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Credit tightening and the end of the Canadian housing bubble

APRIL 01, 2012

I’ve often said that the next decade for real estate in Canada will be fundamentally different than the last.  I’ve suggested that a demographic imbalance, dislocation between prices and underlying fundamentals, and rising instead of falling interest rates are all reasons for this.  However, the greatest difference will be in the availability of credit going forward, and those who try to explain real estate prices in Canada without acknowledging the role of easy, accessible credit over the past decade have completely missed the boat.

We’ve seen a decade of loosening underwriting standards in Canada.  The signs are many that this is now changing:  The incremental tightening of mortgage credit that we’ve recently seen, with lenders scaling back on business for self (stated income) and equity lending was the first sign that things were changing.

The tightening in mortgage credit will not remain incremental for long.  News has come from OSFI and CMHC that major changes are on the way, and it’s hard to understate how significant these changes may prove to be.  In a nutshell, the unprecedented gap between house prices and income growth in nearly every Canadian city (see here for charts), coupled with savings rates hovering near al-time lows means that by necessity the gap between house prices and incomes is being bridged by an expansion in credit by new buyers.  So restricting access to the abundant credit needed by first time buyers to enter the market represents a strong headwind against future demand.

Here’s how it looks:

 

1)  CMHC: A hard stop in insurance

There is $1.1 trillion in residential mortgage credit outstanding in Canada, 50% of which is insured by CMHC.  The growth in CMHC insurance has been shocking, a topic I explored in an earlier post.  The charts are quite telling:

The issue is that CMHC has a parliamentary-approved mortgage insurance cap of $600B and is rapidly approaching that cap.  The political climate in Canada is not conducive to CMHC requesting a raise in the mortgage ceiling given the mounting scrutiny of taxpayer risk to an overheated housing market, and particularly considering that the limit in 2007 was $350B....meaning taxpayer exposure to the housing market has risen by 70% in just four years.  People are (finally) beginning to ask some tough questions.

And by the way, lest people think that the “private” mortgage insurer, Genworth Canada might pick up the slack, I would remind readers that they too are subject to a parliamentary cap of $250B since in the event of Genworth insolvency, the government steps in to insure the mortgages for 90% of their value.  So there is a very large contingent liability baked into Genworth’s insurance as well.  It’s unlikely that Canadian regulators, growing nervous about taxpayer exposure via CMHC , would somehow let contingent liabilities continue to stack up with Genworth also.  Executives at Genworth have indicated that the chances of Genworth’s cap being raised to $300B is less than 50%.  I agree.

Last week when CMHC released their 2012-2016 Corporate Plan, we got a glimpse of how they plans to proceed given how close they are to their parliamentary cap.

Below is their projected growth in insurance in force out through 2016:

Bottom line is that CMHC plans to work within their cap until 2016.  This represents an expansion of less than $10 billion annually between 2012 and 2016.  Compare this to an average annual increase closer to $50B annually between 2007 and 2011. 

So at 50% of the mortgage market, it’s fair to say that a rationing of CMHC credit is a big friggin deal.  This is a hard stop if ever I've seen one.  To appreciate how significant this is, note how the projected growth in mortgage insurance compares to prior years:

 

2) OSFI targets HELOCs, conventional mortgages

The Office of the Superintendent of Financial Institutions (OSFI), Canada’s chief financial regulator, has released draft recommendations on mortgage and HELOC lending which can be read here.  In particular, the proposed changes to HELOC lending are very significant and would be a major headwind to consumer spending. The major proposed changes are outlined below:

             Proposed HELOC Standard Changes:

-Proposed cap at 65% LTV with new and more conservative means of estimating value of residence

           -HELOC payments would be changed from interest only to fixed terms

These two changes would be massive.  Capping HELOCs at 65% LTV and amortizing the loans would pressure consumer spending, which has grown to become over 63% of the Canadian economy and is correlated to increases in consumer credit.

In addition, it would weigh on personal disposable income as HELOC balances would have to be paid off.  Home equity extraction (HELOCs + Refis) in Canada is running at 8% of personal disposable income, roughly where the US was at peak.  These new guidelines would not only cause a hard stop in HELOC growth, sapping aggregate demand, but the elimination of interest-only payment options means that principal repayment would be set to eat into disposable income. 

 

Proposed mortgage lending guidelines:

-The end of the cash-back mortgage as a down payment. Banks will have to ensure that the down payment has been saved from the borrowers own means.  Currently, the verification typically consists of three months of bank statements, meaning it is currently possible to borrow a down payment, leave it in a bank account for three months, then claim it as saved capital.  This is ridiculous!

-LTV for low ratio mortgages must be recalculated at renewal based on updated appraised value rather than simply being renewed, as is common practice.  This raises the question of what borrowers must do if their property falls in value and they are now in a high ratio mortgage.  Mortgage insurance at renewal would likely be required, but it remains to be seen how banks will handle negative equity situations for uninsured mortgages at renewal.

-New standards for business for self (stated income) mortgages that will force banks to assess proven capacity to repay.  This will be the death knell of stated income mortgages originated by Canadian banks.  If these guidelines are passed, expect non-conforming and subprime lenders like HCG to pick up market share.

-Limits on underwriting exceptions.  Banks will have to adhere to hard-and-fast rules for mortgage lending.  Exceptions are made primarily to low ratio mortgage underwriting.

-More conservative debt-to-income ratio calculations, including calculating insurance in the Total Debt Service (TDS) ratio.

-More conservative property appraisals.  The bottom line is that the appraisal system in Canada massively lags behind US standards, contrary to popular belief.  In the US, when buying a house a Residential Housing Valuation Report must be completed for the lending institution. It is about 20 pages, measures the house, rates the quality and location and most importantly looks at comparable sales within a 1 mile radius that have sold within the past one year or less. So bottom line, for valuation they use the comparable sales as a base value. Then they adjust that up or down based on the other metrics...sq footage, location, quality etc. Then the bank lends a certain loan to value on the appraised value or purchase price, whichever is less.  The current appraisal process in Canada is nowhere near as rigorous.

OSFI also echoed a concern that I’ve expressed before regarding the fact that growing HELOC volumes can mask financial stress in the borrower:

“[…] it can be easier for borrowers to concealpotential financial distress by drawing on their lines of credit to make timely mortgage payments and, consequently, present a challenge for lenders to adequately assess credit risk exposure.”

 Note that these are guidelines and are open to public discussion until May.  Expect opposition to these proposed changes to be fierce, particularly among mortgage brokers.

 I recently gave an interview for This Week In Money in which I discussed these proposed rule changes.  Readers interested in this topic may also want to catch that interview.  Start at the 16:00 minute mark:

 

3)  “Increased oversight of CMHC” coming

The federal budget contained no new measures targeting amortization lengths or down payment requirements, which was largely expected after OSFI and CMHC took care of much of the dirty work.  Instead the government has indicated that they will propose increased oversight of CMHC.  Recently the IMF suggested that CMHC should fall under the jurisdiction of OSFI.  I suspect this may well be exactly what the government will propose.  CMHC currently falls under the jurisdiction of the minister responsible for Human Resources and Skills Development Canada (WHY EXACTLY?).

If so, I would comment that putting CMHC into OSFI hands may well represent a greater tightening of credit that Flaherty could have done by shortening amortization lengths or increasing down payments.  Julie Dickson of OSFI is perhaps the most astute and respected regulator in the country and has gone public on several occasions to express concerns about underwriting standards in Canada.  The incremental tightening we’ve seen at banks lately has been precisely because OSFI has been in the background applying pressure. 

To put it simply, I suspect OSFI will tear CMHC "a new one" approximately 0.2 nanoseconds after CMHC falls under their jurisdiction.  Expect significant changes to happen, though likely “behind the scenes”. 

As an aside, if this shakes out as I expect, it will represent a pretty cowardly move on the part of Flaherty and the Harper conservatives who very clearly recognize the risks baked into the housing market, want it to cool, but want the blame to fall on someone else if the “soft landing” proves impossible to orchestrate.

This strikes me as political cowardice at its finest.  I’ve written a letter to my MP, CC’d to Mister Flaherty expressing these sentiments.  If you agree, you may want to consider doing the same. 

-Ben

ADDED: Dave Larock pointed out that much of the increase in CMHC's insurance in force has been due to bulk portfolio insurance, a fact detailed in CMHCs recent annual report.  The implications remain: More credit tightening and higher funding costs for the banks.  However, they certainly have the capacity to support their primary madate of supporting first time home buyers....for a time.  But with only $33B in cap room remaining to use until 2016 and the average increase in low ratio insurance still being over $20B annually over the past four years, the story remains the same.  IF CMHC is to operate within their $600B cap as indicated in their 2012-2016 Corporate Plan (and as clearly expected by Ottawa given Flaherty's remarks) credit will still tighten by necessity.

NOTE TO READERS: Since the frequency of posts has decreased in line with my lack of free time, I would encourage readers to sign up for the RSS or Email feed at the bottom of the page to receive a notification when new posts are made.  Readers can also follow me on twitter:  @BenRabidoux

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178 Comments

  • Petr said:
    • 2 years

    I needed a post like this to get me up to speed. Thanks for this. Also, the headline of budget 2012 was the large loss in employment in the public sector as well as departmental spending cuts. Do you think this will push unemployment higher possibly trickling down to other sectors? maybe also impacting consumer confidence. I'd say this as well will push RE momentum downwards.

    Let's hope these 'drafts', 'guidelines' and 'proposals' come into play. The sooner, the better.

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  • Petr said:
    • 2 years

    Forgot to say - Best. Title. Ever

    Reply
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  • Gord said:
    • 2 years

    Thanks once again, Ben, for continuning to lay this out there in a manner even *I* can understand. the "Hard Stop" chart is especially telling and especially impactful. I've referenced your data in some of my rants in the past (CMHC complaints, op-eds, letters to editors and politicians), and see no reason to stop. :-)

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  • Greg said:
    • 2 years

    Regarding OSFI regulations (or deregulation), let’s not forget who allowed our banks to lend high LTVs in the first place, coincidentally, right before the 2008 crises.

    Date Published:2007-06-27: http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/capital/ad...

    “OSFI is prepared to allow federally regulated deposit-taking institutions to increase the qualifying LTV threshold from seventy five percent to eighty percent upon the coming into force of the amended statutory requirements.”

    And like every corrupted regulator in charge, they impose 'guidelines' not 'rules' after the damage has been done. OSFI will do nothing.

