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cdr108
Senior Member
the article:
Canada Losing Debt Halo as Property Peaks Under Carney
By Jacqueline Thorpe, Theophilos Argitis & Katia Dmitrieva - Feb 27, 2013 12:01 AM ET
Herbert Crockett called Cairo, Geneva and New Delhi home in his four decades as a human resources executive with the World Health Organization. The Prince Edward Island native invested closer to his roots in 2005.
With Toronto on the verge of what turned into a colossal building spree, the 75-year-old retiree bought a C$904,000 ($878,000) one-bedroom suite in the Trump International Hotel & Tower. Eight years later, the 65-story skyscraper is complete, exuding Manhattan-style glamour.
For Crockett, fellow investors and Canadians alike, the glow is fading as home sales tumble, Bloomberg Markets magazine will report in its April issue. They say they’re worried that Canada’s debt-fueled expansion will stall before a global recovery can revive exports -- a slowdown that would blemish Bank of Canada Governor Mark Carney’s record just as he begins his new job as head of the Bank of England on July 1.
“If the city is any indication of what’s going on in the country, it’s over-reliant on its housing sector,” Crockett says, pointing out a window of a downtown coffee shop to dozens of cranes swinging across the skyline. “I’m afraid of a condo crash, and then what will happen to all the investments?”
Toronto is awash in real estate. There were 144 skyscrapers under construction in late February, more than in any other city in the world, according to SkyscraperPage.com. Proposals for new condos reached 253,768 units at the end of the fourth quarter, up 10 percent from a year earlier, Toronto-based research firm Urbanation Inc. says. Four luxury hotels, each featuring condos, have opened in the past two years.
Gehry Towers
The projects keep coming. Frank Gehry, architect of the landmark Guggenheim Museum Bilbao in Spain, plans three towers. The highest, at 85 floors, would be North America’s tallest residential building.
Crockett, who lives in Crozet, France, says he’s losing C$7,000 a month amid the glut. He says his Trump suite, which guests rent through the hotel reservation system, is occupied about a quarter of the time. He’s suing Donald Trump and the developers for C$2.9 million for misrepresenting investment returns. About two dozen other buyers have brought similar cases.
Crockett says in his lawsuit that a presentation by developer Talon International Development Inc., referred to in court documents, put returns as high as 27 percent a year and that the company wasn’t transparent about room fees and mortgage financing. Crockett adds that after he bought the suite, Talon declined to answer questions about his investment.
Economy Stalling
Val Levitan, chief executive officer of closely held Talon, denies the allegations, dismissing them as buyer’s remorse. He says sales documents outline risks to investing in a hotel suite. Alan Garten, personal legal counsel for New York-based Trump Organization Inc., says Donald Trump wasn’t involved in selling the properties, calling the allegations “completely without merit.”
The weakening property market is just one sign that Canada’s economy, which everyone from International Monetary Fund Managing Director Christine Lagarde to Carney himself has touted as a model of stability, is stalling.
As recently as September, the World Economic Forum ranked Canada’s banking system the world’s soundest for the fifth straight year. Canada’s bank stocks never fell as far as their U.S. counterparts during the financial crisis, with the Standard & Poor’s/TSX Composite Commercial Banks Industry Index (STCBNK) first surpassing its 2007 high in early 2011 and setting a record on Feb. 20 this year.
‘The Best’
Such performances likely helped Carney, 47, land his new post. British Chancellor of the Exchequer George Osborne called him “quite simply the best, most-experienced and most-qualified person in the world to do the job” in the surprise Nov. 26 announcement.
Now, as the former Goldman Sachs Group Inc. banker prepares to cross the Atlantic, Canada’s households are burdened with record debt, and third-quarter growth, at 0.6 percent, was the lowest in a year. Canada is scheduled to report fourth-quarter gross domestic product on Friday, with economists surveyed by Bloomberg News forecasting no change in growth. Moody’s Investors Service weighed in on Jan. 28. It downgraded six banks the WEF had lauded, saying debt and soaring home prices have left Canadians vulnerable to more bad news.
While Canada may get stellar marks for navigating the global credit crisis, it did so with a borrowing binge, says Benjamin Tal, deputy chief economist at the investment-banking unit of Canadian Imperial Bank of Commerce.
‘Payback Time’
“We basically borrowed our way out of this recession,” Tal says. “Now, it’s payback time. We will be in for a period of long, slow growth.”
Canada’s property blitz is winding down just as U.S. housing perks up. Construction of new Canadian homes plunged 19 percent in January from December to the lowest number since the end of 2009; sales of existing homes fell 8.8 percent from a year earlier. Toronto suffered a 36 percent decline in new condo sales in 2012 from 2011; resales dropped 10 percent, the first annual decline since 2008, Urbanation says.
Home prices are for the most part still rising on average in big cities -- except in Vancouver, where they fell 8 percent from their peak in May 2011 through January. In contrast, sales of new and previously owned U.S. properties rose 9.9 percent last year, the biggest annual gain since 1998.
Mortgage Changes
Hoda Seraji is experiencing Vancouver’s housing slowdown firsthand. A real estate agent, she took her own family’s two- story house in Canada’s third-largest city off the market after failing to get a single bite for the C$2.39 million home overlooking the Pacific. Cutting the price for the five-bedroom, four-bathroom residence didn’t help.
“Buyers are very skeptical, very hesitant because they think prices may go down,” she says.
Seraji blames fading interest from foreign investors, especially in China. Changes to Canada’s mortgage rules designed to cool the market have accelerated the sales drop, she says.
