Make a buck on Canadian housing bubble?

[Gnosis]

Here is a link to Mish's article/blog on the Max Keiser interview with Ms. Stoneleigh. Any chance to short the coming market collape, and if so how?

http://globaleconomicanalysis.blogspot.com/

Interview Snips

• Canadian banks are not as "bulletproof" as everyone thinks.
• When the housing bubble bursts there will be tremendous consequences to Canadian banking system.
• We are in a massive bubble and there will be an enormous comeuppance.
• Canada housing bubble currently peaking.
• When you are in a bubble, the psychology is such that you cannot see it for what it is. Talking to Canadians about the housing bubble is like talking to Americans in 2006. There is a tremendous sense of denial.
• People pay 50-70% of their income for mortgage costs in places like Vancouver, but it's not just Vancouver. Such things are absolutely characteristic of a bubble.
• Canada will play catch-up to the downside in the fairly near future.
• Ireland-like dynamics absolutely coming to Canada.
• There is also a tremendous commercial real estate problem that will affect Canadian banks.
• Canadian banks have also acted as reinsurers in the derivatives market for a number of extremely risky things. So in a number of cases "the bucks stops with the Canadian banks".
• Real estate prices will fall about 90% on average. Deflationary credit collapse coming.

[blazespinnaker]

Re: Make a buck on Canadian housing bubble?

Here is a link to Mish's article/blog on the Max Keiser interview with Ms. Stoneleigh. Any chance to short the coming market collape, and if so how?

http://globaleconomicanalysis.blogspot.com/

Interview Snips

You could try shorting MIC.to .. a mortgage insurer, similar to CMHC, but with a ticker.

[oddlots]

Re: Make a buck on Canadian housing bubble?

The piece relies too heavily to my mind on the bubble psychology argument. That'll always be there and it's a guidepost to nowhere. The question to my mind is what's the mechanism of the crash? Higher interest rates? Higher requirements of equity? Banks being taken down by the suggested "derivative" activities?

I hate the real estate mania. It's reduced many sensible, smart people I've known to smooth talking cold-fusion theorists.

But to get interested here I wanna know the vector of contagion and there's not enough detail here to provide that.

[Milton Kuo]

Re: Make a buck on Canadian housing bubble?

Housing prices are starting to fall in Canada. Could this be the start of a Canadian housing bubble crash?

Canadian October Home Prices Drop For Second Month

Dec. 29 (Bloomberg) -- Canadian house prices fell for a second month in October because of declines in Toronto and Calgary, the Teranet-National BankComposite House Price Index showed.

...
Housing is slowing after the government made mortgage rules more stringent and Bank of Canada Governor Mark Carney warned earlier this month that the proportion of Canadians who are in a stretched financial position “has grown significantly.” The central bank, which raised its benchmark lending rate three times to 1 percent this year, predicted in October that housing will cut 0.2 percentage point from growth in 2011, after adding 0.6 percentage point this year.

In addition to housing prices falling for two consecutive months in some Canadian markets, Canadians are becoming more indebted. Falling prices, higher lending rates, and greater debt burden sound like enough to trigger the end of the Canadian housing bubble. However, if that's not enough, here's one more condition:

Flaherty Says Banks Are Responsible for Reining In Lending


Dec. 23 (Bloomberg) -- Canadian Finance Minister Jim Flaherty says it’s up to commercial banks -- not government -- to rein in lending as household debt soars, countering comments by Toronto-Dominion Bank Chief Executive OfficerEdmund Clark.


“The primary responsibility for prudence in lending practices rests with the financial institutions,” Flaherty said in a Dec. 21 interview in Ottawa. “People also need to take responsibility for what they do and exercise common sense in terms of taking on debt.”
Clark said in a Globe and Mail interview published Dec. 16 that cutting Canada’s excessive household debt is a matter for the government rather than lenders, and would be best tackled through tighter rules on mortgages. No bank wants to lead the way in imposing stricter borrowing conditions for fear of losing customers to rivals, Clark, 63, told the newspaper.


“Banks are responsible for their own business practices and what I find odd from time to time is when a bank executive asks me to tighten lending rules,” Flaherty said. “It seems to me that’s the primary responsibility of the financial institutions and not the government.”
...
Flaherty, 60, said he expects interest rates to “go up over time,” which will bring higher mortgage costs.

“People have to make sure they can afford, in particular, their mortgage payments when interest rates rise,” Flaherty said.

Is Edmund Clark saying that even though the music is still playing, he doesn't want to get up and dance?

