Canadian RE Bears: Just Wrong?

To paraphrase Kermit: its not easy being a RE Bear

Particularly in some big Canadian cities

Prediction is a crap business at the best of times

Economists build careers on being wrong alot or at least not right alot

The RE Bear thesis:

Residential property prices in key cities: Vancouver, Toronto and their surrounding areas are over inflated and will fall dramatically

Its not hard to find general agreement home prices are too high, most folks outside the RE industry and quite a few insiders will say it

"Prices are crazy!" "Who would pay that?" "Wow, that little dump got that much!"

That's common

People inside the RE industry will say: "World Class!" "No Supply!" "Immigration blah, blah"

And there are elements of truth in those comments

Canada is a great country

Immigration paused but not stopped, there are some Supply issues

But prices are ridiculous

History is useful: after a hard RE crash in 1990 home prices started going up in 1996 and with a couple of blips have gone up for 24 years

If you were 24 in 1996 you are 48 now

For that 48 year old's entire adult life "real estate only goes up" is factual

The 2008 Crisis did drop RE values but for less than 12 months then back up

In March 2017 RE values peaked after a run up and dropped but 18 months later had largely recovered

If you HAD to sell during the dips it hurt but that was a very limited number of people

Which brings us to a worldwide pandemic and economic disaster

And RE prices in the GTA are up about 20% from 2019

So....... its tough to be an RE Bear

You're wrong almost always

Ridiculously wrong

And some of us wrong for very LONG, I have been wrong about sustained RE price reversal for 12 years, that's a crap record even for an economist

I got out of the prediction business

Still believe prices are ridiculous

Still worried about RE values

Because a bunch of people may get hurt

Because the next generation is in a debt trap

Because life in general would be better for so many people if RE prices were lower

And the next 12 months will be very interesting

But no predictions

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More from @ronmortgageguy

6 Sep
Mortgage World is Upside Down

So much about the last 4 months in Canadian finance has been weird

In previous economic disasters those in trouble did a couple of things, some people sought insolvency protection and those with houses often refinanced to pay debt

As @ScottTerrioHMA and @doughoyes will tell you Insolvency work is at an incredibly low ebb

And in mortgage world refinance for folks with debt problems has effectively vanished

It is best observed among the companies who specialize in sub prime mortgage lending

The federally licensed B lenders, the large and small residential Mortgage Investment Corps, right down to individuals who do private mortgages: all profoundly not busy

Dead serious: way, way below last year's business

During an economic catastrophe?

Why would that be?

Read 7 tweets
1 Sep
The End of Mortgage Deferral

I said many times, Deferral on the massive basis we have been experiencing had to end

This was a coordinated, organized program that was designed to instantly create calm and stabilize the system

And it worked perfectly, better than expected

With the support of OSFI, CMHC, the private insurers: Genworth and Canada Guaranty, the Bank of Canada and the DoF a solution was developed overnight

Banks and other lenders quickly moved from phone calls and reviewing applications to a Portal that just approved deferral

Up to 5 mortgages deferred

Primary residence and up to 4 rentals

Essentially no questions asked

Some had no income loss and most could easily have continued payments, they were worried or just didn't understand interest compounding

It seemed bad: 20% of all mortgages

Read 7 tweets
22 Aug
The Real Estate Gods Must be Crazy

Stealing the title of a charming 1980 movie about a Coke bottle falling from the sky, I am giving some thought to nearly 3 months of a really odd real estate market in Ontario

Some of what's happening is really easy to understand

Pent up demand is obvious

Lock people up for nearly 2.5 months and they need to buy stuff they couldn't

A bank exec told me July was an all time record for their car financing division

Couldn't buy cars for 2 months need to catch up

Guess same can be said for houses

What else drives this RE market?

Crazy low mortgage rates
Desire to have more space
Work from home forever
Can't travel = need cottage

Combine these factors with the RE supply issue in parts of Ontario and prices go up

But there are some crazy parts to this boom

Read 9 tweets
4 Jul
This Economic Experiment

Canada has embarked on a monumental economic experiment

In the face of a once in a century, worldwide catastrophe our government closed the economy down to protect citizens from a plague

Correctly, the government introduced an unprecedented

economic support plan: CERB, mortgage deferral, interest free loans to small business, a payroll support plan

8 Million people on CERB, absolutely massive support

To the point where the stock market has almost recovered and in some cities RE prices have actually GONE UP

Was it a mistake? No, it wasn't because if a government shuts an economy down it has a requirement to manage that problem

Could we argue there was poor execution of specifics? We could but it would be dumb because battlefield surgery doesn't work that way

Read 7 tweets
29 May
Endless CERB Stories

Look, let me get this out there first: CERB was absolutely required


Can't close a country down without CERB

Now that's out of the way

There is a TON of CERB foolishness going on


And I say foolishness because it's so obvious it's likely all going to be picked up on by CRA eventually

In the last 5 business days we have looked at 2 different sets of bank statements with both CERB and normal pay deposits CERB appears in between the bi-weekly pays

We convinced both to stop doing it but we're not sure how this is going to play out with lenders

One purchase, one refinance

Another one where its crystal clear he is just having his employer hold commissions while he collects CERB, he is working steadily, banking sales

Read 4 tweets
11 May
CERB and Mortgages

This is a conversation one of our team members had with an individual this morning

Us: Reviewing your 3 months bank statements we see your payroll deposits are going in every 2 weeks but we see a CERB deposit from the Government of Canada
Why is that?

Him: It's the Covid benefit

Us: Yes sir, we know but it appears you are working full time

Him: Yes, I am

Us: And getting CERB?

Him: Yes

Us: Sir, the Government specifically says that shouldn't happen, it's only if you lost your job due to Covid, you would get CERB

Him: Both my cousins said it was fine, they just applied and got it, so I applied and got it

Us: But you had to state that you were off work due to Covid but you're still working?

Him: My cousins said to get it just in case something happened with my job

This happened

Read 4 tweets

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