Finance Minister Jim Flaherty announced new regulations on home loans for the fourth time in four years in June, reducing the maximum amortization period on mortgages the government insures to 25 years from 30 years. It had been as high as 40 years in 2008.
Both Flaherty and Carney have campaigned against the perils of household debt, with Carney warning in June 2011 that valuations in some markets were reaching “severely unaffordable” levels.
Taxpayer Liability
Until the government’s latest tightening, however, Canadians weren’t listening. Carney slashed benchmark interest rates more than four percentage points to 0.25 percent during the recession, pushing five-year mortgage rates to less than 3 percent. That helped Canadians enjoy the lowest borrowing costs in the Group of 20 nations outside Europe, Japan and the U.S. Flaherty increased the stimulus with guarantees and tax credits for homeowners.
Encouraged by cheap money, Canadians couldn’t resist the housing market. The average price of homes sold jumped 82 percent during the 10 years through January, rising more than 30 percent from January 2009 alone, according to the Canadian Real Estate Association.
The value of mortgages insured by the government’s housing agency swelled 98 percent to $575.8 billion at the end of September from the end of 2006, foisting a growing liability onto taxpayers. Meantime, Canadians became more indebted than Americans in 2011. The ratio of household debt to disposable income has continued to rise, hitting a record 165 percent in the third quarter of 2012, according to Statistics Canada.
Official Hectoring
The mixed message of borrow but save isn’t lost on economists.
“It did seem a little unusual to have every policy maker in Ottawa hectoring Canadians about their excessive debt levels and yet the economic incentive for the average Canadian was completely slanted to taking on debt and not saving,” says Douglas Porter, chief economist at Bank of Montreal.
“The realist in me would admit it was the only tool the Bank of Canada had. The reality was, they really could not lift interest rates.”
With global rates so low, any independent increase would set off a surge in the Canadian dollar. Carney dampened expectations for higher borrowing costs at the end of January, saying rate increases were “less imminent” because of weaker- than-anticipated business investment and exports. He’ll be more than 18 months into his new job before his successor, who has yet to be named, raises borrowing costs again, some economists predict.
Exports Struggle
There’s little evidence exports will help Canada offset any drag from its housing-sparked debt addiction. In the third quarter, outbound shipments, including oil, plunged 7.8 percent from the second quarter and had dropped 8 percentage points to 30 percent of GDP since 2000.
Meantime, the share of GDP linked to housing, including construction and renovation, soared to more than 20 percent. A similar U.S. measure peaked at 18 percent in 2005. Canada’s share of construction jobs in total employment was 7.3 percent in January, above the 4.3 percent in the U.S.
“This heavy reliance is not healthy,” CIBC’s Tal says. “I expect to see some softening.”
Many of Canada’s construction workers have been toiling on Toronto’s condos. Lou Rivera wonders who will live in them. Rivera, 55, found out in November that property owner Mondelez Canada Inc., a unit of Mondelez International Inc. (MDLZ) will close this year the Mr. Christie’s bakery where he has worked as a production mechanic for 14 years and sell the land. The factory, which employs 550 people to pump out animal crackers and other snacks, may be replaced with 27 condo towers, documents filed with the city’s planning board say.
‘Big Correction’
“What will happen, 550 people will be jobless,” Rivera says in the plant’s snow-covered parking lot, which already is hemmed in by new condo developments named Eau du Soleil and Ocean Club. “Will they work at the condos? No. Will they live in them? No.”
Steve Hennessey, a sales representative for Right at Home Realty Inc., Canada’s largest independent real estate brokerage, predicts Toronto home prices will tumble 20 percent during the next two years.
“We’re due for a big correction,” he says.
David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. in Toronto, wonders what would trigger a slump. He expects rates to stay low.
Missing Ingredients
“I don’t think the Bank of Canada is going to have a smoking gun to raise interest rates,” says Rosenberg, who, as chief economist for North America at Merrill Lynch & Co. in New York from 2002 to 2009, was among the first economists to predict a U.S. housing collapse.
Canada is also missing ingredients that made the U.S. market so toxic -- subprime borrowers and banks that lent with little diligence. With about 62 percent of mortgages issued by Canadian banks insured by the federal government, the nation’s six big banks are more sheltered from delinquencies than American counterparts.
What may push Canadian housing over the edge, however, is another slowdown in the global economy. This could further weigh on exports and jobs, prompting the country’s maxed-out consumers to cool their love affair with real estate.
“As an economist working for a Canadian bank, I can’t go into a client meeting and have someone not ask me about housing in Canada,” says Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC, Royal Bank of Canada’s investment-banking unit, in New York. “For U.S. investors, they are still a little gun-shy about what happened in the U.S., and I think they worry the same fate will happen to Canada.”
Timely Escape
While Crockett’s case against the Trump hotel’s developers winds through the courts and the once-hot housing market sputters, Carney will be facing new hurdles at the Bank of England. Jens Larsen, chief European economist at RBC Capital Markets in London, says Carney is likely to come up short.
“He had tremendous press, and it was a huge coup for the chancellor to be able to land him,” Larsen says. “You look at the expectations, and you look at the challenge he has in front of him, and some disappointment is likely.”
There are already signs of how difficult Carney’s job may be. Because Britain’s economy shrank in the fourth quarter, he could find himself struggling with fallout from an unprecedented triple-dip recession. Yet, if Canada’s home sales keep sliding and household debt keeps rising, the banker who helped orchestrate his nation’s vaunted growth and stability may consider his trans-Atlantic move a timely escape.
