Author Topic: Garth Turner - Real Estate in Canada  (Read 487206 times)

enoch01

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Re: Garth Turner - Real Estate in Canada
« Reply #210 on: September 02, 2014, 09:18:37 AM »
Allowing these huge bubbles in residential real estate is insane.  It destroys the middle class; they get extraordinarily angry; the search for a scapegoat.  The young people who feel it is a bubble have to argue with wife, friends, family and look like idiots if they don't go along.  It is nothing like the stock market. 

If Canada is allowing HELOC's and all the attendant things that went on in the U.S., the pain will be massive.

The whole U.S. stock crash was caused by the housing mess.  (Whereas, the huge correction in the early 2000's was caused by a massive bubble in stocks in 1997-1999.)  The real estate mess in the U.S. practically cratered the world.

Sell Canadian banks?  Or, does the gov't underwrite?

I've sold the banks.  I've been early.

What's interesting is that CMHC insurance in force had been holding steady, and actually has been shrinking a little recently.  CMHC historically has been about a 10% ROE business (your banks thank you).  So someone has been willing to take in less premium to insure riskier than normal mortgages these days.  More evidence of irrational behavior.
 


Aberhound

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Re: Garth Turner - Real Estate in Canada
« Reply #211 on: September 02, 2014, 10:49:18 AM »
High Vancouver RE prices creates a problem for those holding. I realize concentration of assets in High priced RE is unsafe. But I can see the massive influx of wealthy immigrants from everywhere. I wonder why they come because engineers and doctors etc. have a difficult time getting qualified here and business people have a difficult time adapting to our oligopolistic markets. But then I meet their young sons and daughters in their early 20s and I see the reason for the sacrifice. Who wouldn't want to move their children to a tolerant society with massive stores of societal trust, the type of trust that takes decades of safety and stability to develop? Further, I see technology making it easier to run international businesses from Vancouver. Then I wonder why prices aren't double or triple in a globalized world. What is the price of feeling safe? And what if winters in Toronto keep getting colder?The proportion of immigrants choosing Vancouver might increase. So I pay down debt to make it safe for me to hold RE through any conceivable correction. Hence the imbalance of assets.

Suppose one of you seeking to build an asset management business could help people like me. Could you find a pension fund that seeks to diversify their risk like a bank or pension fund in Japan and show them that they would benefit from writing no recourse first mortgages in Vancouver at say 60% LTV if the monies are used to fund portfolios of diversified assets upon which the bank can hold a charge as well ie the recourse is on both the RE and the portfolio. Problem solved especially for me if there is a clause allowing mortgage payments to come from portfolio appreciation during downturns when my income drops. Pension gets extra yield on no recourse loan, risk is reduced for both sides by diversification, you can rapidly get millions in portfolios and I can hold a lot more BAC and US long term treasuries. Buffett suggests no leverage which is what I have mostly followed. But is leverage better in some circumstances if it allows you to diversify? I think the answer is yes if the cost of borrowing is below the 6% expected returns + a margin of safety. This may be possible with the current low mortgage interest rates.

shalab

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Re: Garth Turner - Real Estate in Canada
« Reply #212 on: September 02, 2014, 11:15:38 AM »
The median stats per household is even worse in the U.S compared to Canada. U.K and Canada are also roughly on par...

http://www.freedomthirtyfiveblog.com/resources/median-and-average-net-worth

Median Net Worth               

Per Person in Canada      $81,610   2012      middleclasspoliticaleconomist.com/2013/06/us-median-wealth-only-28th-in-world.html

Per Household in Canada      $243,800   2012      http://cponline.thecanadianpress.com/graphics/2014/static/cp-median-family-net-worth.jpg

Per Person in the US ($USD)      $38,786   2012      http://www.middleclasspoliticaleconomist.com/2013/06/us-median-wealth-only-28th-in-world.html

Per Household in the US ($USD)      $77,300   2010      http://www.federalreserve.gov/Pubs/Bulletin/2012/articles/scf/scf.htm

A_Hamilton

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Re: Garth Turner - Real Estate in Canada
« Reply #213 on: September 02, 2014, 11:35:48 AM »
Allowing these huge bubbles in residential real estate is insane.  It destroys the middle class; they get extraordinarily angry; the search for a scapegoat.  The young people who feel it is a bubble have to argue with wife, friends, family and look like idiots if they don't go along.  It is nothing like the stock market. 

If Canada is allowing HELOC's and all the attendant things that went on in the U.S., the pain will be massive.

The whole U.S. stock crash was caused by the housing mess.  (Whereas, the huge correction in the early 2000's was caused by a massive bubble in stocks in 1997-1999.)  The real estate mess in the U.S. practically cratered the world.

Sell Canadian banks?  Or, does the gov't underwrite?

I've sold the banks.  I've been early.

