Making the news in China - Canada vulnerable to 'big deleveraging shock'

The Chinese headline reads: 诺奖得主：加拿大经济极端脆弱 楼市泡沫要破灭

If your Mandarin is a little rusty, it reads: "Nobel Laureate: Canadian economy is extremely fragile. Housing bubble about to burst” (hat tip VMD on Vancouver Condo Info)

It's Paul Krugman's article, which on this side of the ocean has been headlined: Paul Krugman warns Canada vulnerable to a ‘big deleveraging shock’

The Nobel prize winner suggested Canada is an important test case for what lies behind the 2008-09 recession and the sluggish recovery. In other words, if the U.S. experience is anything to go by, Canada might be undergoing a housing and debt bubble, and if so, he advised people to watch what happens next.

With interest rates at ultra-low levels and Canadian household debt and housing market stabilizing, market strategists and economists like Krugman here are scrutinizing every bit of economic data for clues on what the economic outlook will bring....

Krugman sees potential red flags in the large spread between U.S. and Canadian house prices, and the fact that Canadian household debt levels are climbing even as U.S. ones are declining.

"So if the new non-centered bank view is right, Canada ought to be quite vulnerable to a big deleveraging shock despite its boring banks," he wrote. “Of course, people have been saying this for several years, and it hasn’t happened yet — but remember, the U.S. housing bubble took a long time to pop, too."

So Krugman now joins the chorus waiting for the Canadian bubble to burst, it's lofty real estate values not appearing to have realistic means of support.

And more importantly that viewpoint is gaining coverage in China.

Meanwhile Scotiabank is out with a report that notes:

"housing corrections often last years...and this one is unlikely to be any different"

So if HAM (Hot Asian Money) is going to come flooding back to support our housing values, it's going to have to buck the conventional wisdom that Vancouver is overvalued and a sure investment loser.

Meanwhile locals continue to insist Vancouver isn't overvalued.  The latest tidbit comes from our bud Helmut Pastick who insists:

"Prices in Vancouver are... fairly valued... It's a wonder that prices aren't even higher"

Are you ready for another round of R/E hype about how 'now's the time to buy?'

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An update on the real estate outlook in Richmond

Richmond realtor James Wong is out with his June Report and at first blush it appears market conditions have improved a bit:

Total home sales in Richmond for May 2013 totaled 375 units were 7% higher than the 350 sales recorded a month ago. Higher home sales the past 2 months helped to improve the housing market in Richmond slightly. The slow down in new listings, and improved sales helped to improve the market outlook for townhomes and condos. The slow down in the supply of new listings the past 3 months helped to improve the housing market in Richmond significantly.

Total active listings in May at 2,230 units was at around the same level compared to the previous month’s total listings of of 2,225 homes. With an average past 3 months home sales of 335 units, the MOI for homes in Richmond at 6.66 months for May is a vast improvement compared to the previous 2 months.

Sounds promising.  But that's for the market in total.  What's happening with detached homes, presumably one of the big draws about moving to one of Vancouver's suburb communities:

The situation for detached homes in Richmond did not improve much. The MOI for Richmond detached homes for May at 9.35 months will continue to exert pressure on home sellers. The only way out for home sellers who must sell is to reduce their prices significantly.

Yikes!

Wong continues:

Richmond detached home prices are under pressure to decline further due to the high supply of homes and lower than expected demand from home buyers.

Currently, there are 642 detached homes over $1,000,000 for sale in Richmond. The average monthly sales the past 3 months for homes over $1.0 million was 49 homes. With 13 months of supply, detached home sellers are not seeing much demand for their homes. 

The situation for detached homes over $1.5 million is far worst. With 357 homes listed for sale and average monthly sales of 17 homes, these home sellers are confronted with 17 months of supply, with little hope of finding buyers. The demand for detached homes over $1.5 million is not expected to improve much. 

There are not signs of the market changing for the better for million dollar homes in Richmond.

Hmmm. What about townhouses?

The market for townhouses in Richmond appeared to have stabilized and home prices are holding at current level.

On the face of it, decent news.

How about condo owners?