Canada Losing Debt Halo as Property Peaks Under Carney
By Jacqueline Thorpe, Theophilos Argitis & Katia Dmitrieva - Feb 27, 2013 12:01 AM ET
Herbert Crockett called Cairo, Geneva and New Delhi home in his four decades as a human resources executive with the World Health Organization. The Prince Edward Island native invested closer to his roots in 2005.
With Toronto on the verge of what turned into a colossal building spree, the 75-year-old retiree bought a C$904,000 ($878,000) one-bedroom suite in the Trump International Hotel & Tower. Eight years later, the 65-story skyscraper is complete, exuding Manhattan-style glamour.
For Crockett, fellow investors and Canadians alike, the glow is fading as home sales tumble, Bloomberg Markets magazine will report in its April issue. They say they’re worried that Canada’s debt-fueled expansion will stall before a global recovery can revive exports -- a slowdown that would blemish Bank of Canada Governor Mark Carney’s record just as he begins his new job as head of the Bank of England on July 1.
“If the city is any indication of what’s going on in the country, it’s over-reliant on its housing sector,” Crockett says, pointing out a window of a downtown coffee shop to dozens of cranes swinging across the skyline. “I’m afraid of a condo crash, and then what will happen to all the investments?”
Toronto is awash in real estate. There were 144 skyscrapers under construction in late February, more than in any other city in the world, according to SkyscraperPage.com. Proposals for new condos reached 253,768 units at the end of the fourth quarter, up 10 percent from a year earlier, Toronto-based research firm Urbanation Inc. says. Four luxury hotels, each featuring condos, have opened in the past two years.
Gehry Towers
The projects keep coming. Frank Gehry, architect of the landmark Guggenheim Museum Bilbao in Spain, plans three towers. The highest, at 85 floors, would be North America’s tallest residential building.
Crockett, who lives in Crozet, France, says he’s losing C$7,000 a month amid the glut. He says his Trump suite, which guests rent through the hotel reservation system, is occupied about a quarter of the time. He’s suing Donald Trump and the developers for C$2.9 million for misrepresenting investment returns. About two dozen other buyers have brought similar cases.
Crockett says in his lawsuit that a presentation by developer Talon International Development Inc., referred to in court documents, put returns as high as 27 percent a year and that the company wasn’t transparent about room fees and mortgage financing. Crockett adds that after he bought the suite, Talon declined to answer questions about his investment.
Economy Stalling
Val Levitan, chief executive officer of closely held Talon, denies the allegations, dismissing them as buyer’s remorse. He says sales documents outline risks to investing in a hotel suite. Alan Garten, personal legal counsel for New York-based Trump Organization Inc., says Donald Trump wasn’t involved in selling the properties, calling the allegations “completely without merit.”
The weakening property market is just one sign that Canada’s economy, which everyone from International Monetary Fund Managing Director Christine Lagarde to Carney himself has touted as a model of stability, is stalling.
As recently as September, the World Economic Forum ranked Canada’s banking system the world’s soundest for the fifth straight year. Canada’s bank stocks never fell as far as their U.S. counterparts during the financial crisis, with the Standard & Poor’s/TSX Composite Commercial Banks Industry Index (STCBNK) first surpassing its 2007 high in early 2011 and setting a record on Feb. 20 this year.
‘The Best’
Such performances likely helped Carney, 47, land his new post. British Chancellor of the Exchequer George Osborne called him “quite simply the best, most-experienced and most-qualified person in the world to do the job” in the surprise Nov. 26 announcement.
Now, as the former Goldman Sachs Group Inc. banker prepares to cross the Atlantic, Canada’s households are burdened with record debt, and third-quarter growth, at 0.6 percent, was the lowest in a year. Canada is scheduled to report fourth-quarter gross domestic product on Friday, with economists surveyed by Bloomberg News forecasting no change in growth. Moody’s Investors Service weighed in on Jan. 28. It downgraded six banks the WEF had lauded, saying debt and soaring home prices have left Canadians vulnerable to more bad news.
While Canada may get stellar marks for navigating the global credit crisis, it did so with a borrowing binge, says Benjamin Tal, deputy chief economist at the investment-banking unit of Canadian Imperial Bank of Commerce.
‘Payback Time’
“We basically borrowed our way out of this recession,” Tal says. “Now, it’s payback time. We will be in for a period of long, slow growth.”
Canada’s property blitz is winding down just as U.S. housing perks up. Construction of new Canadian homes plunged 19 percent in January from December to the lowest number since the end of 2009; sales of existing homes fell 8.8 percent from a year earlier. Toronto suffered a 36 percent decline in new condo sales in 2012 from 2011; resales dropped 10 percent, the first annual decline since 2008, Urbanation says.
Home prices are for the most part still rising on average in big cities -- except in Vancouver, where they fell 8 percent from their peak in May 2011 through January. In contrast, sales of new and previously owned U.S. properties rose 9.9 percent last year, the biggest annual gain since 1998.
Mortgage Changes
Hoda Seraji is experiencing Vancouver’s housing slowdown firsthand. A real estate agent, she took her own family’s two- story house in Canada’s third-largest city off the market after failing to get a single bite for the C$2.39 million home overlooking the Pacific. Cutting the price for the five-bedroom, four-bathroom residence didn’t help.
“Buyers are very skeptical, very hesitant because they think prices may go down,” she says.
Seraji blames fading interest from foreign investors, especially in China. Changes to Canada’s mortgage rules designed to cool the market have accelerated the sales drop, she says.