What's interesting is that CMHC insurance in force had been holding steady, and actually has been shrinking a little recently.  CMHC historically has been about a 10% ROE business (your banks thank you).  So someone has been willing to take in less premium to insure riskier than normal mortgages these days.  More evidence of irrational behavior.

The government effectively underwrites. Look at Tangible Common Equity / Assets and then Tangible Common Equity / Risk Weighted Assets in the Canadian banks and compare to JPM, BAC, etc.

Canadian banks have some of the thinnest direct capital levels of any financials on the planet. The question is if/when the Canadian economy faces a recession, will the banks be bailed out of mortgages at par by the government or will they have to raise capital. If a large hit to real estate happens nationally I think the public outcry would be that shareholders are no longer entitled to 20-30% ROE's on obscene amounts of leverage on tangible common.

I'm short the Canadian dollar...looked at the banks several times and the fact is if no recession/decline in housing happens in Canada you can get hurt very quickly.

As an aside FFH has hedged all of its Canadian exposure back to USD.

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #214 on: September 02, 2014, 11:38:07 AM »
Every time there's a bubble, people have a thousand reasons why it'll keep going.

All the attention gets focused on these reasons and people lose perspective. A few thousand wealthy foreigners obscure the fact that tens of millions of canadians are the ones primarily owning, buying and selling these houses, and their incomes haven't kept up, their debts are ballooning, and a huge part of the economy is RE, compounding risk.

Chinese princelings aren't the ones buying dilapidated 1960s bungalows for a million bucks...
« Last Edit: September 02, 2014, 11:40:36 AM by Liberty »
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enoch01

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Re: Garth Turner - Real Estate in Canada
« Reply #215 on: September 02, 2014, 12:37:31 PM »
Allowing these huge bubbles in residential real estate is insane.  It destroys the middle class; they get extraordinarily angry; the search for a scapegoat.  The young people who feel it is a bubble have to argue with wife, friends, family and look like idiots if they don't go along.  It is nothing like the stock market. 

If Canada is allowing HELOC's and all the attendant things that went on in the U.S., the pain will be massive.

The whole U.S. stock crash was caused by the housing mess.  (Whereas, the huge correction in the early 2000's was caused by a massive bubble in stocks in 1997-1999.)  The real estate mess in the U.S. practically cratered the world.

Sell Canadian banks?  Or, does the gov't underwrite?

I've sold the banks.  I've been early.

What's interesting is that CMHC insurance in force had been holding steady, and actually has been shrinking a little recently.  CMHC historically has been about a 10% ROE business (your banks thank you).  So someone has been willing to take in less premium to insure riskier than normal mortgages these days.  More evidence of irrational behavior.

The government effectively underwrites. Look at Tangible Common Equity / Assets and then Tangible Common Equity / Risk Weighted Assets in the Canadian banks and compare to JPM, BAC, etc.

Canadian banks have some of the thinnest direct capital levels of any financials on the planet. The question is if/when the Canadian economy faces a recession, will the banks be bailed out of mortgages at par by the government or will they have to raise capital. If a large hit to real estate happens nationally I think the public outcry would be that shareholders are no longer entitled to 20-30% ROE's on obscene amounts of leverage on tangible common.


BINGO.

The Canadian government has been gifting to the banks to such a degree that it is almost comical.

SharperDingaan

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Re: Garth Turner - Real Estate in Canada
« Reply #216 on: September 02, 2014, 12:53:15 PM »
Keep in mind ...

Minimum DP's have been increased, & maximum LTV's increased via legislation. With all borrowers now either meeting these thresholds, or having their bank repossess & force a sale - weaker hands have been forced out & bigger cushions against loss put in place; for everybody. Sure, if you're the one repossessed you aren't happy - too bad.

If you don't have the DP or income required, you cant afford it - get over it.
Find a cheaper house, earn more income, or get someone else to front more DP for you - you are not entitled. Unlike the US, you are also being deliberately shut out, for the protection of everybody.

Lot less risk ....

SD

nodnub

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Re: Garth Turner - Real Estate in Canada
« Reply #217 on: September 02, 2014, 11:53:09 PM »
Vancouver real estate has grown at 12% CAGR from 2000 onwards - that is almost 500% gain from the levels in 2000.

Amazing indeed!
Hi Shalab,

Are these numbers sourced from somewhere in this thread?   When I look at Vancouver price charts and crunch the numbers I don't see gains that high.


Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #218 on: September 04, 2014, 07:08:33 AM »
From tom's other thread, I thought this also belonged here:

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
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gary17

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Re: Garth Turner - Real Estate in Canada
« Reply #219 on: September 04, 2014, 07:27:10 AM »
I really think US is well positioned for a decade or more of growth.  As the planet population doubles.... I think Canada and US are the two developed countries with the infrastructure and capacity for growth.   I'm very bullish about the US!