Author Topic: Garth Turner - Real Estate in Canada  (Read 512388 times)

nkp007

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Re: Garth Turner - Real Estate in Canada
« Reply #90 on: November 29, 2013, 11:53:53 AM »
Some great people to follow on twitter if you want to keep up with the day-to-day musings of Canadian real estate:

https://twitter.com/ac_eco
https://twitter.com/BenRabidoux
https://twitter.com/YVRHousing
https://twitter.com/MikeFotiou


Mark Jr.

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Re: Garth Turner - Real Estate in Canada
« Reply #91 on: December 03, 2013, 11:19:44 AM »
Been following Garth Turner a long time, met him in person a couple times, good guy, fabulous writer.

I think he's right about housing but he then goes on to make some recommendations which I find puzzling:

He eschews savings for the most part and advocates taking out credit lines against your home to invest in things like equity indexes and bank prefs.

Yet, if interest rates have nowhere to go but up, and housing values have nowhere to go but down, won't this eventually squeeze somebody who follows this advice from both ends?

  • Your borrowing costs go up as interest rates rise
  • Rising interest rates typically dampen stock market returns
  • Your collateral (your house) is losing value
  • Bank shares in particular would come under pressure in a real estate bust, the prefs too I would think

But when I asked him about this in the comments of his blog once he just gave a one word retort like "*groan* or something like that, as in "obviously you're too stupid to understand so I won't bother explaining why I'm right" sorta deal.

Martian

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Re: Garth Turner - Real Estate in Canada
« Reply #92 on: December 03, 2013, 11:35:26 AM »
Been following Garth Turner a long time, met him in person a couple times, good guy, fabulous writer.

I think he's right about housing but he then goes on to make some recommendations which I find puzzling:

He eschews savings for the most part and advocates taking out credit lines against your home to invest in things like equity indexes and bank prefs.

Yet, if interest rates have nowhere to go but up, and housing values have nowhere to go but down, won't this eventually squeeze somebody who follows this advice from both ends?

  • Your borrowing costs go up as interest rates rise
  • Rising interest rates typically dampen stock market returns
  • Your collateral (your house) is losing value
  • Bank shares in particular would come under pressure in a real estate bust, the prefs too I would think

But when I asked him about this in the comments of his blog once he just gave a one word retort like "*groan* or something like that, as in "obviously you're too stupid to understand so I won't bother explaining why I'm right" sorta deal.

I don't think he advises to take home equity loan and invest.  He says that lot of people have their savings in low interest paying accounts that have negative earnings after inflation. He wants them to put it into ETFs and bank prefs whose returns are better. He also does not want people to have an emergency fund which earns nothing. He says incase of emergency you can use the credit card/home equity loan for the time being and sell some of your investments that are fully liquid to pay it back.

ajc

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Re: Garth Turner - Real Estate in Canada
« Reply #93 on: December 03, 2013, 02:58:13 PM »
Q&A with Vijai Mohan, the man who's shorting Canada's banks

Recently, The Globe and Mail ran a story about Vijai Mohan, a U.S. hedge fund manager who has made an all-in bet against Canada.

The founder of a small San Francisco-based hedge fund called Hyphen Partners LP has staked 95 per cent of his investors’ assets on a wager that the country’s housing market and banking sector are about to come apart at the seams. Mr. Mohan has amassed large short positions on Canadian bank shares and the loonie, betting their values will fall sharply.

Vijai joined Globe business reporter Sean Silcoff and business community editor Dianne Nice for an online chat, and took your questions about the risks he sees in Canadian investments.

You can read a transcript from the discussion below....

http://www.theglobeandmail.com/globe-investor/investor-community/live-chat-with-vijai-mohan-the-man-whos-shorting-canadas-banks/article11731134/?ss=1

Liberty

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Re: Garth Turner - Real Estate in Canada
« Reply #94 on: December 03, 2013, 05:11:14 PM »
Thanks ajc. I came here to post that but you beat me to it. Good read. Nothing totally new, but well argued. The argument about put-backs to the banks from CHMC is particularly interesting, though it's hard to know how that would play out.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

no_free_lunch

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Re: Garth Turner - Real Estate in Canada
« Reply #95 on: December 03, 2013, 05:38:14 PM »
I have heard it prophesized for years.  We'll see if this comes to pass.  It seems inevitable but the timing.. very difficult to pick.