Finance Minister Jim Flaherty announced new regulations on home loans for the fourth time in four years in June, reducing the maximum amortization period on mortgages the government insures to 25 years from 30 years. It had been as high as 40 years in 2008.
Both Flaherty and Carney have campaigned against the perils of household debt, with Carney warning in June 2011 that valuations in some markets were reaching “severely unaffordable” levels.
Taxpayer Liability
Until the government’s latest tightening, however, Canadians weren’t listening. Carney slashed benchmark interest rates more than four percentage points to 0.25 percent during the recession, pushing five-year mortgage rates to less than 3 percent. That helped Canadians enjoy the lowest borrowing costs in the Group of 20 nations outside Europe, Japan and the U.S. Flaherty increased the stimulus with guarantees and tax credits for homeowners.
Encouraged by cheap money, Canadians couldn’t resist the housing market. The average price of homes sold jumped 82 percent during the 10 years through January, rising more than 30 percent from January 2009 alone, according to the Canadian Real Estate Association.
The value of mortgages insured by the government’s housing agency swelled 98 percent to $575.8 billion at the end of September from the end of 2006, foisting a growing liability onto taxpayers. Meantime, Canadians became more indebted than Americans in 2011. The ratio of household debt to disposable income has continued to rise, hitting a record 165 percent in the third quarter of 2012, according to Statistics Canada.
Official Hectoring
The mixed message of borrow but save isn’t lost on economists.
“It did seem a little unusual to have every policy maker in Ottawa hectoring Canadians about their excessive debt levels and yet the economic incentive for the average Canadian was completely slanted to taking on debt and not saving,” says Douglas Porter, chief economist at Bank of Montreal.
“The realist in me would admit it was the only tool the Bank of Canada had. The reality was, they really could not lift interest rates.”
With global rates so low, any independent increase would set off a surge in the Canadian dollar. Carney dampened expectations for higher borrowing costs at the end of January, saying rate increases were “less imminent” because of weaker- than-anticipated business investment and exports. He’ll be more than 18 months into his new job before his successor, who has yet to be named, raises borrowing costs again, some economists predict.
Exports Struggle
There’s little evidence exports will help Canada offset any drag from its housing-sparked debt addiction. In the third quarter, outbound shipments, including oil, plunged 7.8 percent from the second quarter and had dropped 8 percentage points to 30 percent of GDP since 2000.
Meantime, the share of GDP linked to housing, including construction and renovation, soared to more than 20 percent. A similar U.S. measure peaked at 18 percent in 2005. Canada’s share of construction jobs in total employment was 7.3 percent in January, above the 4.3 percent in the U.S.
“This heavy reliance is not healthy,” CIBC’s Tal says. “I expect to see some softening.”
Many of Canada’s construction workers have been toiling on Toronto’s condos. Lou Rivera wonders who will live in them. Rivera, 55, found out in November that property owner Mondelez Canada Inc., a unit of Mondelez International Inc. (MDLZ) will close this year the Mr. Christie’s bakery where he has worked as a production mechanic for 14 years and sell the land. The factory, which employs 550 people to pump out animal crackers and other snacks, may be replaced with 27 condo towers, documents filed with the city’s planning board say.
‘Big Correction’
“What will happen, 550 people will be jobless,” Rivera says in the plant’s snow-covered parking lot, which already is hemmed in by new condo developments named Eau du Soleil and Ocean Club. “Will they work at the condos? No. Will they live in them? No.”
Steve Hennessey, a sales representative for Right at Home Realty Inc., Canada’s largest independent real estate brokerage, predicts Toronto home prices will tumble 20 percent during the next two years.
“We’re due for a big correction,” he says.
David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc. in Toronto, wonders what would trigger a slump. He expects rates to stay low.
Missing Ingredients
“I don’t think the Bank of Canada is going to have a smoking gun to raise interest rates,” says Rosenberg, who, as chief economist for North America at Merrill Lynch & Co. in New York from 2002 to 2009, was among the first economists to predict a U.S. housing collapse.
Canada is also missing ingredients that made the U.S. market so toxic -- subprime borrowers and banks that lent with little diligence. With about 62 percent of mortgages issued by Canadian banks insured by the federal government, the nation’s six big banks are more sheltered from delinquencies than American counterparts.
What may push Canadian housing over the edge, however, is another slowdown in the global economy. This could further weigh on exports and jobs, prompting the country’s maxed-out consumers to cool their love affair with real estate.
“As an economist working for a Canadian bank, I can’t go into a client meeting and have someone not ask me about housing in Canada,” says Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC, Royal Bank of Canada’s investment-banking unit, in New York. “For U.S. investors, they are still a little gun-shy about what happened in the U.S., and I think they worry the same fate will happen to Canada.”
Timely Escape
While Crockett’s case against the Trump hotel’s developers winds through the courts and the once-hot housing market sputters, Carney will be facing new hurdles at the Bank of England. Jens Larsen, chief European economist at RBC Capital Markets in London, says Carney is likely to come up short.
“He had tremendous press, and it was a huge coup for the chancellor to be able to land him,” Larsen says. “You look at the expectations, and you look at the challenge he has in front of him, and some disappointment is likely.”
There are already signs of how difficult Carney’s job may be. Because Britain’s economy shrank in the fourth quarter, he could find himself struggling with fallout from an unprecedented triple-dip recession. Yet, if Canada’s home sales keep sliding and household debt keeps rising, the banker who helped orchestrate his nation’s vaunted growth and stability may consider his trans-Atlantic move a timely escape.
js97
Senior Member
Interesting the Realtor says the prices will tumble 20% over the next 2 years. I was looking at the late 80's/90's prices when our interest rates peaked at 18% and even then it took 4 years for prices to come down 25%. Considering interest rates are going no where, I would surmise a 20% crash is not happening. Payments are not increasing, and there is still 'tempered' demand. Unless there is some sort of external shock (massive lay-offs, credit crunch/lack of financing) I think we'll see a plateau or a very gentle reduction of 5% over the next five years.