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  • jesse said:
    • 2 years

    Despite all the talk about CMHC and OSFI banks are going to keep lending, it is just making housing that much more unfavourable compared to other investments.

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  • jesse said:
    • 2 years

    Ben it's worth playing a bit of game theory with the banks and ask, if OSFI and CMHC lay down the hammer and force them to account for risky assets, what are they going to do with their reserves? There will be a bit of provision for higher reserves on certain types of mortgage loans that OSFI deems will be higher risk than was accounted for previous, especially in absence of CMHC insured loans, but absent that the banks are going to have a ton of money that will need to find a home. Where is it going to go? Unless they simply sit on reserves -- and I think that will only happen if there is a massive deleveraging wave where their assets are obviously ephemeral -- they will need to find someone or something to which to lend it.

    I'm no economist by training but I'm finding it hard to figure out where banks are going to lend their reserves.

    One thing that struck me in OSFI's guidance is its explicit statement of regional considerations for risk weighting. It used to be that banks wouldn't necessarily have to provision for additional risk in certain markets than others (and correct me if I'm wrong on this), such that they could make a loan in PEI -- with price-rent in a reasonable range -- with the same risk profile as a loan made on Vancouver condos where price-rent ratios are off the charts. Unless Vancouver rents start adjusting upwards tout de suite there are going to be some significant non-performing assets in certain parts of the country. Countercyclical buffers focused on certain regions seems prudent; at least get large banks under close purview of the government out of the game and let the idiots duke it out in the uncovered private sector.

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  • Greg said:
    • 2 years

    "I'm no economist by training but I'm finding it hard to figure out where banks are going to lend their reserves."

    Huh? What reserves? Banks are broke and hide their losses with accounting fraud— just like TD announced in Q4 they will start excluding acquired impaired loans, leaving many investors wondering, where is it? http://i40.tinypic.com/w7gf4i.png

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  • jesse said:
    • 2 years

    @Greg, I don't know much about that but if an insurer providing a hedge for a bank loan decides to fold up shop and nobody fills its place, the bank isn't going to sit on its reserves because a near-perfect hedge doesn't exist. It is going to lend the money regardless.

    What's unclear to me now is who or what these banks will now lend.

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  • Greg said:
    • 2 years

    @jesse The gov will always increase an insurer's cap limit if needed—they just need the market to be in turmoil to do it. It's pretty clear the budget was a 'hands off' and 'let the chips fall where they may' policy, but of course, should the market turn, politicians will panic and do what they know best—borrow and spend.

    The biggest upset about this budget regards to legislation on covered bonds that is pretty much and no-go. This will force insurance premiums to rise as investors demand more returns for risky loans pooled into covered bonds.

    It's all about liquidity for banks. They will not hold risky loans if they can't sell them to investors.

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  • landlord said:
    • 2 years

    @ Greg @ Jesse

    If you think the government or others are going to just hit the brakes on lending, you are out of your mind. The banks run Canada, sponsor every single event and are part of the natural back drop as much as the rocky mountains. It will slow, maybe a little higher rates. But don't kid yourselves with Ben's warnings. He has been warning people for 2 years.

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  • LS said:
    • 2 years

    What do you mean, think? They are hitting the brakes. The mortgage tightening in the last few years, the new OSFI regs, the CMHC cap.. What more evidence do you need?

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  • jesse said:
    • 2 years

    "They will not hold risky loans if they can't sell them to investors."

    Banks will lend unless there is a severe credit crunch. The government basically told banks to suck up the margins. Brilliant, if I might say so. It almost makes me want to vote.

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  • Farmer said:
    • 2 years

    "Regional considerations for risk weighting" is code for "we will yank on the chains of Banks that are lending excessively into overheated markets". Markets like Vancouver. Presumably the regional considerations could be quite broad. The exclusion of loans to foreign investors, for example, or absolute caps on total mortgage loans which will reduce risk by demanding higher down payments from buyers while skirting the issue of being active participants in an obvious bubble. There is no good reason either that CMHC should be offering taxpayer backed insurance on multimillion dollar speculative bets on Vancouver's West Side with the risk profile that now exists. Some of us are pretty much disgusted with how this has played out. The optics are terrible when poorly run public agencies are enabling risky behavior to everyone else's detriment.....hands up if anyone in Winnipeg is thrilled to be on the hook for losses when Vancouver or Toronto's bubbles burst....anyone....no? I thought so.

    So yeah. I am in favour of OSFI doing the oversight on CMHC and bringing some accountability back while streamlining the whole credit cycle across lending and insuring agencies so the system functions harmoniously.

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  • landlord said:
    • 2 years

    CMHC is not the only game in town, so not sure what these caps really mean?

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  • Ben Rabidoux said:
    • 2 years

    CMHC is 50% of the market and 70% of the insurance market. Genworth picks up most of the slack. Both will be under the gun as the feds get increasingly concerned about taxpayer exposure and contingent liabilities. The only "other game in town" is Canada Guarantee run by the Ontario Teacher Pension Plan. Pretty sure they too will cut back hard once they realize what's coming.

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  • landlord said:
    • 2 years

    CdnMortgageNews: Scotiabank has added Canada Guaranty as a new mortgage default insurance provider

    you post has no smoking gun, keep looking Ben

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  • Ben Rabidoux said:
    • 2 years

    HAHAHA. CG is TINY relative to CMHC and MIC. I've spoken to Canada Guarantee....They are nervous. Nice try

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  • Usman  said:
    • 2 years

    What's your opinion on private mortgage lenders? If banks become subject to these new lending standards, what about the private lenders?

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  • Ben Rabidoux said:
    • 2 years

    Private lenders won't be impacted.

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  • Appraiser said:
    • 2 years

    The most widely used appraisal software in Canada is an American program developed by Bradford Technologies. Canadian full appraisal reports are virtually identical to the U.S. and have all of the same requirements that you listed above.

    Some banks use automated valuation models (AVM's), which OSFI wants abolished in favour of full appraisals; which is great news for Canadian appraisers.

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  • Greg said:
    • 2 years

    CFTC CHARGES ROYAL BANK OF CANADA WITH WASH SALE SCHEME

    http://www.reuters.com/article/2012/04/02/rbc-cftc-idUSL2E8F2EY820120402

    (Reuters) - The Commodity Futures Trading Commission on Monday accused the Royal Bank of Canada of engaging in "hundreds of millions of dollars" in coordinated stock futures trades with itself to win tax credits from the Canadian government.

    No corruption here....our banks are safe and sound!

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  • landlord said:
    • 2 years

    Good catch, the Canadian banks have been ripping off the Canadian tax payers for decades with phony DRD swaps to reap tax credits. Anyone ask why they pay such low taxes?

    Reply
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  • LS said:
    • 2 years

    Why does it take a US regulator to point out possible fraud by a canadian bank against the canadian taxpayer? Shouldn't we have caught this (assuming there's something to this story).

    Reply
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  • Greg said:
    • 2 years

    This was under CFTC's jurisdiction and oversight, however what remains to be seen is if will our gov will investigate RBC for fraudulent tax credit claims. That money should be recouped back to taxpayers.

    My guess is nothing will happen and this story will fade away. Banks will always win until Canadians vote a new government who will actually do their job and prosecute criminal charges (not civil) against the banks.

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  • landlord said:
    • 2 years

    You are right, nothing will happen. They got busted for doing it before

    http://www.cbc.ca/news/business/story/2005/07/26/rbc-settlement050726.html

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  • Wayne Masters said:
    • 2 years

    Another great post to keep me reading, here in the BC Interior.

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  • Appraiser said:
    • 2 years

    @Ben: So where did you source your information regarding U.S. vs. Canadian appraisals?

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  • Market Player said:
    • 2 years

    Well, I have to say it again.

    No matter what, be it credit tightening, rate increase etc, the only way to have a balanced real estate market in GTA is if there are 25,000 to 30,000 new condo units coming to the market each and every year in next FIVE (5) years. There is no other way around it.

    A balanced market is for price coming down from $500/sf currently to $250/sf. We have only 30000 units in the pipeline.

    The reasons are multiple: they are NOT making more land, immigrants are coming, Asian investors are gobbling up every units, local Canadians are getting rich fast...

    Only, I mean only, by the brute force of supply, the insatiable demand can be met. This relentless supply will then bring the whole real estate market to a economically logical level.

    so folks, cheer for any and every budding condo construction site.

    But best of all, buy one or two for yourself. Encourage and help everyone you know to buy one or two...

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  • 45north said:
    • 2 years

    Market Player: buy one or two for yourself.

    my employer on a charter flight Hong Kong to Toronto, will invest $ millions, Toronto real estate

    lat45north@rogers.com

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  • Greg said:
    • 2 years

    @Market Player

    According to stats at http://tosolds.ca/ the majority of SP/LP for condos is starting to miss.
    https://docs.google.com/file/d/0ByrPFSoPLahJMjZkLXk4SzBSdlNFMTFua3h1RHl4...

    And here's a reminder of what happens when developers get a deposit call from the bank. (Don Mills/Bayview Area) http://i42.tinypic.com/2m5cfg2.png

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  • steev said:
    • 2 years

    Let me get this straight, your logic is as follows:

    We aren't building enough, which will cause a crash in prices of 50%, ergo an intelligent investor should go out and buy more to altruistically sustain the market.

    You've got supply and demand backwords, building more condos brings their prices down as it increases supply.

    Are you trying to be sarcastic....we really need a font for that.

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  • Market Player said:
    • 2 years

    Greg,

    Those were only small misses. A couple of thousand dollars. Big deal.

    Only by brute force of relentless supply, then you will see an economically sensible market.

    Build, baby build!

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  • jwg said:
    • 2 years

    Not to worry, Christy Clark is stepping in with a 10G tax credit for first-time buyers. Talk about putting your popularity on the bubble line!

    Reply
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  • Greg said:
    • 2 years

    @jwg there's more..

    "Government is announcing new relief measures that will benefit purchasers and builders of new homes. The B.C. new housing rebate threshold will be increased to $850,000, effective April 1, 2012, meaning more than 90 per cent of newly built homes will now be eligible for a provincial HST rebate of up to $42,500. It is important to note that the HST does not apply to resale housing."

    "In addition, to help support workers and communities in B.C. that depend on residential recreational development, purchasers of new secondary vacation or recreational homes outside the Greater Vancouver and Capital regional districts priced up to $850,000 will now be eligible to claim a provincial grant of up to $42,500 effective April 1, 2012. "

    And here's what I said back in September on this blog.