Quote
Prior to the release of the OSFI B20 regulations, my research indicates that one could a) present self-employment income using self-reported income with no stringent background checks to prove that indeed the source of income is valid, b) enter into a real estate transaction without a physical appraisal, and also c) enter into a 100% loan to value mortgage - all simultaneously qualifying for a CMHC insured mortgage product.

I can vouch for b & c.  That was very, very common.  I have even heard of excess of 100%.  Not sure about point a.

The one thing that concerns me about housing in Canada is the prevalence of 5 year mortgages.   In the US, it seems that they are fully amortized over 15 or 30 years, so no interest rate risk.  If interest rates ever rise in Canada, watch out.  It is not just new buyers who are going to be hurting.

racemize

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Re: Garth Turner - Real Estate in Canada
« Reply #96 on: December 03, 2013, 06:02:09 PM »
I have heard it prophesized for years.  We'll see if this comes to pass.  It seems inevitable but the timing.. very difficult to pick.

Quote
Prior to the release of the OSFI B20 regulations, my research indicates that one could a) present self-employment income using self-reported income with no stringent background checks to prove that indeed the source of income is valid, b) enter into a real estate transaction without a physical appraisal, and also c) enter into a 100% loan to value mortgage - all simultaneously qualifying for a CMHC insured mortgage product.

I can vouch for b & c.  That was very, very common.  I have even heard of excess of 100%.  Not sure about point a.

The one thing that concerns me about housing in Canada is the prevalence of 5 year mortgages.   In the US, it seems that they are fully amortized over 15 or 30 years, so no interest rate risk.  If interest rates ever rise in Canada, watch out.  It is not just new buyers who are going to be hurting.

well that certainly sounds frightening.

enoch01

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Re: Garth Turner - Real Estate in Canada
« Reply #97 on: December 03, 2013, 06:03:19 PM »
Thanks ajc. I came here to post that but you beat me to it. Good read. Nothing totally new, but well argued. The argument about put-backs to the banks from CHMC is particularly interesting, though it's hard to know how that would play out.

I'm betting it won't play out with CMHC rolling over and the banks not settling for some amount.

wisdom

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Re: Garth Turner - Real Estate in Canada
« Reply #98 on: December 03, 2013, 06:06:33 PM »
a) was prevalent in Vancouver prior to GFC. Stated income and equity programs (asset based lending) were common. No proof of income was required for either option.

In addition, certain first nations groups to whom regulations did not apply were offering 100% financing with no proof of income.

Brokers and bank lenders have been beating the system:
Most banks do not report mortgages on credit bureaus in Canada. From what I understand it has been common practice amongst brokers and lenders to educate their clients not to include other properties owned but financed at other institutions so that debt servicing is within guidelines. There is no way to know unless advised by the client.

This is why individuals who work the system borrow from banks and avoid HELOC's as those get reported.

Mortgages under corporations do not get reported on bureaus either. The system is full of holes and there will be consequences in Vancouver as the system has been exploited to an extreme. Everyone has chosen to look away as there was so much money to be made.

Why do you think individuals have been able to buy houses when the average house price is at 10x average household income.
« Last Edit: December 03, 2013, 06:12:21 PM by wisdom »

racemize

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Re: Garth Turner - Real Estate in Canada
« Reply #99 on: December 04, 2013, 09:24:25 AM »
Horizon Kinetics commentary on Canadian REITs.  No real mention of the danger of housing prices falling--I presume that is an issue for REITs?  (I've always ignored them as they have seemed risky to me, but don't know much of the mechanics).

http://www.horizonkinetics.com/docs/December_Commentary_Canadian_REIT.pdf