Yes, some of those speculative units like the trump/Shangrila etc may see a 20% hair cut if those investors that bought pre-construction (5 years ago) are willing to sell at the prices they bought. If it's that type of 'crash', and limited to those speculative buildings, then I think our economy will be more than strong enough to absorb those anomalies.
Yes, some of those speculative units like the trump/Shangrila etc may see a 20% hair cut if those investors that bought pre-construction (5 years ago) are willing to sell at the prices they bought. If it's that type of 'crash', and limited to those speculative buildings, then I think our economy will be more than strong enough to absorb those anomalies.
Last edited:
daveto
Active Member
I agree. I don't think 20% in two years is realistic. Anything beyond 5% a year is a stretch
Riverdale Rink Rat
Senior Member
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I saw this on Bloomie and the lede is truly a reach. Trump was a get-rich-quick scheme and the punters got burned. Anyone with a lick of sense would have looked at 1 King and backed away. We might have issues with housing, but Trump was/is a project-specific debacle.
marsh
Active Member
CMHC seeking to hide foreclosure information from home buyers
Garry Marr | Feb 27, 2013 6:00 AM ET | Last Updated: Feb 27, 2013 3:58 PM ET
More from Garry Marr | @DustyWallet
National Post
Some question whether CMHC is just getting things in order in case home prices collapse and they are Canada Mortgage and Housing Corp. has been asking realtors for months to keep consumers in the dark about whether the properties it sells are part of a foreclosure, according to a document obtained by The Financial Post.
Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government, the Financial Post has learned.
A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its “bulk or portfolio insurance” after third-quarter results showed the agency had committed to back $541-billion in mortgages.
The move, said to be part of CMHC national policy, upset Quebec realtors who refused to play ball, worried about an ethical breach.
The Quebec Federation of Real Estate Boards, which oversees the 12 real estate boards in the province, says it challenged CMHC about the change requiring them not to report on a detail sheet that properties for sale were part of a foreclosure, despite the fact that information is considered mandatory when loaded by brokers onto the selling system of local boards.
“Because the repossession field is currently a mandatory field in the brokerage system you have no choice by to indicate ‘no’, which goes against ethical rules stipulating that real estate brokers are obliged to publish information that is truthful and verified,” the group said in a statement to members.
The two sides resolved the issue by making it no longer mandatory to reflect the foreclosure status of a home, based on the seller’s instructions.
The issue raises a larger concern about why CMHC is acting now to tighten up its practices for foreclosures.
Some real estate industry insiders wonder whether the Crown corporation is simply being prudent, not letting potential buyers know a property is part of a distressed sell so they can put in a low-ball bid.
Others question whether the Crown corporation is just getting things in order in case home prices collapse and they are forced to sell properties that are backed by government insurance.
I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books
In Canada, anyone buying a home with less than 20% down and borrowing money from a financial institution covered by the Bank Act must get mortgage default insurance. CMHC, which controls about 75% of the insurance market, is ultimately backed 100% by the federal government.
“Look at what is going on right now in financial institutions and everybody is ratcheting up their loan-loss provisions,” said Ben Rabidoux, a Canadian analyst for California-based Hanson Advisors, a market research firm whose clients are institutional investors. “Everybody expects loan losses to rise. I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books.”
By limiting the information on whether a property is part of foreclosure, the Crown corporation would potentially avoid a situation in which a buyer knows it has to sell. In the United States, foreclosed properties have sold at huge discounts.
“CMHC is trying to get the better price,” said Don Lawby, chief executive of Century 21 Canada, who had not heard of the new policy. “You know something is repossessed, you low-ball the offer. You know you are not dealing with a homeowner but an investor.”
Based on current market conditions, CMHC doesn’t appear to be looking at a huge uptick in foreclosures. The latest data from the Canadian Bankers Association shows only .32% of mortgage holders are in arrears and number is actually on the decline.
A CMHC spokesperson was not available for comment.
Some also question whether the strategy would amount to much because although brokers may not load the foreclosure information onto a public site, it would become readily apparent to any buyer it was a repossession when CMHC is revealed to be the seller.
The Quebec Federation of Real Estate Boards, while leaving brokers the option about publishing the information, indicated brokers will ultimately tell people CMHC is behind the sale when asked.
“The broker has to give the information once anyone is interested in that property,” said Chantal de Repentigny, assistant director of media relations with the federation. “The only thing that has changed is they have the choice to do it on the listing.”
Garry Marr | Feb 27, 2013 6:00 AM ET | Last Updated: Feb 27, 2013 3:58 PM ET
More from Garry Marr | @DustyWallet
National Post
Some question whether CMHC is just getting things in order in case home prices collapse and they are Canada Mortgage and Housing Corp. has been asking realtors for months to keep consumers in the dark about whether the properties it sells are part of a foreclosure, according to a document obtained by The Financial Post.
Canada Mortgage and Housing Corp. is cutting back on mortgages it insures as the Crown corporation edges closer to a $600-billion cap imposed on it by the federal government, the Financial Post has learned.
A CMHC spokesman confirmed that it had approached a number of lenders at the end of 2011 about reducing its “bulk or portfolio insurance” after third-quarter results showed the agency had committed to back $541-billion in mortgages.