It's my understanding that Canadians do not have 30-year fixed rate mortgages as the U.S. does. If interest rates go up as Flaherty believes they will, the higher mortgage payments coupled with higher citizen indebtedness could spell trouble.

[Spartacus]

Re: Make a buck on Canadian housing bubble?

Are you certain harper & Carney cannot catch that falling knife again? They did it once. For whatever reason the measures "stuck" in Canada and (maybe for different reasons, maybe the same) in Australia but not in the UK, Ireland, Spain, the US.

bubbles can go on for a LONG TIME. (I've posted links to that article several times).

It feels much safer to short now than it was in 2008, but 3 years from now I might be typing "it feels much safer to short now, 2013, than it was in 2010.

Remember, the Internet bubble burst only 9 years ago. The next bubble happened a scant 6 years later in the US. I personally would have thought that impossible. But now that I know it's not, why is it not possible to reflate a bubble again and again, from peak to nosebleed peak to "I need oxygen to survive" peak?

All that said, I think this is the big POP coming up for Canada in 2011.

[Milton Kuo]

Re: Make a buck on Canadian housing bubble?

Are you certain harper & Carney cannot catch that falling knife again? They kid it once. For whatever reason the measures "stuck" in Canada and (maybe for different reasons, maybe the same) in Australia but not in the UK, Ireland, Spain, the US.

bubbles can go on for a LONG TIME.
It feels much safer to short now than it was in 2008, but 3 years from now I might be typing "it feels much safer to short now, 2013, than it was in 2010.

Having been properly chastened by Bernanke for daring to short "privileged" assets in 2008 and 2009, I am not certain of anything anymore when it comes to shorting FIRE economy institutions. If I had to, I would guess the Canadian housing bubble has another one or two years before things really get ugly.

Flaherty's talk about rates rising does suggest to me, though, that Canada is doing its "tug, tug, tug..." to try to engineer a soft landing for its housing bubble. I'm quite content to watch this play out without taking any positions. Who knows? Maybe Canada learned something from the U.S. housing bubble crash to postpone or avert a crash of their own.

[LargoWinch]

Re: Make a buck on Canadian housing bubble?

Are you certain harper & Carney cannot catch that falling knife again? They did it once. For whatever reason the measures "stuck" in Canada and (maybe for different reasons, maybe the same) in Australia but not in the UK, Ireland, Spain, the US.

bubbles can go on for a LONG TIME. (I've posted links to that article several times).

It feels much safer to short now than it was in 2008, but 3 years from now I might be typing "it feels much safer to short now, 2013, than it was in 2010.

Remember, the Internet bubble burst only 9 years ago. The next bubble happened a scant 6 years later in the US. I personally would have thought that impossible. But now that I know it's not, why is it not possible to reflate a bubble again and again, from peak to nosebleed peak to "I need oxygen to survive" peak?

All that said, I think this is the big POP coming up for Canada in 2011.

I agree and you know why I know we are in a bubble?

When people come from my hometown to visit me here in Hogtown they "mls.ca" my address to see how much the place is worth first!

I think the banks are safe however, thanks to CMHC.

[nero3]

Re: Make a buck on Canadian housing bubble?

I suspect the Canadian, Norwegian and Australian housing market are very similar.

I can give my observations to our market. The increase in prices is high when measured relative to the CPI, it's an adjustment to the lower interest rates. It was the same with the US market. The prices in 2005 made perfect sense in the US relative to the reduction in interest rates. Nobody have had the same level of critism to the stock market that is also very high on a CPI adjusted basis. I think the US housing market is very low relative to the fixed rate financing available (the fixed cost is low relative to the likely increased in rent that will be seen by renters in the future).

The number of units for sale is at levels that are very low at the moment here in our local market. That's bullish. It's at levels at the same or at a lower level than in 2006 when the market was at its best. In 2007 it was still good, a small correction was present in 2008 into mid 2009, then it have been strong again.

It's speculation from me, but I think the market is so strong now that it will not see any declines before 2012, but most likely not before 2013.

[Spartacus]

Re: Make a buck on Canadian housing bubble?

When people come from my hometown to visit me here in Hogtown they "mls.ca" my address to see how much the place is worth first!

It would never occur to me to do that ... maybe it just shows my disconnect from the mainstream. I've experienced something similar though.

My parents were (and are) SO incensed, SO PERSONALLY AFFRONTED that I'm renting ("throwing money away") they offered to buy me a condo.

It's my own words coming back to haunt me though, I've told them so many times housing prices will fall that it winds them up even more when they think prices are rising & their son is STILL RENTING !!!

