The Kill

Well, somebody’s lying. As a major bank flees the mortgage broker business, the feds claim real estate is stable. A new report says you might have just paid 54% too much for your house, and there’s speculation a Toronto condo tower could be ‘ground zero’ for the Canadian housing bubble. Are you sure you’re ready for this?

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Events are moving faster than a speeding hormone as the real estate end game comes into view. In the last couple of weeks CHMC revealed its bottomless pit of insured mortgage money has hit bottom, and rationing may be next. The big banks snatched back their uber-cheap mortgages after calls from a pissed-off F, plus a few worried central bankers. The debt bubble is now titanic. Global watchers like The Wall Street Journal and Seeking Alpha have been spreading the news that Canada’s housing gasbag is ready to blow.

And now this.

On Friday news leaked out that CIBC is about to dump its FirstLine Mortgages division. This matters. FirstLine has a book of $47 billion (yeah, billion), is one of the largest mortgage lenders in the country and just months ago was the premier provider of funding to independent mortgage brokers. While the official bank announcement has yet to come, brokers have been talking of nothing else – wondering what this will do to real estate financing first, and house prices second.

  Why would the Bank of Commerce bail? Could be because it wants all this business funneled directly back through CIBC, at better margins. Or it could be because mortgage brokers cater far more to high-ratio, high-risk lending, and with CMHC wobbling (unless Ottawa allows it new billions) the heat’s simply too high. Whatever the reasoning, it’s a major move after the bank spent the last 17 years building the business.

But that’s not all real estate groupies need to worry about.

The negative planetary media barrage continues. For example, there’s a new list of the most undervalued and overvalued housing markets in the world, put together by Deutsche Bank Securities, and published by Business Insider. If you want to get a deal, it says, go to Japan (-37%), Germany (-26%) or the US (-9%). But it you crave buying high and being a risk-drenched greater fool, then Canada’s your baby – overvalued by a stunning 54%. Only Belgium is worse.

How’s this determined? The relative valuation of housing markets is measured in terms of prices to rents, and also prices to incomes, then compared to long-term averages. In other words, when you can rent a $600,000 Toronto condo for $1,600 a month, or the average Vancouver SFH costs ten years’ worth of salary, you know you’re screwed.

But that’s not all.

The Canadian real estate market is taking yet another drubbing in an opus piece just moved by Bloomberg, which shows up on the screens of every major bank, pension fund and large-scale investor in the world. Says the headline, “Toronto Bubble Risk topping New York in Condos.” Bubble? What bubble? Why, it was only Monday that CHMC told us it’s different here, with a stable real estate market, cheap money and free ponies for at least two years.

“With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales of existing homes will stay close to levels seen in 2011,” CMHC deputy chief comedian Mathieu Laberge said in a statement.

Meanwhile, this is what foreign investors are reading:

Toronto has more skyscrapers and high-rises under construction than any North American city — almost three times as many as New York — stoking debate on whether the condominium market in Canada’s largest city is headed for a U.S.-style correction as prices rise and household borrowing hits a record…. Canada’s housing market is about 10 percent overvalued, with inflated prices primarily in Vancouver, Montreal and Toronto…  “We would call it a bubble.”

And how can a dispassionate person, like that house-horny Guangdong industrialist, argue with the facts? Mortgage credit in Canada has exploded 53% in just five years. Canadians now owe $1.08 trillion on their homes, while salaries rot behind inflation. There are 27,509 new condos being built in Toronto, where 199,000 already stand. If the cranes stopped moving today there’d be enough new boxes in the sky for five years of demand.

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In Vancouver average houses are trading for a staggering 10.6 times the income of the average family. Affordability in Toronto has deteriorated 40% in seven years. And this past weekend at an open house in Richmond – fairly priced, beautifully located, in the epicentre of HAM lust just months ago – only one person showed up. The owners wept.

Reading such things, would you fly over and invest in Canada? Would you prod your 22-year-old daughter to buy a Calgary condo with 5% down? Would you join the mob outside a developer’s sales office in Richmond Hill on Sunday? Would you buy into a new Toronto tower scheduled for 2014? Would you trust CHMC?

On this pathetic blog, we know the answers. Yes, the people cry. We believe.

I may soon be revising my forecast.