The move, said to be part of CMHC national policy, upset Quebec realtors who refused to play ball, worried about an ethical breach.
The Quebec Federation of Real Estate Boards, which oversees the 12 real estate boards in the province, says it challenged CMHC about the change requiring them not to report on a detail sheet that properties for sale were part of a foreclosure, despite the fact that information is considered mandatory when loaded by brokers onto the selling system of local boards.
“Because the repossession field is currently a mandatory field in the brokerage system you have no choice by to indicate ‘no’, which goes against ethical rules stipulating that real estate brokers are obliged to publish information that is truthful and verified,” the group said in a statement to members.
The two sides resolved the issue by making it no longer mandatory to reflect the foreclosure status of a home, based on the seller’s instructions.
The issue raises a larger concern about why CMHC is acting now to tighten up its practices for foreclosures.
Some real estate industry insiders wonder whether the Crown corporation is simply being prudent, not letting potential buyers know a property is part of a distressed sell so they can put in a low-ball bid.
Others question whether the Crown corporation is just getting things in order in case home prices collapse and they are forced to sell properties that are backed by government insurance.
I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books
In Canada, anyone buying a home with less than 20% down and borrowing money from a financial institution covered by the Bank Act must get mortgage default insurance. CMHC, which controls about 75% of the insurance market, is ultimately backed 100% by the federal government.
“Look at what is going on right now in financial institutions and everybody is ratcheting up their loan-loss provisions,” said Ben Rabidoux, a Canadian analyst for California-based Hanson Advisors, a market research firm whose clients are institutional investors. “Everybody expects loan losses to rise. I can’t imagine CMHC is in the dark on that. My suspicion is they want to limit any loss on that hits their books.”
By limiting the information on whether a property is part of foreclosure, the Crown corporation would potentially avoid a situation in which a buyer knows it has to sell. In the United States, foreclosed properties have sold at huge discounts.
“CMHC is trying to get the better price,” said Don Lawby, chief executive of Century 21 Canada, who had not heard of the new policy. “You know something is repossessed, you low-ball the offer. You know you are not dealing with a homeowner but an investor.”
Based on current market conditions, CMHC doesn’t appear to be looking at a huge uptick in foreclosures. The latest data from the Canadian Bankers Association shows only .32% of mortgage holders are in arrears and number is actually on the decline.
A CMHC spokesperson was not available for comment.
Some also question whether the strategy would amount to much because although brokers may not load the foreclosure information onto a public site, it would become readily apparent to any buyer it was a repossession when CMHC is revealed to be the seller.
The Quebec Federation of Real Estate Boards, while leaving brokers the option about publishing the information, indicated brokers will ultimately tell people CMHC is behind the sale when asked.
“The broker has to give the information once anyone is interested in that property,” said Chantal de Repentigny, assistant director of media relations with the federation. “The only thing that has changed is they have the choice to do it on the listing.”
interested
Senior Member
You are of course correct RRR but too informed and this is not the headline they wish to report. The reporters are just recycling other data and using it for their present purpose without confirming the obvious flaw about Trump's model and generalizing it to all condos/housing market in Toronto.
interested
Senior Member
To Marsh about the CMHC article.
I can understand CMHC not wanting it known that it is a foreclosure. I don't think it is necessarily that they expect a crash though they may in fact have those fears, I just don't know.
Rather, I would accept that it would be a foolish business practice to advertise that CMHC wishes to unload a foreclosed property. That would surely result in lower offers and indicate possible/probable distressed sale. As the article says, this is the case in the US where foreclosures sell at signficant discounts. This would be a poor management decision for both CMHC and ultimately we the taxpayers. Besides, if it is for sale, that is all that is relevant. As the article pointed out, the broker must give the information to his client or he should be held liable and if anything, I would argue it would be for the broker to inform his client, not CMHC. Why should the seller have to say "hey I am distressed". This is information within the sellers purview in my opinion.
I can understand CMHC not wanting it known that it is a foreclosure. I don't think it is necessarily that they expect a crash though they may in fact have those fears, I just don't know.
Rather, I would accept that it would be a foolish business practice to advertise that CMHC wishes to unload a foreclosed property. That would surely result in lower offers and indicate possible/probable distressed sale. As the article says, this is the case in the US where foreclosures sell at signficant discounts. This would be a poor management decision for both CMHC and ultimately we the taxpayers. Besides, if it is for sale, that is all that is relevant. As the article pointed out, the broker must give the information to his client or he should be held liable and if anything, I would argue it would be for the broker to inform his client, not CMHC. Why should the seller have to say "hey I am distressed". This is information within the sellers purview in my opinion.
Kenny
Active Member
Not sure I agree. As a buyer, it would definitely affect my decision to buy a property. A property that is being foreclosed may not be in as good shape.
Here are American articles (may not be fully relevant to Canadians) on the drawbacks of buying a foreclosed property:
http://homebuying.about.com/od/4closureshortsales/qt/AuctionASIS.htm
http://realestate.msn.com/article.aspx?cp-documentid=13107737
http://www.viewlethbridge.com/lethbridgeforeclosures.html
interested
Senior Member
In the US, without reading the articles Kenny, some of the foreclosures are bid upon on the court steps. Some are not entered and sold as is.
I view this differently than someone going in and seeing a house. Besides, one should get a home inspection. I realize the limitations of this but still that should be the buyers responsibility.
Let's extend the line of thinking for a moment. Should a buyer be told "its a divorce and they are distressed" on a sale or is that information within the seller's purview?
