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Buyer Beware

October. This is one of the peculiarly dangerous months to speculate in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February.
- Mark Twain

10/31/16

Wall Street Short Seller Betting Against Canadian Real Estate

Meet Wall Streeter, Marc Cohodes
Staff Writer

July 5, 2016


Marc Cohodes
wants to make money off Canada's real estate market, but not by flipping houses or renting out micro-condos like other rich speculators...

 
Cohodes
has spent three decades of his career as a Wall Street short seller, which means he's pretty good at spotting bubbles and betting against them just before they burst.
 


Cohodes walked away from trading after he made a controversial but accurate bet against Lehman Brothers in 2008, which put his $1.5 billion hedge fund at odds with their prime broker Goldman Sachs.  Now he runs a chicken farm in California.

Seeing Canadian housing values skyrocket over the last couple years, Cohodes couldn't stay out of the game. Like the guys in The Big Short, he's got a hunch that something is out of whack, and he's hoping to make some cash off at least one company's downfall.


VICE reached out to Cohodes to learn why he's pissed off about Canadian real estate regulation, and what he thinks young and broke renters should be doing about it.


VICE: Can you tell me a bit about your short-selling career?
 


Marc Cohodes: I've been at this since 1982, professionally I've done it since 1985. In Canada I would short Clearly Canadian, Cott Beverages, I would short the various resource flame-outs over time. In the United States I'd short Krispy Kreme donuts, I would short the mortgage fraud players when we had our housing debacle. I've been around some real winners. A lot of battles, scars, victories, defeats—the whole thing.
So from your experience, what makes you think Canadian real estate is worth betting against?

Let's focus on Vancouver, which is a lovely town—I love going there, I have friends there. I think what's going on is sort of tragic. In Vancouver, housing is being traded like penny stocks on the old Vancouver Stock Exchange. There are no economics whatsoever behind housing in Vancouver. Statistics show the average family makes $80,000 a year, and for argument's sake I always say double that, even make it $200K. The multiplier on what you can afford is between four and six—and yet these properties are trading at huge multipliers to that.
So who on the Canadian market have you decided to short?

 The only Canadian stock that I'm short [selling] that affects housing is something called Home Capital Group, which trades in Toronto under the symbol HCG. In Vancouver there's nothing to short. People ask me about it all the time. I don't stand to profit by Vancouver collapsing, I will make zero money. What I'm doing, is speaking out through the experiences I've had in life, that this is a disaster waiting to happen. I'm trying to flash a red light, so politicians and regulators act to avert or control a disaster.

Is this an imminent disaster? When do you see the bubble bursting?

It can last. It can blow. There's no real way to predict when it will happen. But here's what you know for sure: you know China has capital controls on—they restrict their citizens from pulling more than $50,000 out of the country. So when a college girl buys a $31 million place in Vancouver—who has no income, who can't answer questions about what her father does for a living, who can't answer questions about where she gets the money—you know the Chinese don't want this going on. They're pissed about capital flight into YVR. Toronto as well.

At any point in time, the Chinese can crack down on people, on Canada—they can do whatever behind the scenes to make it end abruptly. Without warning or notice... 

At some point a cool mind should say, "Hey, why don't we just have open disclosure of who owns all these properties?" That's a real solution. Like in Sonoma county, if you want to go to Santa Rosa, and pull the deed for a farm which I own, it'll say: here's who owns it, here's what was paid, here's when it was bought, here are the bank loans involved. So why can't Canada or BC have this open disclosure?

But what would disclosure really do in terms of bringing down prices?

What it will do for journalists, for regulators, for people who are interested, is they'll see where the money is coming from, if laws are being broken, if crimes are being committed...

Because when you buy something and don't occupy it, when you launder money through housing, it will absolutely destroy the community. Instead of going to restaurants and buying movies and sending kids to school, they don't do any of this.

The money gets tied up in places to live, but the economy suffers and suffers big. It makes the costs for people who want to live in Vancouver go up, and then if you're running a bakery you can't afford to hire people to work there. The business goes down the drain because you don't have any customers. And it becomes a vicious, negative loop. Which is bad.

