“No Condo Bubble Here.

Really?  Everything I’ve been reading indicates that the condo market in Toronto and Vancouver was going to play a key role in the Canadian housing bust.”

Ever look a painting and say to yourself “it looks like something my six year old painted in art class”.  That’s the thing about art – it’s all in the eye of the beholder.  One person’s interpretation can be radically different than someone else’s.  That’s perfectly acceptable when it comes to art.  Art is about taste.  We all know that data can be manipulated to make a point but it’s fascinating how simple raw data can paint completely different pictures.  And is there any room for taste when analyzing data?  I was stuck by a story in the Financial Post this morning, the headline read; ”Toronto not in condo bubble: RBC”

Really?  Everything I’ve been reading indicates that the condo market in Toronto and Vancouver was going to play a key role in the Canadian housing bust.  Surely this article is based off the same data that Robert Hogue, RBC’s senior economist, used for his most recent report.  According to Mr. Hogue, “Toronto’s condo building frenzy over the last few years is mainly a response to the steep drop in new single-family homes being built. Efforts by the Ontario government to stem urban sprawl in the GTA is one of the reasons why developers are being forced to build laterally, said Mr. Hogue. To accommodate the 38,000 or so net new households it sees every year, the GTA must increasingly expand its housing stock ‘vertically’”.

Hang on a second, Mr. Hogue is the only economist to factor in that 38,000 new households are required to meet Toronto’s needs, and that the Ontario government is making it difficult for builders of single family homes outside of the GTA?  Kudos to Mr. Hogue and RBC for discovering that super-secret bit of information.  Let’s see what other nuggets Mr. Hogue came up with, like investors buying up condo’s with the sole purpose of flipping the property. “Their involvement has not inflated overall housing demand beyond household formation and may contribute only to a modest overshoot in the coming years if demographics weaken”.  Well, what are we supposed to think now?  I say that with tongue firmly planted in cheek.

For transparency purposes, Mr. Hogue did sound an alarm bell, “if investors overwhelmingly buy single-bedroom units, for instance, it could skew demand and result in a bubble.”  Let’s also not forget that if aliens land and suck the brains out of every builder and then program them to build one bedroom units only, that too could contribute to a bubble.  I think we have it all covered now.  The fact is that facts are interpreted differently.  One analysts’ “slight overshoot” is another’s “Armageddon”.  For debating purposes that’s okay, for making public policy, not so much.

To read the full story in the National Post, please click here. 

Until next time,

Cheers.

I’m referring to the real estate market in the U.S.  There have been some signs that real estate market may have reached the point where you can actually see the bottom.  Interesting to note that new home construction is up in many regions of the U.S.  Drive through parts of Florida and you’ll be surprised by the number of new homes being built.  Another sign is the number of pending sales just recently reported.  On a year over year basis, pending sales were up 14.5% in the West, 22.1% in the Midwest, 19.8% in the Northeast and 11.9% in the south.  Another sign that real estate market is getting better is due to increased foreclosures.

 As odd as that made sound, a real recovery of the real estate market in the U.S. will only happen when financial institutions finally deal with the backlog of foreclosures.  Recent reports indicate the U.S. financial institutions are taking action against more delinquent home owners.  Statistics indicated that foreclosure proceedings increased by 6% in the second quarter as compared to the precious year.  That’s the first increase since 2009.  How is that possible?  Simple, banks chose to do nothing.  If the borrower didn’t approach the bank and request a loan modification or approval of a short sale, the banks were free to act at their own pace.  I suspect their motivation to deal with these issues had nothing to do with any kind of empathy for the home owner.  It was more to do with flooding the market with more distressed properties which ultimately would drive the prices down even further.  The shadow inventory is a subject that all stakeholders wanted to set aside and deal with it  in a mushroom growing fashion.  Clearly something has changed, and the banks now feel that the market can absorb the additional foreclosures.  This could have further impact on home prices in the short term but many analysts are predicting the drop could be as little as 1%.  Here’s another stat I found to be both encouraging and staggering.  At of the end of the 2012 first quarter, approximately 11.4 million homes or 23.7% of all homes with a mortgage in the U.S. were under water, negative equity.  On a quarter over quarter comparison it was 12.1 million homes or 25.2%.

 There’s no doubt that U.S. real estate market has a long way to go before anyone would suggest that it’s a “normal” market.  Until they (the politicians, Federal Reserve, regulators etc.,) deal with the real estate issue there will be no full economic recovery.  Put aside the markets and consumer spending because the real estate market is the 800 pound gorilla. The real unemployment rate in the U.S is just over 14%, the 8.2% reported unemployment rate is manipulated data and reported by Obama sycophants, and will not come down until there’s marked improvement in the real estate market.  As soon as that has happened, the better it is for us.  We love it when Americans are working because they love to spend, and we have stuff  we would love to sell them.  Recently, given the value of the Canadian dollar, we been purchasing more in the U.S., like their homes.  If you’re thinking of buying a second home in the U.S., this might be the bottom.