Should you here that the owner has been indited for a crime, say white collar fraud, and has mounting legal bills and has to sell.
My point is: the information for you as a buyer would be relevant if the property was in poor condition. (I will look at the articles and post further if they change my mind), Kenny). However, this information will adversely influence you I think you would agree as a seller and not allow you to get the best dollar or possibly even market value for the property which is unfair to the seller, even if it is a corporation such as CMHC. Just my opinion.
I view this differently than someone going in and seeing a house. Besides, one should get a home inspection. I realize the limitations of this but still that should be the buyers responsibility.
Let's extend the line of thinking for a moment. Should a buyer be told "its a divorce and they are distressed" on a sale or is that information within the seller's purview?
Should you here that the owner has been indited for a crime, say white collar fraud, and has mounting legal bills and has to sell.
My point is: the information for you as a buyer would be relevant if the property was in poor condition. (I will look at the articles and post further if they change my mind), Kenny). However, this information will adversely influence you I think you would agree as a seller and not allow you to get the best dollar or possibly even market value for the property which is unfair to the seller, even if it is a corporation such as CMHC. Just my opinion.
interested
Senior Member
OK, I quickly glanced at the articles. I am not talking about a property you can't see. But if you walk in and the property is worth say 300K (say a condo that has been foreclosed) why should you if it is in reasonable condition not pay the 300K. I guarantee because the buyer thinks he can get a deal, he will offer $250K. And worse, if a number sell at $250K, then that effectively in the short to medium term lowers the value of the whole building.
It simply should not be relevant nor required for the seller to say so. The broker however should mention it to the person offering to buy in my view. However, I don't think the seller has to put this on the listing to attract only those who want a "bargain".
marsh
Active Member
Personally I think I would want to know whether a house or condo was in foreclosure - particularly for condos because if one condo was in foreclosure I would be worried about other units being in foreclosure too in the building and that could negatively impact condo fees or you may have investors buying up and renting out - and everyone I know says condos with high rentals have more maintenance issues. I would also want to know if it were a house since as previously pointed out it may not have been well kept up and yes you should a home inspection but home inspectors don't necessarily catch everything. So I would in general be more hesitant in buying a foreclosed property.
Anyways I just found CMCH's timing curious though I agree it doesn't necessarily mean that they expect a crash. However, it wasn't clear to me from the article whether real estate agents have to disclose - it says that the Quebec real estate agents will tell if "asked". That's another reason why it should be automatically disclosed. I don't want to bash real estate agents but not all agents are ethical. Having this information automatically published offers some consumer protection. Also I see distinction between information on the sellers' personal status (i.e. they are selling because of divorce etc.) which is personal versus the disclosure of whether the property is in foreclosure because that runs with property and ultimately you will find out anyway but some people may not want to deal with foreclosed properties and would feel frustrated at wasting their time when they could have looked at other properties.
Just my 2 cents.
Anyways I just found CMCH's timing curious though I agree it doesn't necessarily mean that they expect a crash. However, it wasn't clear to me from the article whether real estate agents have to disclose - it says that the Quebec real estate agents will tell if "asked". That's another reason why it should be automatically disclosed. I don't want to bash real estate agents but not all agents are ethical. Having this information automatically published offers some consumer protection. Also I see distinction between information on the sellers' personal status (i.e. they are selling because of divorce etc.) which is personal versus the disclosure of whether the property is in foreclosure because that runs with property and ultimately you will find out anyway but some people may not want to deal with foreclosed properties and would feel frustrated at wasting their time when they could have looked at other properties.
Just my 2 cents.
interested
Senior Member
^^^
Marsh I understand and agree your arguments are sound.
However, I think we can all agree that the disclosure on the listing could adversely affect the sellers right to get "market value".
You are basically stating with your post (and please correct me if I am wrong and drawing conclusions that are unwarranted) that because there are foreclosures, the whole condo building is worth less.
Extrapolating this, you are an owner in condo XYZ which has 500 units and there are 5 foreclosures (1%), you are effectively devaluing the other 495 not in foreclosure. I don't think this is fair to the other owners, sellers and is good for buyers because it may well be artificially lowering the value of the whole building.
I believe all real estate agents must disclose pertinent known information. Since it would be on the realtor's site as I understand and before making an offer it would be known to the realtor, I would think the realtor would have you sign a form stating you knew it was in foreclosure to protect himself/herself from later liability. Perhaps the realtors on this site might comment.
Finally, while you see a distinction between information on the seller's personal status and CMHC having to report distress sale, the net result is the buyer gets an advantage at the sellers expense. Given your statement you would not want to buy in a condo where there was a foreclosure you will have adversely affected the whole building and every owner. I would argue this is unfair though the actual buyer I would hope would make a decision as to value and then knowing it was a foreclosure decide then if there is a discount to be applied rather than automatically applying it without seeing the property.
Again, a difficult issue of trying to balance sellers vs. buyers interests (and in condos, other owners).
The above long winded answer said (I apologize for it by the way), I do believe there should be full disclosure prior to the signing of any agreement.
Marsh I understand and agree your arguments are sound.
However, I think we can all agree that the disclosure on the listing could adversely affect the sellers right to get "market value".
You are basically stating with your post (and please correct me if I am wrong and drawing conclusions that are unwarranted) that because there are foreclosures, the whole condo building is worth less.
Extrapolating this, you are an owner in condo XYZ which has 500 units and there are 5 foreclosures (1%), you are effectively devaluing the other 495 not in foreclosure. I don't think this is fair to the other owners, sellers and is good for buyers because it may well be artificially lowering the value of the whole building.