[nero3]

Re: Make a buck on Canadian housing bubble?

It would never occur to me to do that ... maybe it just shows my disconnect from the mainstream. I've experienced something similar though.

My parents were (and are) SO incensed, SO PERSONALLY AFFRONTED that I'm renting ("throwing money away") they offered to buy me a condo.

It's my own words coming back to haunt me though, I've told them so many times housing prices will fall that it winds them up even more when they think prices are rising & their son is STILL RENTING !!!

I guess they have spent money doing things on their house, right? Everyone is doing it It's a huge part of the bubble.

[Spartacus]

Re: Make a buck on Canadian housing bubble?

I guess they have spent money doing things on their house, right? Everyone is doing it It's a huge part of the bubble.

When I'm there they want stuff done. And it must be done YESTERDAY.

When the tax incentives to get work done on the house were still available they tried to get some contractors to do a little, but there were too many big, high paying jobs and no contractors were interested. Good thing too, my dad's "relationships" with contractors have never ended well. never.

My dad does nothing on the house himself[0]. whenever he "fixes" stuff it usually works worse afterward. ; )

[0] but whenever I'm doing anything he knows I'm doing it wrong, he knows better ways to do it, and will inform me repeatedly "I know all about this stuff, I grew up on a farm". I can only surmise they they don't teach irony on farms.

[oddlots]

Re: Make a buck on Canadian housing bubble?

but whenever I'm doing anything he knows I'm doing it wrong, he knows better ways to do it, and will inform me repeatedly "I know all about this stuff, I grew up on a farm". I can only surmise they they don't teach irony on farms.

Classic. My father-in-law to a t. (He's from the depression-era prairie chapter, bless him.)

[Spartacus]

Re: Make a buck on Canadian housing bubble?

Classic. My father-in-law to a t. (He's from the depression-era prairie chapter, bless him.)

More classic than you know ... my dad grew up at the foot-hills of the Himalayas, east of Amritsar, North of Ludhiana.

Farms must be the same, the world over.

[Glenn Black]

Re: Make a buck on Canadian housing bubble?

A couple of ideas on how to win big on the drop:

• The house selling prices will be very sticky on the way down, as owners hang on against all hopes to find someone to buy at their dream price. You will have to wait to the very bottom when everybody has lost all hope of selling, then come in. In the mean time, you need to keep 100% cash or cash equivalents. As soon as someone gets foreclosed, buy the house for 5% of former value, then put previous owner back in as renter. They take care of it for you, and have right of first refusal to buy, or a rent to own, or outright sale.
• You do an annuity purchase, where you are paying out annuity monthly payment to former owner who needed to exit, paying in rapidly depreciating dollars, you get to keep the difference, plus renting it out in the interim in inflating dollars (or living in it yourself). Nice spread on both sides of the curve. Also works for duplex, or small multi-family rentals as previously recommended by itulip.
• Mortgage broker who finds white hat investors (ie. yourself ?) for people in desperate trouble. You get the fee for intro, plus a piece of the action (their remaining equity). They become your partner at fair terms, and need independent legal advice showing that the agreement is fair. If either party breaches the agreement, other party has shotgun clause to buy the other one out for $1.00. It may be 70% probability that they breach, less than 10% chance it would be you. Courts need to enforce agreement, and it needs to be squeaky clean to survive whining protests to the court by defaulting party. Not sure you can trust Courts to pull the trigger on your former partner who breached the deal.
• At the bottom of the market, buy up 2 to 4 houses that are neighbours to each other (side yard & rear yard, make it compact to minimize transmission losses), put in high efficient energy systems (eg. micro-turbine with CCHP, solar water heating, geothermal, etc.) that are shared by all houses, then rent houses out for $X/mo. plus energy charges at full retail rates (50% to 100% markup to what it costs you). Studies show that renters who pay their own utility bills use 30% less utilities than those where the landlord pays. Grid electricity is only 25% to 30% efficient. These systems are >80% efficient. No matter where energy prices go, you win.
• Short the banks. TD Canada Trust may have the worst exposure. They are currently at an all-time high stock price. Chrysler Financial will just add to their woes.

[LargoWinch]

Re: Make a buck on Canadian housing bubble?

In the mean time, you need to keep 100% cash or cash equivalents.

That is where I disagree with you Glenn, as Marc Carney is willing, able and stupid enough to prove you wrong.

Now if you would have said keep X% in PMs and/or Oil, then we would have been in agreement.