That does sound bad. But what does that mean for, say, a twenty-something who is obviously not invested?

What are young people supposed to do?

Rent, rent, rent and rent. Because when things blow, you're going to want to have cash to come in and buy. And you will have an opportunity. Because when things go, they're not going to go by a little bit. They're going to go by a lot.

Why, what gives you that feeling?

Because at the end of the day, the pendulum goes too far in all directions. It's gone way too far on the up, and it's been fueled by laundered money on top of mass speculation. You've had this force and effect where the banks have also helped foster this. When things blow, said money launderers are going to have to sell, but there'll be no bids in the market, because affordability in these places is still out of control. When things get cheap enough, banks won't be in a lending mood unless it's sort of a steal. Then I think prices will come way, way, way down. That's when your millennials, your 28-year-olds, your 30-year-olds will be in a position to buy. Right now you're so, so far from that. But when things break, they're going to break huge. Just have patience and wait it out. Don't get sucked in by the propaganda of 'It always goes up.'

Should young people also be betting against Canadian real estate with their tip money?

God, no. I say don't try this at home. What people should do is keep their eye on the situation, and actively engage regulators. Asking for full disclosure of records is not a bad start.



Follow Sarah on Twitter.

Read More: Vancouver Rental Opportunity of the Week




Link: http://www.vice.com/en_ca/read/meet-the-wall-street-short-seller-betting-against-canadian-real-estate




Bet Against Canadian Real Estate


Toronto

Billion Dollar Fund Manager Comes Out of Retirement To Bet Against Canadian Real Estate


Marc Cohodes



You may not know who Marc Cohodes is, but the 55 year old retiree is a Wall Street legend. So when the man the New York Times once called “the highest-profile short-seller on Wall Street” decided to come out of retirement, we were dying to get in contact with him to see what he was betting against – turns out it’s the Canadian housing market.


Before retiring, Cohodes previously ran one of the largest hedge funds in the world, Copper River Partners. They managed over $1.5 billion in assets, and made a fortune betting against companies whose books and practices didn’t quite make sense. 

In 2008 Marc quit the financial game after a correct bet against Lehman resulted in a complication between Copper River and Goldman Sachs, which led to the fund’s demise.
Since then he’s retired from his trade desk, and runs Alder Lanes, a swanky chicken farm in Sonoma County, California. That is, until he started following the Vancouver and Toronto housing market, which in his words “makes the US look like Sunday school with what’s going to happen.” So we sat down with Marc and he explained to Better Dwelling co-founder Stephen Punwasi, the perfect storm he sees in the Canadian housing market – a mixture of rising home prices, foreign money laundering, and an unregulated sub-prime lending system most Canadians don’t even know exists.

Rising Home Prices


Our first question to Marc, was the most obvious—what’s with the rising home prices in Canada? 

His response:

“Supply and demand doesn’t make sense” Cohodes explained, “Income levels are up in the GTA, but they’re not up as high as housing”. He might have a point, housing prices in the GTA over the past 30 years are up 188% and income has only risen around 1%. So why are buyers scrambling to purchase homes they can’t afford?

“The Country is using housing as an economic generator, and it’s going to be an economic killer…housing is shelter, and right now it’s being used for speculative purposes”. With the average Toronto home appreciating $550 per day, buyers have been piling in faster than people can sell their homes, and Cohodes thinks this is “not an organic situation, and it’s dangerous.”

“Don’t buy the supply demand noise. There’s plenty of places to build and live [in Canada]. It was the same story with Phoenix, Las Vegas, and Southern California when housing blew up here”.

Foreign Money Laundering


“You have a story that people laugh at, a college aged girl buys a $31 million dollar place to live in, she didn’t earn that money herself. She said it was her father’s, when they asked what her father does she said she doesn’t know.” While he didn’t specify the specific story he was referring too, he does appear to be referencing Tianyu Zhou, a “student” at UBC that was able to purchase a $31.1 million mansion in Vancouver’s Point Grey. As a student, Zhou was able to obtain a $9 million dollar mortgage from CIBC. Interestingly enough, her LinkedIn says she worked at the UBC cafeteria in her first year – a gig typically reserved for low income students.