    "I think you may be surprised this upcoming spring season as the government is preparing a cornucopia of tax credits and subsidies to stimulate the economy. Only this time (with lower interest rates) it will have to be larger."

    No matter what they throw at it, always remember it is just another liability incurred on someone's balance sheet.

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  • jwg said:
    • 2 years

    Yep. And they have the gall to say they are helping "affordability". Can't they see they are just fueling bidding wars?

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  • Greg said:
    • 2 years

    At this point, it's not so much about fueling bidding wars, rather trying to prevent the banks' leveraged assets (loans) from deprecating. If foreclosures start overwhelming the banks' ability to service covered bonds, lending will tighten-up unexpectedly.

    Alas, by the looks of quality on loans pooled into some covered bonds, we may have some serious [fraudulent] issues arise soon. http://i41.tinypic.com/kynmf.png

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  • MM said:
    • 2 years

    "purchasers of new secondary vacation or recreational homes outside the Greater Vancouver and Capital regional districts priced up to $850,000"

    It warms my heart to see my tax dollars support the weak and needing buyers of second vacation or recreational homes up to $850,000 ... it's going to trickle back to me right?

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  • David Larock (aka Dave The Mortgage Planner) said:
    • 2 years

    Hi Ben,

    I enjoy reading your perspective on the state of the housing market, even if I don't always agree with your (ahem) rather dire view of the future.

    I would offer a couple of comments on your post:

    1. The rise in CMHC insurance since 2005 corresponds with a massive increase in the practice of bulk "portfolio insurance". (For the uninitiated, lenders buy this insurance on pools of conventional loans post funding and at a much lower cost, because they are viewed as lower-risk loans). CMHC wants to limit its bulk insurance going forward (which I agree with) but this will not produce the sledge hammer effect you imply. High-ratio borrowers (CMHC’s bread and butter) will be largely unaffected and the real impact will be felt at the margin by sub-groups of conventional borrowers who will have to pay marginally higher rates.

    2. The statement that “the appraisal system in Canada massively lags behind US standards” is just wrong. Every Canadian appraisal I have ever read includes all of the information you list in the American appraisal example. (It’s good to see that American lenders have found religion on this point, but FYI, this is a post-US bubble change.) The risk in Canada is that appraisals are sometimes substituted with automated valuations, which are not nearly as comprehensive - and that is a fair criticism. But full appraisals like the US ones you describe are ALWAYS requested on higher-risk files (like stated income loans).

    3. HELOCs can be used as a shock-absorber for households that experience changes in income but you and I disagree on whether that is a bad thing. In many cases people just need a few months to find new work or overcome a hardship (like illness) and if the choices are default or tapping into a substantial reserve of home equity, I’ll take the latter every time. It’s true that HELOCs are higher-risk loans that need to be monitored carefully and I think OSFI is right to look for ways to reign in their growth and use, but treating US and Canadian HELOCs as one and the same is over-simplifying. In the US, HELOCs were a big part of a problem that was created in combination with several other contributing factors – for example, Americans refinanced much more frequently in their bubble run-up (Canadian lenders do not allow repeated refinancing) and US borrowers don’t incur substantial penalties for refinancing like Canadian borrowers do. (Also, back to point 2, I ALWAYS get asked for a full appraisal on a refinance application where the borrower is claiming a substantial increase in the value of their home and/or when they are increasing their mortgage by a significant amount, unlike in the US during their bubble run up when full appraisals were practically unheard of).

    I think the best argument you make, and you have made it consistently, is the undeniable relationship between credit and consumption growth. If rates rise and borrowing slows sharply then our economy will lose a ton of its growth and momentum. I don’t think that either will (to that severe degree), but I do agree with you on that being a significant risk that we face.

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  • Greg said:
    • 2 years

    Spoken like a true mortgage planner, economically clueless.

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  • David Larock said:
    • 2 years

    Greg, I don't normally respond to random insults but I'm curious - are there any concrete points you'd like to refute or are you just predisposed to think that anyone who doesn't agree with your point of view is an idiot?

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  • Greg said:
    • 2 years

    If you are David Larock, then today's post at mortgagebrokernews explains where your interest is. http://www.mortgagebrokernews.ca/forum/first-national-drops-35-year-ams/...

    Another crying broker folks.

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  • Appraiser said:
    • 2 years

    Very well put David Larock, I couldn't agree more.

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  • Greg said:
    • 2 years

    You're just itching to talk about the appraisal process, so you made up another imaginary friend. Nobody cares App.

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  • Appraiser said:
    • 2 years

    Time to move out of your mom's basement Greg and start looking for a job.

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  • Petr said:
    • 2 years

    App - Isn't it hard to type on your keyboard when you wearing Pom-poms... cheer leading anyone who supports housing. You're almost as bad as Don Campbell. I don't know how many tweets he's made about job creation Calgary. It's pathetic if you ask me.

    DLaRocke - The fact that CMHC doesn't have the ability to lend as much, the sledgehammer is a big possibility. So be it to bulk portfolio insurance. Laughable that you think people who are hard on luck with income reduction are the only people borrowing from HELOC. But you agree with reducing HELOC, that makes you leaps and bounds smarter than Bozo the Clown, who spoke after Greg

    The fact of the matter is that we're moving from deficit supported spending to boost our economy - and we're moving to paying off the massive deficit created by the economic action plan. If you live in the province of Ontario, its twice the pain. I think this should get more attention, it's double trouble. MacLeans magazine and Ben make a great argument that housing has been accounting for a larger and larger portion of our GDP. We will shift towards declining consumer confidence, and we will see the end of the Canadian housing bubble.

    DLaRocke - look at real fundamentals (house prices against income, rent, GDP), it's hard to argue that we can see this continue. The good times are long gone,

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  • Ben Rabidoux said:
    • 2 years

    Hi Dave

    Ignore the empty comments. Greg makes some insightful comments but at times brings lots of hot air to the comment section as well.

    Let me address your points one at a time:

    1) Unless we believe that 80% of the expansion in CMHCs insurance in force is due to bulk port insurance, this WILL represent a tightening of CMHC insurance and therefore credit for first time buyers. EVERY mortgage broker I speak to has already confirmed that CMHC insurance is getting more difficult to obtain (I suspect you would agree), and I suspect that will especially be the case if they fall under the jurisdiction of OSFI, which seems likely after OSFI released their 2012-2015 "Plans and Priorities". The bulk port insurance allowed banks to raise capital cheaply via securitization or through covered bond issuance. That option is now partly off the table meaning the cost of capital rises across the board, impacting not just conventional mortgages. Mind you, issuances of covered bonds backed by uninsured mortgage pools will likely increase, and so far the spread between RBCs uninsured mort pool covered bonds and the rest is fairly narrow, so this may provide some cheap capital, but likely not on the scale we've seen lately. No matter how you slice it, this is not good news and I am shocked that you'd suggest this is a minor tightening. It's really not.

    2) You forget that I work with one of the leading volume mortgage brokers in the US during the subprime circus. I have a pretty good understanding of the appraisal system on both sides of the border and while I agree that they are comparable WHEN demanded in Canada the largest issue is in the frequency of these full appraisals, particularly given CMHCs automated approval system.

    3) We'll agree to disagree on HELOC debt in Canada, but at this point it is irrelevant. Both OSFI and the BoC have (I believe rightly) flagged them as a potential source of financial stress and it seems certain that OSFI will rein them in. And potentially quite hard. About time!

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  • David Larock said:
    • 2 years

    Thanks for your comments Ben. Nice to debate the key issues of the day with someone whose opinion I respect, even if we don't alwyas agree.

    You are better at tracking down data than I am but I think if you looked at the growth of CMHC's overall insurance portfolio over the last 7 years you would be surprised at how much of it was for bulk insurance. Once lenders realized they could back-end insure their conventional mortgages for a one-time fee of about .5% they started backing up the trucks.

    The sense I get is that CMHC's plan is to continue their tried-and-true high-ratio insurance program while slamming the door on bulk insurance (which again, I agree with). I'm not trying to minimize the policy change, because I believe it is significant, but if I'm right about the emphasis on bulk insurance then it won't restrict access to credit so much as it will make credit more expensive. (It may surprise you to know that I wrote a post last year that criticized CMHC for being to much of a market hegemon and argued that they should back off so private insurers and lenders could create a market with more risk-based pricing - instead of our long-standing everybody-gets-the-best-rate market model.)

    Sounds like we agree on the appraisal issue - the quality of our appraisals is fine, we just need to ask for them more often.

    Lastly, I think HELOCs deserve the special attention OSFI is giving them, and I agree that they should be amortized. But I don't think they should be killed off entirely, and while giving borrowers with a lot of equity in their homes a cash management buffer means we aren't instantly aware if they fall on hard times, I don't think that's necessarily a bad thing if it helps them get back on track. It's the borrowing-to-live-above-your-means-consumption thing that's going to hammer us if we don't do something about it.

    Anyway, I enjoyed reading your perspective on the latest CMHC/OSFI news. I want to write about these annoucements/changes myself but haven't found the time yet.

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  • Aaron Vaillancourt said:
    • 2 years

    Given CMHC's mandate, I'm shocked there hasn't been more talk about moving to a US model where "Jumbo" loans are adjudicated and priced differently. Insuring mansions is a fickle business, and I don't want my government doing it (either high-ratio or perhaps even worse, NIQconventionally). In my opinion, the only way for CMHC to work within their remaining cap is to focus on first time homebuyers, especially at the lower-medium end of the market. I agree with David - it would be prudent to slam the door on bulk insurance for conventional loans, but continue to support the high-ratio program. I also wonder what affect moving CMHC under OSFI would monolines. All thoughts on this are welcome.

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  • Joe Q. said:
    • 2 years

    There was a cap on the maximum insurable mortgage amount by CMHC up to 2003. I believe in Toronto the value was $400k (i.e. CMHC would not insure any mortgage larger than this amount). Re-instating this rule would certainly put the brakes on the housing market.

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  • Appraiser said:
    • 2 years

    Banks, not Ottawa, should tame mortgage lending: Scotiabank CEO Rick Waugh.

    http://www.bnn.ca/News/2012/4/3/Banks-not-Ottawa-should-tame-mortgage-le...

    "We keep a very close eye on our mortgage portfolios, and in Scotiabank they are in good shape," Waugh said. "In fact, Canadian household balance sheets remain solid, and our housing market is supported by strong fundamentals. Supply is balanced and Canadian banks finance largely on presales and cash equity, where loan-to-value ratios show our customers have true equity. Our customer delinquency rates are well within parameters."