On the other hand, resale condo sellers in Richmond are in a dire situation trying to sell their condos. The Richmond condo MOI for May at 6.6 months is not a true reflection of the market situation for condos in Richmond. When the unlisted inventories of new condos are added to the pool of resale condos for sale on the MLS® system, there are far more condos for sale than buyers. The competition for buyers by resale condo sellers and new condo developers will inevitably result in lower condo prices in the coming months.

James Wong, telling it like it is.

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New Blog: Vancouver Flippers in Trouble

It seems another new blog charting the perilous condition of our Vancouver Real Estate bubble has emerged.

Titled Vancouver Flippers in Trouble, the site purports to set out to document real estate losses during the bursting of the bubble.

It's appears to have surfaced about a week ago and offers us such treaties as 2603-8 Smithe Mews:

This 2 bedroom, 2 bath, 1577 sq ft sub penthouse in Coal Harbour was purchased for $2,000,000 in a 2007 pre-sale.

It's currently on the market.  Asking price: $1,670,000.

That's quite the drop from the original purchase price. Factor in the GST paid at the time of the purchase ($100,000), the Property Transfer Tax ($39,000), the Real Estate Commission ($61,950) and it means this seller is already looking at a loss of  loss of  - $530,950, assuming he/she gets the current asking price.

Ouch!

And if misery loves company, then solace can be found in the plight of the seller of 2106-8 Smithe Mews:

This 1 bedroom, 2 bath 1055 sq foot condo was purchased in a 2007 pre sale for $1,030,000.

Currently it's listed with an asking price of $799,900. Once GST on the original sale is factored in ($51,500),  Property Transfer Tax ($19,600) and Real Estate Commission ($51,500), this seller is looking at a loss of -$332,697.

Should be interesting to keep our eyes on this site and see if they can continue to provide such interesting examples in the coming months.

We've also added it to the reading list on the sidebar.

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RECBC issues suspension order for a realtor

On the heels of complaints about the lack punishment for realtors by the Real Estate Council of British Columbia (RECBC), the council has just issued a suspension order for John Salanga of Sutton Group-West Coast Realty and Royal Pacfic Realty.

SUSPENSION ORDER: Johnson Castaneto Salanga, Sutton Group-West Coast Realty and Royal Pacfic Realty (Kingsway) Ltd., Vancouver

Published 2013/06/13

Upon reading the Affidavit of Sonya Jakovickas, Compliance Officer of the Real Estate Council of British Columbia, sworn June 11, 2013,

I AM OF THE OPINION that:

There has been conduct on the part of Johnson Castaneto Salanga in respect of which a Disciplinary Committee could make an Order under section 43 of the Real Estate Services Act. 

The length of time required to complete an investigation or hold a disciplinary hearing, or both, would be detrimental to the public interest. 

I CONSIDER IT in the public interest to, and hereby make an Order under section 45(2) of the Real Estate Services Act suspending the licence of Johnson Castaneto Salanga effective immediately and Order that he not provide any real estate services to or on behalf of any member of the public.

I CONSIDER IT in the public interest to, and hereby make an Order under section 46(3) of the Real Estate Services Act requiring the Royal Bank of Canada, located at Fraser St. and 49th Avenue, Vancouver, British Columbia, branch 003, to hold any and all accounts, trust account, client funds, securities, term deposits, registered savings accounts, and/or general accounts on deposit for, or in the name of any of: “Johnson Castaneto Salanga”, “Johnson Salanga”, “John Salanga”, and “Sutton Group – Johnson Salanga”, held solely or jointly, until further order of the Real Estate Council, including but not limited to:

1. Account Number XXXXXXX

2. Account Number XXXXXXX

I CONSIDER IT in the public interest to, and hereby make an Order under section 46(3) of the Real Estate Services Act requiring the Vancouver City Savings Credit Union (“Vancity”), Branch 809, located at Fraser St. and 47th Avenue, Vancouver, British Columbia, to hold any and all accounts, trust account, client funds, securities, term deposits, registered savings accounts, and/or general accounts on deposit for Johnson Castaneto Salanga, or in the name of any of: “Johnson Castaneto Salanga”, “Johnson Salanga”, “John Salanga”, and “Sutton Group – Johnson Salanga”, held solely or jointly, until further order of the Real Estate Council.