“It’s international money laundering coming into Canada…regulations are very lax”
, he further explained. “China has capital controls on their money, and Canada does not have respect for a nation that has capital controls”. Bloomberg estimates that US$500 billion in capital has been moved out of China by mostly individuals, with a significant portion of it landing in Canada. Much of that has been moved into the Toronto and Vancouver housing markets.

Non-Prime Lenders

“I think it’s horrifically bad, there shouldn’t be private lenders.”
–Mark Cohodes


If you’re a Canadian that has your mortgage with one of the Big 5 banks, you most likely don’t realize that we have a bustling sub-prime lending industry that exists with almost zero regulations. A few have interest rates as high as 15%, with a 15% fee for renewal after the first year (because what’s an extra $150,000 on a million dollar loan right?). Some go so far as to lend you your down payment, so you can skirt the federal regulation of minimum down payments. Or as Marc says, “As long as you can borrow more, you can keep the Ponzi going”.


Home Capital Group (HCG) is where Marc is betting the implosion of this industry will begin. Despite not being a household name, HCG has built a mortgage portfolio that’s around 1/5th the size of BMO, impressive considering BMO had a 160 year head start.
Shortly after Marc began shorting HCG, an anonymous letter to the board of directors explained irregularities in their numbers, which forced the board to launch an investigation.
The board revealed around $1 billion in fraudulent loans, that they traced back to 45 brokers. They stopped doing business with the brokers, and that $1 billion was quietly adjusted to $1.9B.

“Home Capital Group has admitted to $1.9B in fraudulently underwritten mortgages last year alone,”
he explained.
“FSCO, who regulates the brokers, has not punished the brokers. The problem is when there’s criminal behaviour going on—and originating fraudulent mortgages is criminal behaviour… you’re allowing one class of individual to benefit another. If you allow it to go on, what’s the deterrent?”

Find that a bit confusing? Marc broke it down for us, “if I went to your town and robbed a bank and broke the law…and you caught me and know who I am. My punishment is ‘you need to leave town tomorrow, I won’t name you but you can’t do this around here no more’, what urges me to stop? Me and my whole crew should be put in jail,
there should be an investigation by the RCMP on exactly what happened, and who was involved.”
It’s hard to argue with that, most of us would say yes, there should be an investigation and someone should serve time
. He goes on to say: “Were these mortgages insured by the CMHC?”. The 45 brokers have not been named to the regulator, and HCG has said that taxpayers are on the hook for the fraudulent loans, as they are mostly insured by the Canadian Mortgage and Housing Corporation.

Source: Home Capital Group.

Advice For The Canadian Government


Marc, far from shy “invites any regulator or politicians” to contact him. “I could stop it in a week…they just seem to not want to. They want to hold meetings, and take half a million dollars and look into it”, referring to the Liberal government’s recently announced StatsCan program that will take the next year to collect data on foreign ownership. He also suggests the biggest improvements will be made by having the government focus on cracking down on illegitimate foreign ownership, and unregulated private lenders, that he refers to as our “shadow banking industry”.
“China has capital controls for a reason…stop the conduit of money coming from China into housing. Stop it meaning, who are these people doing it, where are they getting their money from, who are the banks involved?” Marc states “I would work with the Chinese government, because they don’t want this happening.”


“It’s clear in BC, massive amounts of money are being laundered into the housing and real estate markets, and that stuff should be stopped immediately”, he further suggested. “I urge the government to do a whole lot more than to say, ‘we’re studying it’”

What Marc has to say about alternative mortgage lenders

Marc thinks “They [the Canadian Government] should make HCG disclose exactly what’s going on there….FSCO should have HCG name names, and arrest brokers.”

Marc’s advice For People Buying A Home


He was also very direct when questioned about advice for Millennials looking to enter the market in Toronto. “If you don’t own a place, rent. If you own a place, and someone wants to buy it at the right price I would sell it in a hurry.” Then added “It’s not the end of the world to rent.”