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  • Greg said:
    • 2 years

    Oh ya, in good shape and household balance sheets have never been better...just after Scotia insured $17 billion with CMHC and sold a load of toxic condo mortgages. http://i41.tinypic.com/kynmf.png Oh no, this isn't a repeat of the U.S. is it?

    But, (in case brokers are having a hard time realizing what's going on behind the scenes), here is what also happened in the U.S. just before subprimes imploded. http://online.wsj.com/public/resources/documents/info-subprimeloans0706-... To be blunt, our banks are slowly exterminating brokers because i) to gain market share ii) when subprimes blow-up they will have someone to blame.

    My advice, keep your friends close and your lenders even closer.

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  • Farmer said:
    • 2 years

    Craziest damn thing I have heard in awhile. That article you linked surprised me as well because it really was not that long ago that the banks were almost begging Mr Flaherty to regulate down payments and amortization periods (easy banker fantasies). I think the lenders were surprised at the backlash. They are acting like spoiled children really instead of responsible corporations and pointing the finger at one another for being too competitive in this little fishbowl just seemed so childish. So they got their way but not in a way they expected. OSFI will bring down the hammer and increase the level of risk the banks take on while CMHC reductions in insurance will wean them off dependency. Consumers will pay a price of course as lending is restricted. But so will the banks in declining volume. Is it really a surprise they suddenly desire to work something out and play nice on the school grounds? And maybe keep those pesky bureaucrats and regulators out of their hair.

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  • deanincaglary said:
    • 2 years

    for those of us sitting at our computers reading Ben's EXCELLENT articles and the (sometimes) not so excellent comments, I would HIGHLY recommend reading "this time is different" by Rogoff and Reinhart - Canada is going down the same path the US did and countless other countries have done in the past - our debt will come to haunt us - the question of course is WHEN. I would submit that our love of debt/credit will continue longer than us bears would think, esp in light of the extremely low interest rates we now have - my personal guess is we will see major pain in 2014, but that's just me....

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  • Greg said:
    • 2 years

    You're all too optimistic my financially repressed fellow Canadian. Perhaps you don't get these headlines in Calgary, but we do.

    Gas prices could spike overnight by as much as 4.5 cents a litre in Ontario http://www.canadianbusiness.com/article/78129--gas-prices-could-spike-ov...

    It's sooner then you think.

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  • 45north said:
    • 2 years

    Greg: looking at your chart:
    http://i41.tinypic.com/kynmf.png

    87,140 loans and all of them are owner-occupied. You know if I walked down my street, I could point out 20 houses that I believe are owner-occupied. By the time I got to 100, I'm sure a couple would not be.

    Cover Pool: 29,678 are loans where loan-to-value is less than 50%, 26,972 are loans where loan-to-value is greater than 80%, this is the inverse of the bell curve - most of the values are squeezed to the sides.

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  • Appraiser said:
    • 2 years

    Stated income just as good as T4:
    http://business.financialpost.com/2012/03/29/stated-income-just-as-good-...?

    Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, says there really is not much of a difference between the credit worthiness of the self-employed and those with a pay slip.

    “These customers for every other reason show great credibility. They have excellent credit, good cash flow, however they cannot produce the same income documentation,” Ms. Haque said. “You look at that person and, say he’s an IT consultant, there are industry standards on what they make. They have to show you two or three years of notice of assessments showing their declared income.”

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  • Ralph Cramdown said:
    • 2 years

    In the same article, Haque is quoted as saying “I think previously, there may have be misinterpretation of what stated income should be. Some lenders may have been lending more freely. I can’t speak to them,”

    I've (perhaps naively) believed that, in this credit environment, the self-employed could walk into a bank with three years of well-documented cash flow and get a loan. But I've also believed that lots of people were claiming to be taxi drivers, waitresses, contractors etc, and getting loans on the basis of presumed undeclared income, as alluded to in the article you linked -- One bank insider said financial institutions have not been dealing with people’s declared income “because nobody believes it. [...] Call me a fogey, but I'm old enough to remember a time when declaring yourself a tax cheat wasn't a good strategy for getting credit from A lenders.

    Obviously, Stated Income, of late, has spanned a spectrum from well documented to take-it-on-faith, just like the NINJA loans from the US that everyone swears we don't do here. Look at ING's reasons* when they cancelled their stated program last month: [stated] deals stressed broker relationships when ING was occasionally required to ask for supporting income documentation. Translation: Brokers were sending ING crap and getting all pissy when ING called them on it. It stands to reason that those crap deals were getting approved somewhere before other lenders cancelled stated and all the crap began flowing to ING.

    This is what credit tightening looks like.

    * http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/03/i...

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  • Appraiser said:
    • 2 years

    I have no problem with judicious underwriting practices, but 'stated income' may well be the wrong target. Not only is it a tiny fraction of the overall market, but all lenders have declared that default rates on such loans are not an issue. It certainly won't be the cure-all in any case.

    At least Canada has taken several steps to tighten mortgage rules over the past 3 years. The same could not be said of the U.S. market before it imploded.

    Once again, making constant reference and analogies to the U.S. melt-down make you appear unduly alarmist.

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  • Ralph Cramdown said:
    • 2 years

    I wouldn't expect a professional such as yourself to fall for specious default rate arguments. Of course they're low in a time of rising and active markets. A pinched borrower can always sell to cure, rather than go into FC. Why, if Alberta has the lowest unemployment and high wages, is their default rate running at double the national average right now?

    If stated income is such a tiny fraction of the overall market, why's it getting so much ink, even in the mainstream media and with the regulators?

    The simple fact is that home ownership is very strongly correlated with income. So when you go from 65% to 70% home ownership, all other things being equal (prices, wages), you're going to get a lot of marginal borrowers -- if they weren't marginal, they'd have owned before. Claiming that that half-decile in the USA turned out to be a bunch of lying deadbeats, but the Canuck version are all upstanding, reliable payers just doesn't fly with me.

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  • Dave said:
    • 2 years

    Ralph Alberta has very different laws regarding mortgage default compared to the rest of the country. That's why its different.

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  • patriotz said:
    • 2 years

    What's different about Alberta is that prices there are over 10% off peak. And in another foreclosure hotspot, BC's Okanagan, prices are over 20% off peak.

    Rising foreclosures are the result of falling prices, everywhere, all the time.

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  • landlord said:
    • 2 years

    RBC scam explained

    http://wheredoesallmymoneygo.com/alleged-rbc-sham-futures-trading-scheme...

    Not sure why Canadians are not on the streets forcing banks to pay back every cent.

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  • Appraiser said:
    • 2 years

    "TORONTO, April 4, 2012 Greater Toronto REALTORS® reported 9,690 sales
    through the TorontoMLS system in March 2012. This result was up by almost
    eight per cent in comparison to the 8,986 deals reported during the same period
    in 2011."

    "The average selling price in the GTA was $504,117 in March – up by 10.5 per cent
    in comparison to March 2011."

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  • Ralph Cramdown said:
    • 2 years

    So we can safely assume that all that bumf about introducing benchmark home prices was just to cool down the Finance Department before the budget? I don't see anything in the press release about that benchmark they were trumpeting.

    And why are you trumpeting this number anyway? Even you have to believe that prices can't go up at triple or quadruple the rates of inflation and wage gains forever, and the longer they do, the harder the correction is going to be. Given the dynamics of the RE market (volumes fall precipitously during and after periods of declining prices), one might think an APPRAISER wouldn't be cheering market dynamics likely to cost him money?

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  • Greg said:
    • 2 years

    Same TREB manipulation as usual. Pre-cons included vs last years revisions.

    Mar2011 Sales http://i42.tinypic.com/ak8woi.png
    Mar2011 Sales Revised http://i42.tinypic.com/2loz68.png

    The average price can be calculated by total dollar volume divided by sales. http://i41.tinypic.com/33xdetz.png With pre-cons included, the average price appears higher by adding future sales (properties not even built). What’s debatable is when should pre-con sales be counted, but obviously TREB is including pre-con sales/dollar volume to boost the current average price and sales, while removing pre-con sales from last year (revising down) to make current sales appear higher.

    I’m going through the data now but so far Toronto central area condo sales are down by 11%, and this is with 2.99% mortgages and remarkable weather! This is 100% RE bubble anatomy that starts with local areas imploding first, then it spills over into the core.

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  • Appraiser said:
    • 2 years

    @Greg,

    You do realize that pre-construction sales are not listed on MLS and therefore are not counted as MLS Sales, don't you?

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  • Greg said:
    • 2 years

    All pre-cons are booked on MLS on the initial sale. TREB's GTA average price is highly skewed because it is calculated by volume divided by sales, including pre-cons. Here are m/m average prices anyways. Not as robust as you think.

    Detached 416 $816,169 -0.3%
    Detached 905 $563,157 -0.9%
    Detached GTA $631,509 -0.7%

    Semi Detached 416 $569,319 -2.7%
    Semi Detached 905 $391,143 1.8%
    Semi Detached GTA $455,392 -0.9%

    Condo 416 $361,800 -2.6%
    Condo 905 $275,826 2.1%
    Condo GTA. $337,309 -1.1%

    And this is with 2.99% mortgages...

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  • Appraiser said:
    • 2 years

    @Greg: For the very last time.

    If it is not listed on MLS, it is not and cannot be reported as an MLS sale. You are barking up the wrong tree.

    Like many appraisers, and as a registered real estate broker, I am a member of TREB and have been for over 20 years. Are you? Or are you just pretending to be by quoting second-hand data sources and Realtysellers information?

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  • Greg said:
    • 2 years

    I've confirmed this with agents and if you think you're the expert, then put your mouth on the line and tell us how pre-cons are booked on MLS. I'll hold you to it. Go ahead.

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  • Appraiser said:
    • 2 years

    You have confirmed absolutely nothing and have proven yourself once again to be a rank amateur posing as an insider, when you are anything but.

    If you want any real MLS data, just let me know, I get it from the source.

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  • Greg said:
    • 2 years

    Exactly my point. You don't have an answer so you try to toss the ball in my court. No further comment.

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  • Greg said:
    • 2 years

    Wait..let me guess. Another new blogger is going to come on and back up App.

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  • Appraiser said:
    • 2 years

    Don't shoot the messenger Ralph.

    Real estate markets are highly localized. Some areas are experiencing greater gains than others across our great land. GTA prices will continue to rise as long as the listing inventory stays low and the economy suffers no unforseen shocks, ie. recession, a spike in unemployment and / or interest rates.