 Until next time,

 Cheers.

“If I’m a home owner in the Greater Vancouver Area, and just read the National Post article, I think I would be coughing up my latte through my nose about now.  But fear not Vancouver, you’re not alone.  Toronto joined in with its own negative results.”

It’s always easy to use the word “timing” to categorize success or failure.  We’ve all heard it before, “he was in the right place at the right time”.  Those who chalk up people’s success, purely based on timing, are usually the ones who missed the same opportunity because of a lack of skill and vision.  In politics timing is used to justify ineptitude and a lack of positive results.  If using timing as an excuse for failure, and if it was an Olympic sport,  then the Obama administration would own the podium.  After 3 ½ years of being in power all you here out of Washington is that it’s all George Bush’s fault, and that the Obama administration needs more time to set the country on the right path.  Blaming the last guy, after all this time, is laughable.  The President wanted the gig and he knew the mess he was inheriting.  It was his job to fix it or at the very least put the country back on track.  Time might be running out for Obama, and we’ll all find out in November.  Should he end up being a one term President, I’m sure the Dem’s will rationalize his failure with “he was the right guy at the wrong time”.

Here in Canada many have supported and questioned the timing of the most recent changes to mortgage rules.  As of July 6th it’s our new reality.  I’m looking out the window right now and it’s sunny, stinking hot here in Toronto, and the ground hasn’t opened up and swallowed up all of us in the industry.  Then again it’s been less than a week.  I was thinking of the timing of the new mortgage rules while reading an article in the National Post recently, “On Wednesday (July 5^th) the Real Estate Board of Greater Vancouver released June figures showing sales down 27.6% from a year earlier and down 17.2% from just May.  The benchmark price index was 1.7% from a year ago but the city has seen prices drop in the shorter term and economists expect more declines to come”.  If I’m a home owner in the GVA, and just read the National Post article, I think I would be coughing up my latte through my nose about now.  But fear not Vancouver, you’re not alone.  “Toronto joined in with its own negative results as sales in the city declined 13% from a year ago while the entire GTA was off 5.4%”.  Prices have remained steady in the GTA but that appears to have a short shelf life.  For so long now pundits eagerly predicated a housing bust and I guess if they say it often and long enough they will be able to say, “I told you so”.

The most recent changes to mortgage rules had zero impact on the stat’s noted above.  There were many in the mortgage and housing sector, including CAAMP, who publicly stated that previous changes to mortgage rules went far enough.  Of course it’s easy for critics to dismiss the industry as being self-serving but based on the data available today, maybe, just maybe, the industry was not that far off.  The IMF (International Monetary Fund) is tweaking economic forecast for the remainder of the year.  There’s a general malaise as it relates to investments, jobs and manufacturing for the U.S., Europe, Brazil, India and China.   As we have all learned, what happens in the rest of the world impacts us here in Canada.  There’s merit to the argument that economic data justified the changes to the most recent mortgage rules.  But what if the most recent changes to the mortgage rules just adds to an already stagnant economy and slowing housing sector?  Not good if you’re an home owner and certainly less than optimal for those who could have a finger pointed at them, accompanied with a simple message,”you made it worse”.  Indeed, it’s all about the timing.

 Until next time

Cheers.

“Italy and Spain will be left with little choice but to plug its nose, open wide and except the bitter medicine. Both Italy and Spain are too big to fail.”

Canada wasn’t the only nation that celebrated this weekend. The Austerity Bowl, better known as Euro 2012 soccer final was played this weekend. The finals were a nice distraction for those of Spanish and Italian decent – that was before the game started. The final wasn’t much of a game because Spain destroyed the Italians on the field. Soccer purists could marvel at Spain’s dominance and breath taking skills. But if it was an exciting game you were looking for, you would have been better off channel surfing. If you missed it the final score it was Spain 4 Italy 0. Ouch!

Prior to Sunday’s final game you couldn’t help but notice the flags of European countries being proudly displayed by motorists. If it’s like this in Toronto and other Canadian cities can you imagine what it must have been like in Spain and Italy leading up to the game?! These two countries could sure use a distraction. Both countries are in dire straits when it comes to their respective economies. Both Spain and Italy’s have had to look for handouts from their European ruler, Germany and the IMF. The only thing missing for the Italian and Spanish President is a piece of cardboard that reads, can you spare a trillion? Spain’s unemployment rate has now reached a shocking 25%, and they can only envy Italy’s 10.2% unemployment rate. Investors view Italy as being much safer than Spain, but that’s like picking your poison. Home sales in Italy have dropped by 20% in 2012, and they cannot service their $2 trillion debt. That being said home prices have remained steady in Italy, and their banks are not nearly exposed as Spanish banks. But Italy’s irresponsible government spending in the last twenty years has given them very little leverage to negotiate favorable loan terms. Italy and Spain will be left with little choice but to plug its nose, open wide and except the bitter medicine. Both Italy and Spain are too big to fail. They are the 8th and 12th largest economies in the world, their neighbor, Germany, cannot afford to let that happen. Greece? A throw away. The two aforementioned countries? Not a chance. Germany will figure out a solution and Italy and Spain will have to accept the terms; Like maybe having Angela Merkel’s picture on all their currency, including coins.