“Not everyone should be a parent, not everyone should have kids, not everyone should own a house”. He also urged young people thinking about jumping into the market because of FOMO rather than being prepared “If you think the market is going up and you’re not participating – that’s fine. Just be patient and the market will come down.“

Being a short seller hasn’t made Marc popular with investors, but his ability to mow through numbers and point out logical inconsistencies is so legendary they teach about him in some of the top business schools in the world.  


The real question is, now that we’re all aware of skyrocketing home prices, foreign money laundering, and unregulated sub-prime lending, how do we convince our government to sit up, take notice and make some changes?
Here’s an idea, why not tweet your thoughts to our fearless leaders? 




 Link: https://betterdwelling.com/city/toronto/marc-cohodes-short-canadian-real-estate/



Former hedge fund owner short-selling Vancouver to save housing market

Former hedge fund owner short-selling Vancouver to save housing market


Summary
'Pissing on a house fire,' describes US short-seller about piecemeal solutions to Vancouver's housing market

In short term, the former head of one of the largest hedge funds in the world encourages people to rent and sell


VANCOUVER (NEWS 1130) – When Marc Cohodes bets against a market, history has shown there’s a good chance he’s right.

Before he retired, the 56-year-old headed Copper River Partner, one of the largest hedge funds in the world, and managed more than $1.5 billion in assets by betting against companies whose books seemed askew.

Now, the American short-seller has set his crosshairs on Vancouver housing and what he says is a market rife with foreign laundered money and over-inflated prices. 
Although it’s not a real bet, Cohodes hopes lending his name will generate awareness to avert disaster.

“Housing, in its simplest form, is shelter and the average family, I think, in (Vancouver) makes $80,000 a year. And when you multiply what people can actually afford, the transactions are going at significantly higher rates,” says Cohodes. “When you see the anecdotal stories of who’s buying houses, with capital controls in place from China, it makes you start to wonder what’s going on.”

The conclusion Cohodes reached was that foreign laundered money, largely from China, is making its way into Vancouver and “the BC government is a party to this.”
“Politicians say they are working on it, but they aren’t. They have no plan. It has nothing to do with supply and demand, and the politicians are owned by real estate interests,” he says. “You can’t be this tone deaf to what’s going on and allow it to keep happening.”


Conjuring images of the American housing market crash, Cohodes says Vancouver’s sub-prime lending market would put the plot of the 2015 film The Big Short to shame. He tells us the largest buyer, Home Capital Group, “has admitted to originating $1.9B in fraudulently documented loans, which is a colossal number. And no one has got in trouble or penalized.”

Cohodes says piecemeal solutions such as Premier Christy Clark’s announcement this week that real estate will no longer be allowed to self-enforce government rules, are lip service at best.

“It’s like someone who weighs 400lbs saying ‘I’m not going to drink coke anymore, I’ll switch to diet.’ It’s sort of pissing on a house fire.”

Despite his prediction that Vancouver is heading for the cliff and will likely experience a lot of pain in the future, he hopes citizens and policy makers can work now to cushion the blow.

Cohodes’ first solution is to open all housing records and make them publicly available so people can be held responsible for fraudulent or misleading deals. He then hopes people do something very un-Canadian and get angry.


“People need to get upset, protest, speak up, and speak out about what’s going on,” he argues. “I was there when the Canucks lost the Stanley Cup. They were mighty pissed off when the hockey team lost, so I think this a lot more important than that.”

In the short term, he encourages people to rent and sell rather than buy.


“Wait until the storm blows over, because it’s going to blow into a million unrecognizable pieces,” he predicts. “I think it’s going to be really, really, really bad, no matter what happens. I just don’t want it to be a huge, huge, huge disaster — and it’s never too late to begin to make changes.”



Link: http://www.news1130.com/2016/07/01/former-hedge-fund-owner-vancouver-housing-market/



Shadow lenders growing in population

     


The number of mortgage brokers and non-bank lenders operating outside of Bank of Canada’s reach is increasing, including the likes of cash-for-jewelery dealer Harold Gerstel of Toronto.