    It's called supply and demand. Victoria and Monrteal - well, not so much, if you get my drift.

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  • Ralph Cramdown said:
    • 2 years

    Hey, I fully EXPECT real estate markets to rise every year, as a natural consequence of a rising GDP, population growth and inflation. I find "Best March Ever!!" headlines boring and inane. I don't expect years of above-trend increases to continue indefinitely, even absent external shocks. Mathematically, they can't, and I never expect the mathematically impossible.

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  • Joe Q. said:
    • 2 years

    For Toronto proper:

    Detached homes: Sales up 12%, avg price up 13%
    Semis: Sales down 3%, avg price up 6%
    Townhomes: Sales down 7%, avg price down 1%
    Condos: Sales down 2%, avg price up 2%

    All figures are YOY.

    The local market is being driven by detached home price gains.

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  • Joe Q. said:
    • 2 years

    The fact that 3% of the sales reported in March 2011 apparently have "disappeared" makes collecting statistics very difficult.

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  • John B. said:
    • 2 years

    Before reading this article, I was able to understand the mortgage problem. I came over More Regulation in the Mortgage Market and I realized that I did´t have any idea about this dangerous situation. I can see that there are many indices that the current lending system is unsustainable and is going down. The question is, what will be the results? I´m concerned that the decrease in ability to pay mortgages would force innocent people to leave their overpriced houses and banks would be bailed out. Or are there any insurances, that Canada would´t do the same thing like Obama´s administration. I can see no sense in supporting the same banking industry that augmented the housing bubbles and was pressing the situation even further with low mortgage rates.

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  • Greg said:
    • 2 years

    TREB March condo sales for Toronto East, West and Central areas. https://docs.google.com/file/d/0ByrPFSoPLahJUGNkMGVRSkJTVTYxeFpiRkpJWG00...

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  • Appraiser said:
    • 2 years

    Ralph Cramdown said:

    "So we can safely assume that all that bumf about introducing benchmark home prices was just to cool down the Finance Department before the budget? I don't see anything in the press release about that benchmark they were trumpeting."
    _________________________________________________________________________________

    By way of follow-up to this issue. There is no conspiracy theory. TREB will be releasing the HPI information in conjunction with CREA, which traditionally releases it's data toward the middle of the month.

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  • Ralph Cramdown said:
    • 2 years

    TREB *did* release the HPI info for March, buried on pp. 25-26 of the Market Watch. But the presser highlighted average selling price appreciation, which was about a third higher than the HPI increase.

    What did TREB say when introducing the HPI? "... provides a less volatile measure of price than averages and medians, which can swing dramatically in response to changes in the mix [...] This new approach will provide clarity for the consumer and prove to be a major improvement over any other method to measure home prices and home price change ..."

    My humble prediction: When average prices increase by less than HPI, or before Federal budgets, the press release will be all about the HPI. Or maybe it's just about getting a third monthly press release in a rising market?

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  • Appraiser said:
    • 2 years

    Oh Oh! more bad news for the bears. Canada gains over 82,000 jobs in March - Wow!

    http://www.statcan.gc.ca/daily-quotidien/120405/dq120405a-eng.htm

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  • André said:
    • 2 years

    Very interesting information that I could not find elsewhere.

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  • Lenka said:
    • 2 years

    Nicely written Ben. And - a few days ahead of some of the major newspaper reporting on the changes resulting from OSFI recommendations! I have been following your blog for months now. We have sold our house last year and are now renting in hopes to see the market move down a little. We lived and still are looking to live in Oakville. Our real estate agent - who we believe to be credible and trustworthy - is saying she is seeing major influx of" Chinese millionaires", buying properties down here. Her believe is that Oakville (south east in particular) will become another Vancouver, and it will happen fast. What is your take on this? Do you believe foreign investors with cash can drive particular market pockets higher - at a time that canadian lending is just about to get tightened? My background is health science, I am too young to have lived through any housing recessions and that is why I turn to your blog often. I would love to know your take on this one.

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  • landlord said:
    • 2 years

    After that jobs number + rule changes (kinda) I think we see prices higher again by 7-8% in Toronto SFH and condos +5 %. Canada's economy is booming.

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  • Greg said:
    • 2 years

    Today's numbers were early seasonal changes in natural resources, construction, manufacturing, health care, ect. This is normal. The bad news is finance, insurance, real estate and leasing has declined for the seventh consecutive month by 0.4% unadjusted. Not good, but regardless, this is the trend that's worrisome and will destroy first time home buyers in the coming years. http://i40.tinypic.com/2zqraee.jpg

    It's booming alright—with boomers.

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  • landlord said:
    • 2 years

    This actually supports that avg buyer age in the low 30's, your picture great job growth.

    check out

    http://www.canequity.com/canada-mortgages.htm - you can see incomes of people buying, age, etc....

    you boomer comment, even you can see the change is high in %, but the absolute # is nothing.

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  • Greg said:
    • 2 years

    You completely missed my point regarding the trend. The elderly workforce is growing faster, meaning, the elderly are staying in the workforce or coming back to the work. This creates less jobs for the youth, hence the 15-19 age group is -1.4%, 25-54 age group +1.1%, while 55 and over is +4.4%.

    If real wealth was being created, people would be retiring earlier, not working longer or going back to work.

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  • Greg said:
    • 2 years

    Broker Raises Red flag On Collateral Mortgage Abuse
    http://www.mortgagebrokernews.ca/forum/broker-raises-red-flag-on-collate...

    “I have noticed on many power of sale docs that we have received that when the client has a collateral mortgage the bank has been including all unsecured debt such as overdrafts and credit cards,” Paul Mangion, principal broker of The Mortgage Centre -

    “They are even refusing to lower their collateral charge to let the clients seek financing from other sources,” he said Thursday. “The main big banks are the worst offenders, and I have even seen CIBC use balances from customers’ lines of credit to pay a credit card and then cancel it.”

    Because it's all written in the fine print that homeowners never bothered to read...

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  • Appraiser said:
    • 2 years

    "A closer look at the data suggests that current levels of consumer debt offer cause for concern, but not panic. While the recent US experience has highlighted the risks of overextended consumers, more prudent lending standards in Canada suggest that, under the most likely scenario, consumer debt levels should remain manageable. Nonetheless, these high levels of debt leave Canadian consumers vulnerable to a possible, but at the moment unlikely, large economic shock – notably a sharp rise in interest rates or an economic downturn."

    C.D. Howe Institute: http://cdhowe.org/pdf/Commentary_346.pdf

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  • Appraiser said:
    • 2 years

    Why Rent-to-Resale Calculations are Bunk: Urbanation:

    "Regardless, this methodology is fatally flawed for several reasons: it does not factor in the age, size and exact location of the units in question. Secondly, the source of the rental information has been called into question, especially with the major expansion of the private rental market, the inclusion/exclusion of heat, hydro, water, cable etc. A third major factor is the existence of rent controls in certain areas. A fourth factor is the existence of a low interest rate environment that allows the average home owner to purchase a larger, more expensive home (or simply get in the market) with a lower monthly payment."

    http://urbanationinc.blogspot.ca/

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  • Greg said:
    • 2 years

    Of course, only you would believe a condo pumping website whose last tweet just touted the Bayview area (C15) like the next best thing; when even TREB's manipulated benchmark price can't level out C15's volatile falling prices.

    http://i43.tinypic.com/2e0jqqr.png
    http://i39.tinypic.com/2utrtxy.jpg
    http://i42.tinypic.com/15ytlk.jpg

    Looks like some of their developer buddies just may go bust soon, or already did.

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  • Joe Q. said:
    • 2 years

    They are criticizing the comparison of average rents to average home prices, which is of course a meaningless calculation.

    What is much more valuable is a more head-on calculation that corrects for housing type and size. Urbanation themselves reported data last spring showing per sq ft new condo prices going up 7-8x faster, and per sq ft resale condo prices going up about 4-5x faster, than per sq ft condo rents (which increased below the rate of inflation). This is the kind of useful information showing the bubble in the Toronto condo market.

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  • Market Player said:
    • 2 years

    Market info for deep pocket, astute real estate investors:

    Visited several Open House this weekend in Markham and Richmond Hill.

    It was a little disappointing experience for me as a raging bull and or perma bull. There were no lines of parked cars and there were no flow of crowds. Actually, I was the only crowd, and my car was the only car parked in front of the Open House, when I was there. (small sample size, admittedly).

    This is a far cry from last year's experience.

    I am a little worried now, to be frank. These areas are supposed to be the primary destination for the Hot Asian Money. If these houses are not moving, then you can imagine what market it is in other GTA areas?

    The houses are listed a little above $1 million. They are all deep value play, as the listing agents who told me. And I agree. They are waiting for astute investors to scoop them up.

    As a matter of fact, the houses have all been appraised by the most respected real estate figure in the whole world - The Appraiser. And the deep value have also been vouched by the No 1 real estate market practican in the whole world - The Landlord, by his analysis, i.e., cash flow, IRR, rent -to- income, Monte Carlo model...

    If you buy them now, I can GUARANTEE you, by this time next year, they will provide 50% return, if not double.

    Unfortunately I am tapped out myself. I have 5 condos tied up my investment dollars.

    So folks, if you looking for the next generational investment opportunities, look no further than north of Toronto.

    Full disclosure: I am NOT an agent lying to you. I am a FMP (financial market partipicant). Just try to do my part to disseminate information to help Market Efficient Hypothesis (the strong version).

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  • Appraiser said:
    • 2 years

    @ Market Player:

    Hey, that's some deep anecdotal market analysis. Visited a couple of open houses. Really? How very insightful.

    Here's a broader perspective on reality: Weekly TREB GTA sales stats are out (To April 05, 2012).

    Sales: 2,664. Average Price: $517,495.

    Just might break the all-time record for the month of April (10,898 sales in 2010).

    Looking good to easily smash last April's sales of 9,041 units and average price of $477,407. Wow!

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  • Market Player said:
    • 2 years

    Appraiser:

    Thanks a lot for the latest encouraging numbers.

    I have to admit that I am sometimes Chicken little when it comes to investing. I keep remind myself that I need to look long term, the big picture.

    This blog, and that Greg guy keep showing me those down numbers. Maybe I should refrain myself visiting this blog, or the Garth one, and just outright stop thinking. And let real, successful investors like you and The Landlord guide me. Or I can just visit those constructive, uplifting real estate blogs. Or, by final measure, I will just ignore all the noises, and keep all my conversation with my agents. I feel good and positive whenever I finish my conversation with them.

