lands’); usually a war, which traditionally uses up enormous reserves of exuberance due to the necessity of replacing destroyed infrastructure; or perhaps climate change and environmental/weather catastrophes, requiring vast amounts of rebuilding in replacing existing plant and infrastructure; or wide-spread bankruptcies, and the corresponding wiping out of value.
Even if the stock market and housing market completely crash, the excess profit and interest will only drive it higher and higher overnight, as we have seen time and time again in the last few years.
If you want answers, follow the exuberance, what is generating it, and where it is being kept. As long as there is excess money, those who hold it will find somewhere to ‘spend’ it.
Money train is over. Chinese money is closed. Money laundering is being given pushed out. Rates are going up everywhere. Just follow the money. There doesn’t need to be an apocalyptic scenario to trigger a downturn just people being silly with their money. It is called greed.
Remember back in January when the CREA said that sales will only fall by 5.3% YOY from 2017 to 2018?
From Move Smartly:
Today we’re releasing a new report featuring my analysis of last year’s real estate bubble – why it happened and how it affected home buyers and sellers in Toronto and the Greater Toronto Area (read full report here).
I think this type of analysis is important because I’m frustrated when I hear, particularly from industry voices, that ‘no one saw this coming’ and the suggestion that consumers were hurt due to ‘bad luck.’ While it may be impossible to predict the market perfectly, it is possible to track it carefully to help consumers make better real estate decisions – and analysis has enabled us to better advise our buyer and seller clients on how to avoid the negative outcomes experienced by other consumers during last year’s volatility.
I’m also frustrated that some, particularly policy makers, may feel that the numbers of consumers directly affected – those who lost money buying or selling a home during this time – is limited and not of more general concern. But all of us are suffering from and impact of the bubble – increased housing unaffordability in Toronto and the GTA – and the likelihood of future volatility if the powers that be continue to do much of the same.
Here are the highlights:
The Toronto real estate market started 2017 with prices up 34% in March over the previous year, then saw prices tumble 18% in just four months when the bubble burst.
In spite of arguments from the real estate industry that Toronto’s housing bubble was driven by supply-side constraints, the data suggests otherwise – a closer look at population growth and new construction figures relative to the period in question do not suggest a likely explanation.
On the other side of the equation, the Greater Toronto Area (GTA) saw a surge in demand beginning in 2015, with sales up 29% above the GTA’s ten-year trend by 2016, with evidence to suggest that speculative investment activity played a significant role.
During the first quarter of 2017, investors accounted for at least 16.5% of all purchases of low-rise houses in the GTA, a 65% increase year-over-year. Increases differed greatly within the GTA, with York Region’s Newmarket and Richmond Hill accounting for the highest level of investor activity at 34% and 28%; in 2012, such activity was 7% and 9%.
Examination of the data suggests that investors were comfortable buying and renting out homes with rent yields that did not cover monthly carrying costs due to their speculation that rising capital appreciation would offset any such losses; rates of negative monthly cash flow varied across the GTA with Richmond Hill and Markham at the high end with an average loss of $2,488 and $2,444 and Oshawa and Ajax at the lower end with an average loss of $594 and $644.
Demand fell significantly during the second half of 2017, due to worsening affordability and the introduction of a foreign buyer tax, and the market saw a rapid decline of prices from a median price of $765,00 in March to $626,000 in July, a decline of 18% in four months, faster than the declines seen in the U.S. housing crisis which began in 2006.
At least 988 households were directly affected by the collapse of GTA home prices, with an estimated $135 million in market value lost in 135 days, resulting in these consumers suffering immediate financial losses and incurring the risks of lawsuits. This figure includes 866 properties that were sold to buyers unable to complete transactions after prices fell which were subsequently sold for an average of $140,200 less; areas that saw the highest level of investor activity saw the highest level of losses with York Region’s Richmond Hill and Newmarket declining $317,091 and $238,866 respectively. These figures only include properties that we were able to assess directly; hundreds more are likely to have been negatively affected.
Prices in the GTA did not continue to decline as they did in the U.S. housing crises, instead levelling out by July 2017 with experts predicting a price plateau in the months to come.
The negative impact of the bubble has not been confined to directly affected consumers – housing affordability, already a challenge in the GTA, has been worsened with average prices in the GTA at 28 times annual rents by the end of 2017, less affordable than San Francisco, Los Angeles and New York.
I hope you find this analysis useful – please get in touch if you have any questions or feedback.
John Pasalis is the President and Broker of Realosophy Realty Inc. Brokerage in Toronto. A leader in real estate analytics and pro-consumer advice, Realosophy helps clients buy or sell a home the right way.
The only thing that could explain or support the numbers, purportedly presented as facts, in this blurb is a random number generator.
Actually, his numbers perfectly reflect what has been reported as happening on the ground. And he admitted his numbers likely underestimate the problem.
On another note, ‘For Sale’ signs are going up like dandelions the past couple of weeks!!! Not sure if anyone else has noticed this….
I’m seeing this as well. For sale signs are everywhere …. Richmond Hill, Newmarket and Markham.
That is typical of spring. The telling point will be how many of those signs have the diagonal SOLD slapped on them as the season wears on. I’m guessing less than in past years.
Just like to note two stories in today’s pres.
Torstar is calling out the slump and has put some numbers behind it that should get the masses talking and paying attention to the facts. May will be worse as we all know.
G&M, behind paywall, is covering fortress mortgage fraud raid. Where there is smoke there is fire. If you all recall in the US Downturn fraud was rife and accelerated the fallout… Many believe this cannot happen here but early that is not the case…this will only be the first. This is a other major factor to consider when evaluating the market..