Gerstel, 57, owns a cash-for-jewelery shop in the Lawrence Manor neighbourhood and has found arranging mortgages as another way to earn dollars.

In his daytime commercial ads, he promises to seal a mortgage in five business days for low-income borrowers. He adds that these applications will require little documentation and a record of late payments.

The venture to mortgage broking appears to be fruitful for Gerstel, as he has sourced hundreds of home loans since 2011 with lightly regulated non-bank lenders.

“We arrange mortgages for the average Joe,” Gerstel said. “The banks are very strict today. A lot of these people go to the bank and they get refused. So they turn to the private market.”

This new industry of mortgage brokers and non-bank lenders is expanding fast, but the Bank of Canada (BOC) warns homebuyers who deal with less regulated lenders may come with a hefty risk.

“A sizable proportion of new, uninsured mortgages are being issued to riskier borrowers,” the BOC report said. “Although less-regulated lenders account for only a small share of overall lending in Canada, stress experienced by one or several of these entities could have adverse financial and economic spillover effects.”

Of all of the mortgages writing in Canada, about 5% come from unregulated lenders. Eighty-percent of mortgages are created by federally regulated lenders, including the country’s five biggest banks.

“A lot of this business falls out of the regulated space and into the shadow banking or unregulated space,” said Martin Reid, president of the federally regulated non-bank lender Home Capital Group Inc. “It may become a bigger systemic risk.”

Despite the authorities warning against the likes of him, Gerstel is firm to pursue his second career.

“I’m always going to do a little bit of jewelry but I’d rather do mortgages because there’s a lot of room for growth there,” he said. “Every day there’s thousands of thousands of people that need mortgages.”

  Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

More market watch:



Link: http://www.whichmortgage.ca/article/shadow-lenders-growing-in-population-187420.aspxhttp://www.whichmortgage.ca/article/shadow-lenders-growing-in-population-187420.aspx




Rory Sutherland: Life Lessons from an ad man


 
Rory Sutherland stands at the center of an advertising revolution in
brand identities, designing cutting-edge, interactive campaigns that
blur the line between ad and entertainment.







George W. Bush Weighs in on the Election









10/2/16

Canadian banks were on the list of the most-shorted stocks

WOLF modified

The little short



As of Friday, four of the Big 5 Canadian banks were on the list of the most-shorted stocks in the nation. Whoa. These guys are money machines, right? Why would so many investors be betting against them, taking positions that would profit if bank stocks withered?

Well, might have something to do with Elaine. She lives in Vancouver, and would like to share this:

“There is mass hysteria here as people rush to buy now or be priced out forever. I thought things were crazy before, now they are just beyond absurd. It seems like people are doing whatever they can do buy now, including (probably) pledging their firstborn children. Some have this mentality that they must buy to ensure the future of their children, otherwise their kids will never be able to afford a place years down the road, since people seem to have forgotten that Vancouver isn’t the only city in Canada, or the world, that has houses.
“A friend of ours has been looking to buy for months, to no success. Outbid on many properties, until they finally found one that had no other offers. Bad location, they made an offer and it was accepted. Price is $800k for a 3 bed townhouse. The bank gave them the bad news: they didn’t qualify for the mortgage. No s**t sherlock, hard to justify a $750k mortgage when the family income is only $70k per year. Following some fancy footwork by the broker (something that seemed to involve kiting cheques between family members)-voila! The deal is done, townhouse is theirs. It seems outrageous to me but this seems like a fact of life these days that it’s an any-price type of game….doesn’t matter what the price is, the broker can help you get the place you want. If the bank doesn’t follow through, private lenders can step in too.
“Will the madness ever end? I have a feeling this is the tipping point.”

There’s a scene in The Big Short where a fund manager seeking evidence of a housing bubble interviews a Vegas stripper while she lap dances for him. Turns out she has five leveraged properties, and is appalled to learn her mortgages are adjustable-rate. He flies back to New York and pours everything his fund’s got into shorting real estate. In the end, he makes a billion. Toots, presumably, loses her houses.