    Anyway, I bought five (5) condos in the last three years. They are all in the primary real estate location in Toronto. Yonge and Finch, Yonge and Shepard, Shepard and Leslie. These investments are all cash flow negative as of now. The crazy thing is that they are still building many more condos right in my investment neghbours. This has put a real damp on me. My agents keep telling that I should not look for the measly income return; instead, they say I should gun for the big capital gain!!! They, the agents refer to Asian investors, are coming. Just hold for a couple of more years, I can then sell them and retire very comfortably! I will never have to worry about what age I can collect OAS and CPP.

    Thanks again for all the positive numbers. I feel much better now. If somehow I post some negative anecdotal rant in the future, please quickly present the positive numbers and remind me my Chicken Little mindset. I will stay optimistic and confident. In fact, I may cash out my banked sick pay (about 50 grand) to buy a pre-construction unit this weekend.

    Have a great day. Really nice weather in Toronto. The sky is so blue!

    Reply
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  • Appraiser said:
    • 2 years

    Hey, Market Player: Don't shoot the messenger. The GTA is on fire, get used to it.

    I find it amusing that many digruntled real estate bears seem to only find solace in the gentle arms of sarcasm. Too funny.

    Reply
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  • Greg said:
    • 2 years

    @Market Player

    Brand New Condo at Leslie/Sheppard Subway: Motivated Seller, Sell below Original Price at $199,000 http://toronto.kijiji.ca/c-real-estate-condos-for-sale-Brand-New-Condo-a... You didn't think HAM were all here to live did you Market Player? Give Mr Thomas Chung a call 416-801-8883... he's got a good deal for you.

    PS. If you've never played Baccarat with Asians, you have no clue what happens next.

    Reply
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  • Market Player said:
    • 2 years

    @Appraiser

    Why you thought mine was sarc. I live in condo, invest in condos and I truly want to take advantage of this bull. My true admiration for you and landlord are sarcasm? Really confused.

    @Greg,

    That's not my unit. I am holding my units for long term capital gain. I have developed high tolerance for short term investment pain. Believe me, I have the staying power.

    Reply
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  • Greg said:
    • 2 years

    That's what everyone says, I'm long term, so you are here http://i40.tinypic.com/34ydvmh.jpg

    This is the same market cycle proven again and again for hundreds of years.

    Reply
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  • Market Player said:
    • 2 years

    http://i40.tinypic.com/34ydvmh.jpg

    @Greg,

    Pure nonsense!!!

    This graph only, I mean only, applies to ordinary economic assets. Van and Tor real estate are exceptional. They are, shall I say, immortal.

    Don't believe it? Then a religious experience is awaiting...

    Reply
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  • 45north said:
    • 2 years

    Market Player: Anyway, I bought five (5) condos in the last three years.

    are you sure that you're a player? you realize that the bank has the other side of your play?

    Van and Tor real estate are exceptional. They are, shall I say, immortal.

    Garth says Van sales are down 30% year-over-year.

    Then a religious experience is awaiting...

    I read about market players to see if I qualify. I don't. They all warn against making your trade a religious experience.

    Reply
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  • Appraiser said:
    • 2 years

    Morning stock market update:

    Dow drops below 13,000 (again), TSX flirting with dropping below 12,000. Yeah, but real estate sucks?!

    Reply
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  • Greg said:
    • 2 years

    It's becoming obvious that you're just an old fart that's intimated by modern finance. Just imagine paying a small premium for CMHC insurance covering losses on the value of your home, or being able to profit on falling prices.

    I make even more money when stocks fall App. http://www.youtube.com/watch?v=aC19fEqR5bA You don't want to be leveraged in real estate when it all goes down.

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  • Ralph Cramdown said:
    • 2 years

    Honestly, I leave for a few days and you're reduced to this? 1. Don't quote the Dow. It's a poorly constructed, useless measure of stock prices. 2. Re house prices vs. rent. Don't quote some RE marketers who are just reblogging another agent's factless blog. And you don't have to worry about equivalence of rentals and condos, because, in Toronto anyway, it's easy to find equivalent pairs of sale/rental units in the same building. Here's some real reading on the subject, from efore the US bust:
    http://www.frbsf.org/publications/economics/letter/2004/el2004-27.html
    http://www.newyorkfed.org/research/epr/04v10n3/0412mcca.html

    And since you love anecdotes so much, may I present 44 Burton Rd. Listed Oct 13, $7.995M. Price drop Feb. 23, $6.695M. Relist Feb 28, same price. Sold for $5.5M, 82% of latest list, 69% of original list.

    Keep buying high and selling low!

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  • Appraiser said:
    • 2 years

    @ Ralph Cramdown, you are such a lightweight amateur.

    What do you ACTUALLY know about 44 Burton? Did you know that the property was an estate sale and that the original owners purchased it decades ago? Do you equate list price with original purchase price and then somehow dedue that a price reduction and subsequent sale with "buying high and selling low"?

    You are so out of your league that it is just hilarious (and perhaps a trifle sad).

    The estate made millions.

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  • Ralph Cramdown said:
    • 2 years

    Yes, I knew about the estate sale angle. Not relevant. It was a very marketable (and well marketed) property in a good location in an active market, they hired a top brokerage and didn't rush the sale. And got 69% of original ask. I could enumerate the possibilities, but how about we just agree on some combination of greed, incompetence, or a market much softer at the high end than in the middle.

    Reply
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  • Appraiser said:
    • 2 years

    Your "market analysis" is based on original asking price? Do you have any idea how many listings are overpriced at any given time on MLS? Do you have even have the foggiest notion how many listings expire every month on TREB due to that very fact?

    In any case, claiming to determine the state of the high-end real estate market in Toronto based one one sale is not just woefully anecdotal and statisticall insignificant, it is laughable. Yeah, you must be a real insider - maybe even an "expert."

    Here's a clue on value. 44 Burton is assessed at $4,346,000 by MPAC. It sold for $1.15 million above the assessed value!

    Clearly the estate was reaching for the stars but only reached the moon. Therefore, it must be obvious that the high-end market is crashing?!

    Lord, save me from the amateurs.

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  • Ralph Cramdown said:
    • 2 years

    Apparently I *do* have to enumerate. The wealthy tend to value and heed good professional and financial advice more than average people. This family made its money in real estate. It is more or less universally accepted that running a Dutch Auction on MLS does not maximize value. Given the pricing history, it's a reasonable inference that value was not maximized in this transaction. Bad advice? Failure to heed good advice? Softening market? Choose all that apply. I don't know about you, but when I see a pricing strategy that may well have left half a million on the table, I raise an eyebrow.

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  • Appraiser said:
    • 2 years

    Pure conjecture Ralphy.

    You don't know any of the answers but you just can't admit it. Besides, eyebrow raising is not what you previously concluded. No sir. You arrived at a generalized negative market conclusion regarding high-end real estate in Toronto, based on one transaction.

    Nonsense. Here's some conjecture from my side. I'll bet that you've never negotiated a real estate transaction in your life and have no first-hand knowledge on the subject at all.

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  • Ralph Cramdown said:
    • 2 years

    My previous conclusion is on the record here, if you just scroll up a bit. There we have it; I broke it down for you step by step and, rather than take issue with my arguments, you went all ad hominem on me.

    Reply
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  • wes coast said:
    • 2 years

    Considering the CMHC has been a cancer in our free market since the late 80's I don't see why Flarhety should take the blame when it finally blows up. That is as absurd as Obama being blamed for a lack of jobs and recovery (in the US) after being in office for less than 4 years after a correction that was 40 years in the making.

    It's time we start accepting our responsibility for allowing government intervention into free markets. While it may cause a short to mid term benefit - it always results in mass failure. 70% of Canadians own a home and not one of them has stopped to complain about rapidly increasing home prices because it made them feel rich. It's only when a crash comes that we realize our follies and even then we can't accept our responsibility in creating the mess - we blame government for not saving us from ourselves. It seems more importantly than housing - our very freedom is at risk because we fail to uphold our responsibility to preserving it; namely: resisting the urge to use government to create short term profit at the expense of the future.

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  • MM said:
    • 2 years

    Like

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  • Mira said:
    • 2 years

    Are foreign investors going to drive particular, already overpriced, market pockets even higher? My agent is telling me so - apparently it is happening in Oakville, ON. The claim is that in 2 years Oakville will become another Vancouver. Outside of telling me not to trust my real estate agent, could anyone provide meaningful insight?

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  • Joe Q. said:
    • 2 years

    The old part of Oakville is a cute, but very small, former village that still has some of its original charm. There are some gorgeous, huge estates right on the water, but unfortunately during warm weather this part of the lake emits a horrid stench (try spending some time in Coronation Park during a heat wave).

    The newer part (thinking primarily of the part north of the QEW) is a faceless suburb full of subdivisions and monster homes where you need to get into the car to get a quart of milk. The main attraction is a relatively quick GO commute to downtown Toronto (once you make your way to the station and find a place to park, that is).

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  • Ralph Cramdown said:
    • 2 years

    I find it funny enough the cities Vancouverites have to compare themselves to in order to justify their lofty valuations. Now people are comparing Oakville to Vancouver? Visit Vancouver to see how ridiculous this is. They have far better weather (if you like that sort of thing) and are significantly closer to Asia. In fact, they're the closest North American city of any peers. Toronto already has rich suburbs which make rich Chinese immigrants feel right at home. Why would they move somewhere where all the Chinese restaurants say "Chinese & Canadian Cuisine" on the sign?

    I think Oakville should be more worried about being the next Mississauga -- paved over everything, had to start balancing its budget without the help of large developers' levies, and discovered that maintaining a sprawling low density city really starts to get expensive once the infrastructure installed during original development starts to reach end of life. What happens if the Ford plant shuts down?

    Did your real estate agent do an analysis of the GTA, decide Oakville was the next big thing, and build her business there because of that? Or did she commit to Oakville for no particularly good reason and now is looking for reasons Oakville will grow because she's comfortable there? What data does SHE bring to the table for this supposed Asian invasion? Hard numbers, or just heard about a couple of sales whose buyers had accents?

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  • 45north said:
    • 2 years

    Mira: in 2 years Oakville will become another Vancouver

    why? nothing much distinguishes Oakville from Mississauga, Milton. Basic criterion is traveling convenience to Toronto. Yeah the GoTrain stops there. It stops at a lot of places. To really increase in value there has to be an exclusive aspect. Access to the 407? Well the toll road is exclusive. So is gasoline.