If the fine people of Italy and Spain derived any kind of pleasure prior to the final, good for them. A distraction doesn’t make the problems go away but being able to put aside everyday problems for a brief moment must have been such a relief for them. I suspect that good number of people in Italy and Spain must be envious of us here in Canada. Sure, we have our issues but when compared to other countries around the world they would gladly trade their problems for ours. How fortunate that those of Italian and Spanish nationality get to live in such great countries like Canada. That applies to individuals of every nationality that lives in Canada. Maybe one day everyone will remember to celebrate Canada during international sporting events; something simple, like displaying the Canadian Flag along with your country of origins flag when driving around the city. No one can use the excuse “I didn’t think of that”. The final was played on Canada Day.

Until next time

Cheers

The one significant difference between the Australian and Canadian broker market is broker market share.  CMHC just reported that in Canada, broker market share is 27%.  In Australia, it’s 42%.

Attending the MFAA Conference has accorded me the opportunity to garner insight into the Australian broker market.  The stakeholders in Australia are as passionate and committed to their industry as we are in Canada.   I am struck by the market similarities we share, as it relates to the overall economy, and the broker market specifically.   One similarity we share is negative press. The issues are different but the press in Australia is as committed to fear mongering as it is in Canada.  There’s no talk of too much consumer debt here, yet their average mortgage balances are no different than in Canada. Here the primary focus is all that could go wrong beyond Australia’s boarder, which in turn will lead to the destruction of the Australian economy.  

Europe’s an issue; however, the press in Australia is casting its worrisome gaze in China’s direction, which on the surface is laughable.  China is Australia’s largest trading partner.  The Aussies distanced themselves from the U.S. market years ago.  They decided to hook their wagon to an emerging market like China, and fortuitously decided to distance themselves from the world’s largest sub-merging economy, the US.  Ah, but gory headlines are needed, so the focus is on China’s slowing economy.  It appears that 7 1/2% growth is no reason to celebrate or feel comfortable.  The talk is will China have a soft or hard landing, which ultimately will impact the Australian economy.  Can you imagine,  if the US was forecasting 7 1/2% growth, and what that would mean for the Canadian economy?  Yet somehow 7 1/2 % growth in China could have a negative impact in Australia.  Just wondering what part of 71/2 % growth produces a hard landing?    I guess the old saying about the press is no different in Australia – “if it bleeds…it leads”.  

The one significant difference between the Australian and Canadian broker market is broker market share.  CMHC just reported that in Canada, broker market share is 27%.  In Australia, it’s 42%.  I’ve asked every Aussie I’ve spoken to at the conference the following: “how did brokers grow their market share to 42%”?  As I suspected, there was no one definitive answer, but there were some underlying themes.

It appears that the psyche of the average Aussie plays a part in those market share numbers.  Aussies have a deep distrust of the banks and animosity towards their profits. Many Aussies believe the higher cost of borrowing has contributed to those bank profits.  Yet, banks in Australia have a 90% market share of all broker business.  So that distrust and anger has not resulted in less business for the banks. In large part that is due to the lack of competition, but it appears also that consumers look to brokers to provide them with the best of the least tasteful option.  Interesting, to say the least.

Another critical factor which contributes to the success of the broker channel is the investment that the large firms make towords advertising.  I had the pleasure to speak to Michael Russell, CEO of Mortgage Choice in Australia, about this very subject.  Without getting into specifics, Mortgage Choice invests multiple millions of dollars in advertising.  Their individual franchises advertise on their own, which collectively exceeds the dollar amount committed to advertising by Mo rtgage Choice corporately.  Throw in Aussie Hone Loans, and number of other firms which advertise, and it’s easy to see why an Aussie consumers would chose a mortgage broker.  Some of the larger broker firms in Australia spend more on advertising than the banks do, as it relates to mortgages.  The messaging is choice, service, quality of broker, trust and yes, pricing.  Since the GFC (Global Financial Crisis), Aussies are far more focused on price.  However, price alone is not enough.  The Aussie borrower is looking for utility and competency.  

There’s plenty to learn from the Australian broker experience.   Volumes speak, like $90 billion a year in origination.  I’m looking at a rate sheet from Westpac, one of the major banks in Australia, and their 5 year fixed rate is 6.99%, and the good news is their ARM pricing has been reduced to 7.09%.  You may be surprised to learn that 60% of all mortgages in Australia is ARM.  The most recent MFAA Home Finance Index, which measures consumer sentiment, indicates that the percentage of consumers who would chose a broker first, as compared to those who would chose a bank first, is almost identical.  We share many similarities with the Aussie broker market, yet some of the differences are profound.

Until next time

Cheers