A couple of days ago a smart US site called The Visual Capitalist reminded us of what a weird thing Canadians have done with their homes, in sharp contrast to a lesson the rest of the world learned. Quoting a top-rated Wall Street short-selling hedge fund advisor, it said, “The cross currents are beyond crazy in Vancouver — it’s a mix of money laundering, speculation, low interest rates… A house is something you live in, but in Vancouver you guys are trading them like the penny stocks on Howe Street.”

And this: “Canadian real estate has reached “peak insanity”, and it’s part of the reason that investors around the world are trying to find a way to bet against the market.”

Here’s the most startling thing our American friends noticed – last month, a record for Canadian real estate, if you were to strip Vancouver from the stats, our real estate market’s a dud. “Vancouver’ housing market sailed again in February, shooting up a record 3.2% in just one month. This is the best month for the market since August 2006. It was so good, in fact, that it single-handedly propped up Canada’s national index for housing. Canada’s market as a whole saw gains of 0.6% in the month, but it would have dropped to a lacklustre -1.1% without the inclusion of Vancouver in the 11-city index.”

Here ya go…(Click to enlarge)

Canadian-Housing-Is-Being-Propped-Up-By-Just-One-City

By the way, the real estate industry is hoping you don’t notice this, that you take the buy-now-or-buy-never headlines coming out of Vancouver or Toronto as evidence this asset’s on fire everywhere. Last week CREA upped its forecast for 2016. “Canadian resale housing market trends this year are expected to resemble those apparent in 2015, with very tight supply leading to strong price gains in British Columbia and Ontario – particularly in the Lower Mainland and in and around the Greater Toronto Area.”

Realtors are now openly forecasting that the national average price – currently sitting at the highest level in recorded history – will bloat another 8% in 2016. That would be four times the expected rate of inflation and about six times the anticipated wage gains experienced by the average family. In other words, if true, it would signal a further descent into unprecedented household debt. Yep, held mostly by the big banks.

Of course, some people (this pathetic blog included) have been trying to spell out for a year that our housing market is incredibly unhealthy and uneven. Sales and prices in resource-based communities are toppling. Seven of ten regional markets are stagnant. There are fewer monthly sales in Toronto than took place two years ago. And the real estate industry nation-wide continues to obfuscate official numbers in a variety of ways, allowing moisty cub reporters and pandering politicians to do the job of fooling folks.

So when victims like Elaine’s friends pay $800,000 for a beater house in Van with three-quarters of a million in debt – over ten times their income – it sure feels like a Vegas lap dance. How can this possibly end well?

By the way, Warren Buffet figured this out a while ago when he looked at how real estate destroyed the US middle class:

“The basic cause, you know, embedded in psychology, was a pervasive belief that house prices couldn’t go down and everyone, virtually everybody, succumbed to that. But that’s the only way you get a bubble is when basically a very high percentage of the population buys into some originally sound premise. It’s quite interesting how that develops.
“The originally sound premise that becomes distorted as time passes and people forget the original sound premise and start focusing solely on the price action. So the media investors, the mortgage bankers, the public, me, my neighbor… you name it — people overwhelmingly came to believe that house prices could not fall significantly. And since it was biggest asset class in the country and it was the easiest class to borrow against, it created probably the biggest bubble in our history.”
Nobody’s certain how things will ultimately be resolved. We just know those who believe prices will go up, forever, are wrong. The rest of us should probably get out of the way.

@garthturner


Canada's most-read real estate and financial blogger. Business author, financial advisor, ex-MP and minister, entrepreneur.
Toronto ON
Joined October 2010


Source: http://www.greaterfool.ca/2016/03/20/the-little-short/



Chinese Media Is Now Warning Canada’s Housing Crash Will Be Worse Than The US



Vancouver

Chinese Media Is Now Warning Canada’s Housing Crash Will Be Worse Than The US

China Begins Warning About The Canadian Real Estate Market
102 Comments
Shots fired! While our media has been pointing out how Chinese buyers are driving up real estate prices, the Chinese media has been dissecting our economy, government, and warning Chinese buyers of the dangers of owning Canadian real estate.
We’re always curious to know how other countries interpret our statistics, political climate and what outside media is reporting about Canada’s economy. Since China has been a hot button subject in Canadian news recently, we thought it was high time we took a look at how Canada is portrayed in China’s State regulated media. While the Chinese media does acknowledge that Chinese buyers are a contributing factor to our prices – and admit they have been capitalizing on it – they also point out some interesting observations that our media has failed to cover. Here are the most interesting points we found from three major Chinese publications.