From Salanga's 'about me' page on his (now suspended) website (click on image to enlarge): 

So it appears that you can do something that will trigger an immediate suspension from the RECBC as 'the length of time required to complete an investigation or hold a disciplinary hearing, or both, would be detrimental to the public interest. '

Perhaps there is hope we will see the RECBC take assertive action for the exposed liars in the MAC Marketing fiasco.  It's still difficult to fathom how an organization can go on TV, blatantly lie to the public, and the members who lied can still be allowed to work in a field where the public trust is paramount.

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Summarizing the known rigged markets. By process of elimination does that mean Gold and Silver are the only non-manipulated ones?

Following up on yesterday's third post of the day where it was revealled traders at a number of major banks have been manipulating spot foreign-exchange rates for at least a decade, altering the values of trillions of dollars worth of investments, we now have the link to the original Bloomberg News story.

Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice. 

Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.

It may be difficult to prosecute traders for market manipulation, as spot foreign exchange, the trading of one currency with another at the current price for delivery within two days, isn’t classified as a financial instrument by regulators, said Arun Srivastava.

The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.

As Zero Hedge notes, as FX trading becomes the latest addition to the "rigged" market column, we now have quite the list of known market manipulation scandals. They are:

• Libor - interest rates (link)
• ISDAfix - swaps (link)
• Platts - oil prices (link)
• WM/Reuters - FX
• High-Frequency Trading - equities (link)

We also know that the Fed and world central banks are engaged in a full blown (and unprecedented) Treasury curve modeling exercise courtesy of both ZIRP (short-end) and QE (long-end), and that courtesy of some $12 trillion in extra liquidity in the past 5 years, stocks are at an artificial "weath effect" sugar high.

Faithful readers will recall that over the past couple of years we spent a considerable number of posts outlining how gold, and particularly silver, are highly manipulated as well.  We received a considerable amount of criticism for that viewpoint.

But as ZH wryly observes:

We can therefore deduce that, following the process of elimination, gold and silver are the only markets that are unmanipulated and where transparent price discovery is allowed to take place without intervention from key players. Sarcasm off.

Exactly.

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Tues Post #3: Bloomberg News - Dealers rigged forex spot benchmarks

MarketWatch is out this evening quoting Bloomberg News that traders at a number of major banks have been manipulating spot foreign-exchange rates for at least a decade, altering the values of trillions of dollars worth of investments.

LOS ANGELES (MarketWatch) -- Traders at a number of major global banks have been manipulating spot foreign-exchange rates for at least a decade, altering the values of trillions of dollars worth of investments, Bloomberg News reported Tuesday, citing five unnamed dealers. The scheme involves the WM/Reuters Closing Spot Rates, which are used to provide daily benchmarks to value portfolios. However, market participants have been front-running client orders to rig the rates by pushing through trades before and during a 60-second window when the rates are set. British regulators are considering a probe into allegations of this practice, the report said.

You don't say?

Next they'll be discovering that the spot price of Gold and Silver is manipulated too.

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Tuesday Post #2: Port Moody Snapshot - houses priced above $900,000 have a 3.2% sold rate

We haven't really focused specifically on the Vancouver suburb of Port Moody before, but at first blush high end homes there are faring just as bad as Richmond.

The above info comes to us via realtor Bill Coughlin's blog and his report covers Belcarra, College Park PM, Barber Street, Anmore, Glenayre and all the sub-areas of Port Moody Real Estate Market.

Coughlin tells us Port Moody has a 12% sold rate... but take a look at the wild swing in home sale success.

• Homes priced below $600,000 have 41.7 %SOLD rate. Not bad.
• But homes priced above $900,000 have an abysmal 3.2 %SOLD rate. And given that Belcarra is almost exclusively houses assessed with multi-million dollar homes, that's a disaster.

Couglin tells us that the Pt Moody RMR Home Price Index (another franken number formula?) shows that prices decreased $25,245 in 2012. He says Pt Moody has a high Listing supply; 148 homes are for sale with 8 months of inventory. At this sell through rate approximately 111 of these listings will not sell. Currently 28% of the active listings have reduced their price by $47,449 on average.

Sounds pretty ugly, doesn't it?

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