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  • landlord said:
    • 2 years

    From Oakville to Yorkville, Toronoto is still fairly priced. Get in before rates go up

    Reply
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  • Greg said:
    • 2 years

    According to Red Pin stats, GTA active listings just surged by 33% for April so far. http://www.theredpin.com/blog/canada/toronto-real-estate-update-apr09 Notice the log scale used on the charts.

    How long until 2.99% mortgages are back? Or maybe 2.49%?

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  • Greg said:
    • 2 years

    And if a 33% surge in active listings isn't bad enough, check out Red Pin's 2012 scheduled condo projects. https://docs.google.com/file/d/0ByrPFSoPLahJcEd1OFRfMlA2VTQ/edit?pli=1

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  • Appraiser said:
    • 2 years

    Listings surge at this time of year every single year. Nothing new. I thought you were on top of simple facts like that @Greg?

    If anything, the GTA could use some more inventory, after all it's currently at a nine-year low!

    http://guava.ca/indicators.html

    Be sure to check out the new listings graph (4th one down). Every spring it's the same surge.

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  • Greg said:
    • 2 years

    Listings are down because i) speculators are buying a portion of demand ii) owners are waiting thinking prices will continue to go up. Once the trend reverses and everyone heads for the exit door, that's when problems start.

    Seasonal GTA sales have been falling since spring 2009. http://i39.tinypic.com/2vtb1aa.png If listings surge, there will not be a sufficient amount of sales to consume supply this year. Why? Because last year we had an abnormal sales trend that began from Aug-Dec, and I'm willing to bet that this was related to new speculators buying, and active speculators 'restocking' properties after a remarkable spring season. Simple said, there is too much supply with a 'flip' or 'rent' sticker on it, many of which are not even built yet.

    However this year, it appears the specs have timed it badly, because early spring weather along with 2.99% mortgages have pulled in sales from April-May, and with many new condo projects coming online this spring/summer, will make condos a tough sell.

    Once buyers figure out the market is over-stocked, they will do what every speculator fears the most—wait, because now that rates are set to stay low for x years, what's the rush right?

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  • RL said:
    • 2 years

    lol @ tearing the CMHC "a new one"! And bravo on calling out the feds on their blame-shifting tactic!

    Reply
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  • Appraiser said:
    • 2 years

    Newsflash: TSX now in negative territory for the year. Ouch!

    Reply
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  • Greg said:
    • 2 years

    Not if you're on the short side like I suggested weeks ago. http://tmx.quotemedia.com/quote.php?qm_symbol=HIF

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  • Ralph Cramdown said:
    • 2 years

    And you see this as a) a buying opportunity b) a chance to crystallize paper losses c) an occurrence that allows you to brag that you're not diversified, and have the majority of your wealth (maybe more than all of it?) tied up in a single asset class, the same asset class whose continued good performance is essential to your livelihood d) bullish for your favoured asset class? Chose any that apply. P.S. I'm up nicely over the same time period. Not to brag, as the market is a great humiliator.

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  • Joe Q. said:
    • 2 years

    And the S&P 500 is up 8% so far in 2012. It's true that "you can't live in a stock", but it sure is easy to diversify in them.

    Appraiser, what proportion of your net worth is not in Greater Toronto Area real estate?

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  • Appraiser said:
    • 2 years

    Andrew Coyne puts it in perspective quite nicely in the following article.

    http://business.financialpost.com/2012/04/10/harbingers-of-doom/

    Does anyone need a bear hug.

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  • Greg said:
    • 2 years

    If only he did his homework before writing that post.

    Unemployment Rates
    Switzerland 3.2%
    Netherlands 4.9%
    Denmark 7.9%

    Sure enough, the one with the highest employment rate:

    "Denmark’s housing bubble, which burst in 2007, is still wreaking havoc in Scandinavia’s worst-performing economy. The foreclosure rate rose in December to the highest since June 2010, while house prices slumped an annual 8.5 percent in November and will have collapsed 25 percent by 2013"

    http://www.businessweek.com/news/2012-02-14/danske-ceo-says-housing-coll...

    Don't worry, just keep paying your mortgage, prices will come back one day.

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  • Ralph Cramdown said:
    • 2 years

    Coyne was the national editor of Macleans from 2007-11. So presumably he had input into, if not outright editorial control over all those articles he's mocking. Not to say that a man can't change his mind, but some acknowledgement of his involvement in what he's mocking might have been nice.

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  • Market Player said:
    • 2 years

    C15 Condos
    _____________________________________
    Greg said:

    Of course, only you would believe a condo pumping website whose last tweet just touted the Bayview area (C15) like the next best thing; when even TREB's manipulated benchmark price can't level out C15's volatile falling prices.

    http://i43.tinypic.com/2e0jqqr.png
    http://i39.tinypic.com/2utrtxy.jpg
    http://i42.tinypic.com/15ytlk.jpg

    Looks like some of their developer buddies just may go bust soon, or already did.
    ______________________________________

    There are another five (5) condos in construction by Concord right at Shepard and Leslie, close to Besaria Subway stn. Not far at Shepard & Don Mills, , there are three (3) under construction. One of them is named as Dream. There are still some units available. Hurry before they are gone forever.

    Me worry?

    If you build, they will come!

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  • Market Player said:
    • 2 years

    Greg,

    Just out at Zero:

    http://www.zerohedge.com/news/if-1951-accord-any-indication-treasurys-im...

    Potential catalyst for Canadian RE equlibrium?

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  • Appraiser said:
    • 2 years

    TREB market segmentation sales stats are out for March:

    Price Range - $399,999 or less, 45% of all sales.

    Price Range - $400,000 - $599,999, 31% of all sales.

    Reply
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  • Joe Q. said:
    • 2 years

    Can you further break down those price ranges into detached, semis, townhouses, condos? What fraction of the sub-$400k range were not condos?

    Reply
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  • Appraiser said:
    • 2 years

    Hi Joe Q,

    As requested, here is a breakdown of sales for various housing types under $400,00 for TREB in March, 2012.

    Detached: 1,555. Semi: 448. Att/Row/Townhouse: 361.

    Condo Townhouse: 586. Link: 48. Condo Apartment: 1,704.

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  • Joe Q. said:
    • 2 years

    This is the whole TREB region, Hamilton to Port Colborne and up to Georgian Bay, correct?

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  • Greg said:
    • 2 years

    April 5, 2012: Steels Industrial Products LTD., Western Canada's #1 supplier of building materials has filed for bankruptcy after 55 years in business. http://strategis.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02793.html

    A reminder of how fast BC's housing correction is hitting the economy. Leverage kills all.

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  • Greg said:
    • 2 years
    Reply
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  • Market Player said:
    • 2 years

    The demand for real estate in Toronto is insatiable.

    My proprietary model tells me that in next ten years, the demand for condo is 1 million units. The problem is the local developers are too fat, lazy. Even with shoddy work, falling glasses, crack walls, they are only able to supply 20,000 units per year. Consequently, people with bags of money do not know where to use.

    To properly meet the demand, Torontonians should demand their govenment to import Chinese construction companies with their efficient workers. Also, Mayor Ford should install new building code, such as minimum 70 stories high for each building.

    It's sad to see this vast amount of money sitting idle in the bank, collecting the measly 0.2% return.

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  • MM said:
    • 2 years

    Because 0.2% bank rates or condos are the only investment options? How did people with that attitude get so much money to invest in the first place?

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  • Olga said:
    • 2 years

    But if I had invested in RE in Vancouver, I would have been down by 5% by now:

    "Year-to-date, BC residential sales dollar volume declined 17 per cent to $9.2 billion, compared to the same period last year. Residential unit sales dipped 12.7 per cent to 16,724 units, while the average MLS® residential price edged back 5 per cent to $552,785 over the same period."

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  • Olga said:
    • 2 years

    Forgot to mention a source - Larry Yatkowsky, real estate agent from Vancouver, keeps providing his amazing data on his blog:
    http://www.yattermatters.com/2012/04/aint-no-vancouver-sunshine-when-she...

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  • Greg said:
    • 2 years

    Must Watch Video:

    (Berlin) April 13, 2012: Paul Martin, Former Prime Minister of Canada, discusses how Canada eliminated the deficit in the 1990s which was the worst of the G7 at the time. In doing so he discusses the timing and the need for governments to place greater emphasis on bringing the country's population onside when tough decisions are required.

    http://www.youtube.com/watch?v=I7Lgq1odQfs&list=PLD122A0085E58EA94&index...

    After you watch this video, revisit the charts below to get a sense of how deep and complicated the next recession will be. Notice on the interest rate chart how the government always referred to lowering rates to get us out of every recession, but instead, all they achieved was the transfer of federal debt to household mortgage credit.

    Bank of Canada Overnight Rate http://i39.tinypic.com/4kwiab.png
    Residential Mortgage Credit http://i39.tinypic.com/1tn410.png

    You do not want to own real estate in the coming years. This WILL be Canada's biggest recession, or better said depression.

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  • Appraiser said:
    • 2 years

    Very scary. I won't sleep tonight.

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  • Greg said:
    • 2 years

    Your favorite stats are out App. :)

    Realty Sellers Condo Stats April1-13 https://docs.google.com/file/d/0ByrPFSoPLahJVDNQOXJ3ZV9hWTQ/edit?pli=1

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  • Appraiser said:
    • 2 years

    TREB sales over one-million dollars for March, 2012: City of Toronto (Districts C01 - W10)

    $1M - 2M 275 Sales.

    $2M - 3M 37 Sales.

    Over $3M 18 Sales.

    No sales in excess of $6M.

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  • Greg said:
    • 2 years

    The Red Pin Weekly MLS Stats http://www.theredpin.com/blog/canada/toronto-real-estate-report-apr16

    Listings up 10% w/w. 62% m/m.http://i39.tinypic.com/33dd1f8.jpg

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  • Greg said:
    • 2 years

    Brampton’s newly listed Power Of Sales.

    http://i44.tinypic.com/11jx6bt.png
    http://i43.tinypic.com/mc6v7m.png
    http://i39.tinypic.com/jqkguf.png
    http://i41.tinypic.com/1zpml1f.png

    See what happens when the banks streamline mortgages to immigrants who can't afford them. This is Canada, it's different here.