Worse Than The 2008 US Crash

Hexun, China’s largest finance portal, recently published an article pointing to Canada’s debt fueled economy. They noted that Canadians have the largest debt-to-income ratio of any G7 country, with the average spending 165% of their salary. To contrast, at the height of the US housing crisis in 2008, Americans carried what was then considered an outlandish 147% debt-to-income ratio – 17 points lower than where we currently sit. Canada’s total household debt reached $1.892 trillion dollars, with $1.234 trillion dollars of that as mortgage debt – roughly 65% more than we make per year. To put that 1.82 trillion dollars into perspective, we could have run the US government for 8 months with that amount of money.
 “This is a very big bubble. And it’s going to end in tears.”
–Paul Ashworth
CN Gold, another one of China’s large financial sites, ran an article quoting Toronto-based economist Paul Ashworth who told them “This is a very big bubble. And it’s going to end in tears.” They then went on to say that once this bubble bursts, real estate will likely be a major “blow to the Canadian economy”.

Real Estate As An Economy Booster

Sina.com’s real estate partner, and NYSE listed Leju was quick to point out that while the average home price in Vancouver is up more than 30%, the province is in a state of “stagflation.” Stagflation is a fancy word that describes when the cost of living increases but there is stagnant demand in the economy. They go on to say BC has one of the lowest median incomes in the country, and the BC government is hoping rising home prices will “render some good”.
Real estate and related services were one of the few high paying growth sectors contributing to our economy over the past year. A significant portion of our growth is in low income sectors like retail, and hospitality service.
While they didn’t put statistics to those statements, we recently published an article that showed Vancouver’s home prices have risen 172% in the last 15 years, while income has only moved up 10%. The struggle in VanCity is real.

BC Government Saved This For The Election

Most interesting, Chinese media outlets are questioning the timing of all of this. Afterall, Vancouver’s real estate has been growing at an unsustainable rate for years (more like decades), while incomes have stagnated. An author from Leju wrote that the Asian investment conversation is being brought on as platforms for the Vancouver municipal and BC provincial elections.
Leju also explained that other cities like Toronto, that have substantially more international buyers, are not having discussions about “vacancy taxes” and “restrictions”. They further allege that the government in Vancouver and BC are looking to distract constituents with “other factors” to explain why income in the province is one of the lowest in Canada.
“this crisis threatens the stability of [the Canadian] financial system.”
Hexun was a little more blunt, stating the Government of Canada “must introduce policies to cool the property market, or face collapse”. Further adding that “this crisis threatens the stability of [the Canadian] financial system.”
While you should approach all media with a grain of salt, they bring interesting points to the table that should be part of the discussion. In Vancouver’s market where mayor Gregor Robertson made almost four times his annual salary selling a home he lived in for only 2 years, and BC Finance Minister Mike de Jong has a stake in 7 homes (only 5 mortgages though), are Chinese speculators the problem or are all speculators contributing to the problem? Also, as Canadians we tend to not discuss things like declining income, which is unfortunate because it’s a big part of our housing story.

Let’s Have An Honest Discussion About Real Estate

At Better Dwelling we’re exploring the issues around Canadian housing from all sides. Like this post? Like us on Facebook to get notified when the next one goes live.


Link: https://betterdwelling.com/city/vancouver/chinese-media-now-warning-canadas-housing-crash-will-worse-us/





Mission:


Poverty, Human Rights, protecting the Environment and working toward Sustainability are Mankind's greatest challenges in the 21st Century.

About Me

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Vancouver Island, British Columbia, Canada
Jennifer believes we live in the garden of Eden and I believe that we are destroying it. Our saving grace is within ourselves, our faith, and our mindfulness. We need to make a conscious effort to respect and preserve all life.