[Emancipator]

^^^ It would be better to short certain banks more exposed domestically.

CIBC, National, Canadian Western whereas BMO, TD, Royal and BNS have international exposure (significant US assetts for the first three, latin America for the latter)


While Vancouver is indeed over priced, I don't think it would totally collapse (it will collapse and tank, but not catastrophic), as while Vancouver is affected by the easy mortgages, China comes into play (buying the higher end properties, people who sell move into the middle end with their new windfall, trickle down commences). Also in terms of supply Vancouver is constrained as to the north there's mountains, to the west there's water, to the south there's the border and to the east is farmland (which is provincially protected ALR land). Its almost impossible to obtain land to build a single housing unit, and even in new build, the redeveloped brownfield properties in the suburbs, super dense (no backyard) housing stock or townhomes are being built.

The above only applies to land + detached housing in Vancouver, which will hold up better in a crash. Non-Detached, strata, condos ect. will face pressure due to the simple fact that supply for those units is almost endless (can keep building up to the sky), the fact that people are paying 700-1Million for a unit in a tower (no land at all) is crazy. And even in Vancouver's suburbs, micro units (think dorm room size) are going for 80-100K.

Just my 5cents

[Bad Hussar]

^^^Emancipator

Ja. There are a lot of people who think China, the North Shore mountains and the US border will save Vancouver. But I don't. Basically, baked into current prices is the (unrealistic) assumption that housing will continue to increase in price by X% in the foreseeable future. Make "X" more or less whatever you wan't it to be as long as it is an unrealistically (based on 100+ years of economic history) large number.

When a market is massively overvalued (again, taking into account 100+ years...) it can't really just stop going up and move sideways indefinitely until rationality is eventually restored by inflation. Pretty much as soon as it stops going up it crashes. Because the "spell" is broken and people realise that the "net present value of future future cash flows" calculation from their properties now generate a number less than half the peak market price. This was the case from way back when the market became unhinged, but people assumed there would be an inexhaustible supply of new buyers to unload an inflated property on. But like with any pyramid/ponzi scheme, when the spell is broken it doesn't just dissipate. It crashes.

I hear your arguments about availability of land and the Chinese, but the forces and emotions (extreme fear, among others) unleashed when an asset bubble spell is broken are much stronger than these factors. The fundamental value of property, like any asset, is the present value of future cash flows. Based on rental rates, property taxes and other factors this generates asset prices half of today's market prices. In some markets like Vancouver less than half. Also, the market price is set on the fringe. Even if most people don't "have" to sell the market is defined by those who do.

[samsamsam]

Isn't it true in Canada you don't have 30 year fixed mortgages? I thought I remember reading that somewhere, so every few years you need to re-borrow?

[Bad Hussar]

(07-15-2015 01:58 PM)samsamsam Wrote:  

Isn't it true in Canada you don't have 30 year fixed mortgages? I thought I remember reading that somewhere, so every few years you need to re-borrow?

That's right. Not 100% sure what the maximum period is, but I think it's 10 years.

Also, the insurance the house buyer with less than 20% deposit must take out, and must pay for, does not insure the buyer. It insures the bank. The amount the insurer (essentially CMHC - a Crown corporation) pays the bank on a defaulted mortgage plus fees is then rolled into a new debt obligation that the house buyer now has to CMHC. i.e. There is no such thing as "jingle keys" in Canada. CMHC can and will come after house buyers for...everything. At least everything that they can get out in bankruptcy. Same thing with the banks with non-insured mortgages.

One additional fear I have is that if/when the bubble pops the government (especially if the Conservatives remain in power) will make debts to CMHC non-dischargeable in bankruptcy. Similar to the situation with student loans. You heard it here first. Basically so that they have someones entire lifespan to bleed them and try to make good on impossible loans that the government would be loathe to write-off. If they do do something like that it will be a very dark day and indicate to all intents and purposes that Canada is no longer "Rocking in the free world".