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  • Wayne Masters said:
    • 2 years

    Oh for the days of market research in the field, in the early 80s.
    Driving to all the industrial commercial areas of west central Toronto on a Sunday morning. Retrieving a bicycle from the trunk and with pocket tape recorder, transferring all the latest for- rent/lease/sale signs. By Sunday night I've got the bible of all the newest istings.
    Monday morning I'm the guy you called, hot to go.
    Now I just hold attendence records in city halls, watching official community plans destroy the value of RE before I determine the value of it.
    Where the streets have no names and the city hall flat screen goes blank when the city pets ask for money. All the charts and facts are forgotten like in some 3rd world prison cell.
    When the new age Municipal accounting system is suddenly of no use.
    $20 billion in Investment fraud in Canada each year.

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  • Market Player said:
    • 2 years

    Look what kind of money is buying mansion in Toronto. Same in Vancouver

    http://www.torontosun.com/2012/04/15/former-iranian-banker-holed-up-in-to

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  • Greg said:
    • 2 years

    I'm not surprised, even Gaddafi’s son has a condo on the waterfront http://news.nationalpost.com/2011/12/15/saadi-gaddafis-1-6m-toronto-cond...

    It's good to know our immigration system is protecting Canada from becoming a world class criminal hideout.

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  • Appraiser said:
    • 2 years

    The latest Bank of Canada Senior Loans Officer Survey: April, 2012, has the opposite view of whether or not credit is tightening for everyone in Canada. The following quote for example:

    " The survey results point to an overall easing in business-lending conditions during the first quarter
    of 2012, following virtually unchanged lending conditionsin the last quarter of 2011."

    http://www.bankofcanada.ca/wp-content/uploads/2012/04/slos-spring2012.pdf

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  • Ralph Cramdown said:
    • 2 years

    Business lending. Banks are willing to start shifting the mix from low margin government backed loans to starry-eyed young couples toward higher margin business loans. This is bullish?

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  • Appraiser said:
    • 2 years

    Business growth drives employment and GDP growth.

    Who do you think buys real estate, the unemployed?

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  • Ralph Cramdown said:
    • 2 years

    Sheesh, I thought everybody had already bought. But I guess if you don't have a job... Mind you, studies have shown that skilled people who graduate into recessions and have to spend a few years un/underemployed never catch up to cohorts who graduate in better times.

    Besides, BoC Maxima says he's going to raise rates. Will they be done their probation before they're priced out?

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  • anon said:
    • 2 years

    Bank Of Canada holds interest rate steady yet again. Will Canada experience hyperinflation?

    Reply
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  • Greg said:
    • 2 years

    Financial Times: http://tinyurl.com/cfpgejl

    Mark Carney, the governor of Canada’s central bank, has been informally approached as a potential candidate to replace Sir Mervyn King as head of the Bank of England in June next year.

    Now you know who dictates Canadian monetary policy.

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  • Ralph Cramdown said:
    • 2 years

    We can haz Volcker?

    Reply
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  • Greg said:
    • 2 years

    Canada killed Volcker already.

    PDFs

    BOC http://tinyurl.com/c7achu2
    CBA http://tinyurl.com/c9cts2u
    OFA http://tinyurl.com/7h9mulg
    OSFI http://tinyurl.com/cpwnz84
    Banks http://tinyurl.com/85tvjm8

    Global looting Ralph. There is no practical solution.

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  • Ralph Cramdown said:
    • 2 years

    I meant the man, not the plan. He is rather old, but I bet even a leak that we were considering him would be a tonic to the yield curve.

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  • Greg said:
    • 2 years

    The plan is the man.

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  • Greg said:
    • 2 years

    And here's the denial as of 40 min ago.

    Bank of Canada denies Carney sought for England job: http://www.cbc.ca/news/business/story/2012/04/18/carney-mark-bank-englan...

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  • Greg said:
    • 2 years

    TREB's mid-month report: http://www.torontorealestateboard.com/market_news/release_market_updates...

    All is well? or is it not?

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  • Dave said:
    • 2 years

    Greg I don't see it. I wouldn't buy Toronto real estate, but these stats aren't showing a problem. Prices up 5%, sales up 7%. They don't mention listings though imply its less than 7%. All of these numbers seem fine to me.

    What am I missing?

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  • Greg said:
    • 2 years

    TREB's revisions http://i39.tinypic.com/34ngu2r.jpg

    While everyone is paying attention to high-end and new home sales, lower income neighborhoods are starting to decline, fast. When prices fall, it doesn't matter what area or part of the country declines first, because ALL liabilities fall on to the banks' and CMHC's balance sheet—so banks refrain from lending to avoid acquiring bad assets, CMHC pulls back on bulk insurance, which in turn causes less lending, lower sales, driving prices even lower, speculators start defaulting, banks can't sell foreclosures or power of sales, assets decline further and so on. This is the negative feedback loop that unfolds exponentially and the reason why the market goes illiquid faster then everyone thinks.

    Forget the average price, it has nothing to do with it, because it's just a liability on someone's balance sheet that will get vaporized at a fraction of the time it took to appreciate. Up the escalator, down the elevator. Never fails.

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  • Greg said:
    • 2 years

    And here's goes private bulk insurance that everyone hoped would fill CMHC.

    Genworth Shares Plunge on Australian Unit IPO delay: https://research.tdwaterhouse.ca/research/public/Markets/NewsArticle/131...

    April 18 (Reuters) - Shares of Genworth Financial Inc fell as much as 23 percent as investors worried that the life and mortgage insurer's capital deployment plan would hit a roadblock due to the delay in the initial public offering of its Australian unit.

    Genworth has struggled to maintain its capital levels as its U.S. mortgage insurance business posted losses for years. The company has used its foreign units, (READY??) especially its Canadian mortgage insurance business Genworth MI Canada, as a source of capital in the past.

    Next...

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  • Greg said:
    • 2 years

    I forgot my favorite part. Woooosh! http://i44.tinypic.com/vdjwqe.png

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  • Joe Q. said:
    • 2 years

    Within the City of Toronto, prices on starter homes (townhouses and semis) were flat YOY.

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  • landlord said:
    • 2 years

    DOES ANYONE HAVE A CLUE WHAT JUST HAPPENED?

    VANCOUVER PRICES DROPPED BY $100,000 IN ONE MONTH???????????????? WHERE IS THE HOT CASH?

    http://www.cbc.ca/news/interactives/housing-canada/

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  • Vlad said:
    • 2 years

    Interesting article... http://www.theglobeandmail.com/report-on-business/top-business-stories/b...

    Should we expect a big run up in RE prices for the next half a year (when ppl will try to buy ANYTHING for ANY PRICE while the rate is still low), followed by a big drop?.. Or the drop will happen without the run-up?

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  • rp1 said:
    • 2 years

    Last year it was going up 100k per month in February and March. Volatility cuts both ways. What should a house cost? That's where old fashioned measures like "price to rent" have something to say. Of course they say nothing about what people will pay. Last year we had Scam Good on the news telling the "natives" to GTFO, while he buzzed the city in a helicopter full of Vancouver realtors posing as mainland Chinese.

    When the general public is buying with a price model based on that, I would expect volatility approaching the level of stock frauds.

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  • landlord said:
    • 2 years

    @rp1 volatility does cut both ways, just remember to go from 50 to 100 its takes a 100% move, but from 100 to 50 it takes a 50% , you only need small % moves from these higher levels to wipe out huge levels of cash. 100k in one month? That is a condo in edmonton

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  • Olga said:
    • 2 years

    Do you want to know why there is a 100K drop in one month?
    There are today's stats from Larry Yatkowsky blog:
    Vancouver All Areas:

    New Listings - 248
    Back On Market Listings - 6
    Price Changes - 123 (they all are changed down not up)
    Sold Listings - 127

    and it is the same or worse every day - 2-3 new properties are getting listed per 1 property sold. Are we going to explode?

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  • landlord said:
    • 2 years

    Thanks Olga.

    Since no margin call exists, it can't really explode unless the bank says that a HELOC must be paid in full causing forced selling. In addition, the 100k reduction is from a stupid price that people wished they could sell for. I believe the vapor will come out of the prices very quick, Toronto however still seems very reasonable compared to the crazy prices of Vancouver. The impact however will be felt in the wealth effect - a HELOC is simply buying your own home from yourself at higher prices. At some point, the bank will no longer have an asset pumping juice for more lending, that sends the economy downward. Historically, that downward spiral takes 18-24 months.

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  • Olga said:
    • 2 years

    "the 100k reduction is from a stupid price that people wished they could sell for." - agree. Last year when government in China implemented RE buying restrictions (around Nov.2010 was it?) and our own government increased the investment class immigration quote, it sent the market in Vancouver sharply up in the first months of 2011. We saw the 100k+ gain in a few months, then people got used to these crazy prices and now we are just getting back to a "Vancouver normal" price, not a big deal so far. Unless the investors will start to panic and decide to get rid of these old and ugly houses with the value in the land only anyways.

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  • Sue said:
    • 1 year, 12 months

    The price is White rock and South Surrey is droping as well!

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  • Greg said:
    • 2 years

    Major Changes Coming For Organized Real Estate: http://www.remonline.com/home/?p=11866&cpage=1#comment-36911

    Interesting discussion.

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  • Dan  said:
    • 1 year, 3 months

    Good Day All.

    I wanted to say thanks to the author of this article. Today (Jan 2013), i was stung by this exact thing.

    I was in the market for a house, got the pre-approve from the bank, financing was in place (i was putting 7%) down, home inspection was done, either moving along nicely. Mortgage Insurance request was sent to Genworth from the bank, who declined.

    To give a bit of backstory, this is my second house (moving to the 'burbs), my first home (a condo in the city) was done under the HBP, was eval'ed by the bank at 333, has about 180 left owing and about 20K of equity available.

    My TSDR is below 30% and I make 130K or so. To me this should have been a no-brainer.. the new place is eval'ed at 80K more than im borrowing and my credit has no mars for the last 9 years (im 37 and was bad in my early 20s).

    Genworth indicated that i should sell my condo to clear up the debt in my equity and then purchase the home.. Strange that a insurance company would recommend getting rid of an asset,

    Any at rate, after a weekend of pulling my hair out trying to understand, I will end up taking from my RRSP to make the downpayment and get a conventional mortgage (which I was pre-approved for), but the bank is making me wait to see for tomorrow..

    Needless to say, forget just entry for first time buyers, this credit stop is affecting us mid 30s who are looking to expand and enter our earning years and the field that once was is no more, why im sitting in mortgage approval limbo tonight, this article provided some kind of rationale.

    Cheers and thanks,
    DS

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  • Ben Rabidoux said:
    • 1 year, 3 months

    Interesting comment. Thanks for sharing

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