Yep. A falling market will uncover all the fraud and all the flimsy lending practices that were so well hidden as long as prices kept going up. If 2008 didn’t happen, how long could Bernie Madoff have kept up his charade? How many new Bernie Madoffs are hiding behind the 9 year S&P bull market? Perhaps a few in Canadian housing as well.
The China Hustle is a very interesting documentary on Netlfix right now. Covers some past frauds and also exposes some on going issues happening today in the US market. I highly recommend giving it a watch
Thanks. I will watch it this weekend.
A blessed relief, a whole day of brilliant posts and virtually no nonsense!
Alistair McLaughlin: “And Landlords sure are a benevolent bunch these days aren’t they? They can’t even claim the charitable donations credit for the negative cash flow they subsidize their tenants with. It’s almost unfair.”
LOL!
Thanks for the hint. Just watched, quite interesting. Reminds me of “Dirty Money” series on Netflix. Financial system is a total mess.
http://business.financialpost.com/news/fp-street/rcmp-search-fortress-office-in-mortgage-fraud-probe-sources-say
Thanks Joe!
Could be some more roaches
http://www.cbc.ca/news/canada/toronto/rcmp-raid-6-locations-in-gta-as-part-of-syndicated-mortgage-fraud-investigation-1.4618851
Just a small observation for world class city theory supporters.
Type in g00gle:
– London house prices are falling
– New York house prices are falling
– Sydney house prices are falling
– Tokyo house prices are falling
I’m not analyzing those markets so I don’t know what’s going on there but I see pretty often headlines regarding house prices decline across the globe.
TO and VAN prices/sales decline doesn’t look like a small temporary local issue anymore, isn’t it?
IMF came out the other day observing how many global housing markets have been moving in sync. Terrible implications if they all crash at once
My understanding is that rising bond yields around the world (and rising interest rates as a result) are blamed for that. It makes sense, when yields on other investment opportunities rise other investment options become less attractive(I point to real estate here), plus rising interest rates fundamentally put downward pressure on house prices.
Everything make sense, after 2009 almost all developed countries dropped their interest rates close to 0% which inflated housing markets around the world. Now when it’s time to rewind this policy globally prices should react synchronously.
A lot of economists say that the next financial crash may be the last one for the current financial system. Bubbles are everywhere – stock, bonds, real estate, luxury products, agriculture and it’s a direct results of trillions of QE injections in the financial system which they call “solution” for 2008 financial crisis. It hasn’t solved anything but just allowed them to kick the can further. Japan is trying that solution for 18 years already with 0 success and negative interest rates is a brand new invention which is not described in any classic theories including Keynesian which all central banks adopt. It was tried for the first time ever just recently in 2014 so Europe and Japan are the guinea pigs and nobody have any history or reliable information what will be the result of this experiment. That’s the kind of financial world we are living in.
Anyway, this topic is definitely beyond this blog. Let’s go back to our local but very important Canadian RE market:)
These investors got caught up in an investment scheme with a home developer in southern Ontario. In return for their money, they would receive a 1% return per month/12% per annum. Turns out the investors were being paid interest out of their own principal investments until the balance sheet went to zero. Why would a company be paying 12% per annum? Why would a bona fide company need to go to private investors? Whoops! These investors wanted the 12% with no risk.
http://www.cbc.ca/news/canada/manitoba/fortress-syndicated-mortgages-investigation-investments-1.4426424
The video of the investors is further down the page.
From the above article:
“A recurring investor complaint in the FSCO documents Reuters reviewed was that the products weren’t what they had been billed to be. Investors said they hadn’t been warned of the risks, that they hadn’t been told they could lose their principal if a project failed, that they hadn’t been told the often-advertised 8 percent returns weren’t guaranteed, and that they hadn’t been told Fortress and the brokers shared a 35 percent cut.”
“Returns not guaranteed??” SHOCKING!!
My God, what is it about people that they willingly believe an investment can pay them 1% per month in a near ZIRP environment, and have that rate guaranteed???? Anyone with a business plan that profitable doesn’t need your money.
Conversely, anyone who needs to pay you a return that high is only doing so because
A) He’s a lying criminal
B) Even the alt lenders won’t touch him with a ten foot pole
C) Both A and B
Answer: C
This fraud is from the U.K., but we will start seeing more and more of this here.
“They were billed as the jewels in the crown of the Northern Powerhouse: a multimillion-pound series of property developments that would have brought thousands of new homes and hundreds of jobs to Liverpool and Manchester, complete with helipads, Chinese bazaars and a Banksy street art gallery. But now the plans have collapsed amid accusations of fraud – all strongly denied – leaving the cities scarred with abandoned building sites and a trail of angry investors from around the world demanding to know where their money has gone. […]
Along with many others, Leung said she was wooed at a lavish promotional roadshow at a hotel in Hong Kong and convinced to pay 80% of the price of a student flat upfront, with promises of 6% interest on her deposit, followed by guaranteed 9% returns in rental income once the project was finished. Months later, buyers received requests for further funds to complete the building, before North Point Global announced it was stopping work all together – and couldn’t refund the buyers’ deposits. […]
‘It was presented as a council-backed project, and we were told it was a low-risk investment.’ At the first promotional roadshow, Cheung was convinced to buy three units in Baltic House, followed by another three a month later. One year on, he was persuaded by promises of ever-higher yields to buy six more. ‘They even funded travel costs for us to come and see the site in Liverpool, so it all felt legitimate,’ he says.”
https://www.theguardian.com/cities/2018/mar/13/buyer-funded-development-scandal
As unacceptable as it is, I have trouble feeling sorry for the victims. Compelled by greed, she purchased 6 prebuilds in another country. Sometimes, treating the local real estate market in some far away city like futures exchange comes back to bite you. Imagine that.