I believe all real estate agents must disclose pertinent known information. Since it would be on the realtor's site as I understand and before making an offer it would be known to the realtor, I would think the realtor would have you sign a form stating you knew it was in foreclosure to protect himself/herself from later liability. Perhaps the realtors on this site might comment.
Finally, while you see a distinction between information on the seller's personal status and CMHC having to report distress sale, the net result is the buyer gets an advantage at the sellers expense. Given your statement you would not want to buy in a condo where there was a foreclosure you will have adversely affected the whole building and every owner. I would argue this is unfair though the actual buyer I would hope would make a decision as to value and then knowing it was a foreclosure decide then if there is a discount to be applied rather than automatically applying it without seeing the property.
Again, a difficult issue of trying to balance sellers vs. buyers interests (and in condos, other owners).
The above long winded answer said (I apologize for it by the way), I do believe there should be full disclosure prior to the signing of any agreement.
TOphotog
New Member
Any property in Ontario which is being sold under foreclosure(Power of Sale) is sold by the bank involved, not the original owner. In the 'name of owner' on the listing, it is stated "Royal Bank under POS" or something to that effect. Also, you would have to attach a Schedule provided by the bank which clearly states that the property is being sold under POS and that they have the right to do so. There are some properties which are for sale by owner just before the bank has the right to seize the property, and that is a personal financial situation which has nothing to do with the property structurally.
People should NOT ignore properties being sold under power of sale. Sometimes, there are deals to be had. I sold a property a few years back, being sold by the bank. Banks NEVER fix problems with the property. They sell them 'as is, where is'. This property had a very wet basement. I walked the property with my buyer, and showed him that coinciding with the wet corners of the basement were downspouts going directly into the ground at each corner. Assumption: they were the cause of the wet basement. I told him a house inspector could confirm that for him. We negotiated with the bank and I negotiated hard.... all due to the wet basement. We included a clause stating that the buyer is aware of the wet basement and shall assume the property as is (along with an inspection condition). The bank liked that. The home inspector confirmed my assumption about the cause of the water leakage. The buyer got a fabulous price (saved at least 10-12% of the value) and just ran some dehumidifiers after putting extensions onto the downspouts. Most agents and buyers will flee a wet basement without taking a few minutes to determine the possible cause. Keep an open mind, get a good inspector, and you just might find a deal out there!
People should NOT ignore properties being sold under power of sale. Sometimes, there are deals to be had. I sold a property a few years back, being sold by the bank. Banks NEVER fix problems with the property. They sell them 'as is, where is'. This property had a very wet basement. I walked the property with my buyer, and showed him that coinciding with the wet corners of the basement were downspouts going directly into the ground at each corner. Assumption: they were the cause of the wet basement. I told him a house inspector could confirm that for him. We negotiated with the bank and I negotiated hard.... all due to the wet basement. We included a clause stating that the buyer is aware of the wet basement and shall assume the property as is (along with an inspection condition). The bank liked that. The home inspector confirmed my assumption about the cause of the water leakage. The buyer got a fabulous price (saved at least 10-12% of the value) and just ran some dehumidifiers after putting extensions onto the downspouts. Most agents and buyers will flee a wet basement without taking a few minutes to determine the possible cause. Keep an open mind, get a good inspector, and you just might find a deal out there!
ISYM
New Member
Logically, there is no reason for CMHC to stigmatize a property right off the bat with a declaration that it was repossessed and it does attach a stigma and immediately reduce the buyer pool in that many buyers will assume it will need extensive or expensive repairs which is not always the case.
The CMHC is funded by taxpayers but they still are a taxpayer owned for-profit corporation and as seller will do what every other seller does – try to get the highest and best offer, on behalf of the taxpayer.
Some of the public object to the CMHC on the basis that they, the taxpayer, are on the hook to bail out defaulting property owners, comparatively, if a single taxpayer who hopes to get a steal on a foreclosed property objects to CMHC’s non-disclosure on a listing they are in essence transferring that bailout onto all taxpayers while also acquiring taxpayer subsidy. The buyer/taxpayer can’t have it both ways by not recognizing it’s a balancing act for the CMHC.
Further to Interested’s well presented points, buyers often hold the point of view they should be given every piece of information that would give them the edge over the seller however, when they become the seller they think otherwise.
On the matter of disclosure, I think the media and some are making a mountain out of a molehill in that if a viewing buyer didn’t know a property was a foreclosure, they will as soon as they decide to write an offer. Even so, all such listings do hold the clue words – ‘as is where is.’ Realtors in Ontario are required to disclose anything of a material nature (defect) which a foreclosed property could be and so should always err on that side but technically they may not need to do so until asked but at the latest, prior to preparing an offer.
The CMHC is funded by taxpayers but they still are a taxpayer owned for-profit corporation and as seller will do what every other seller does – try to get the highest and best offer, on behalf of the taxpayer.
Some of the public object to the CMHC on the basis that they, the taxpayer, are on the hook to bail out defaulting property owners, comparatively, if a single taxpayer who hopes to get a steal on a foreclosed property objects to CMHC’s non-disclosure on a listing they are in essence transferring that bailout onto all taxpayers while also acquiring taxpayer subsidy. The buyer/taxpayer can’t have it both ways by not recognizing it’s a balancing act for the CMHC.
Further to Interested’s well presented points, buyers often hold the point of view they should be given every piece of information that would give them the edge over the seller however, when they become the seller they think otherwise.
On the matter of disclosure, I think the media and some are making a mountain out of a molehill in that if a viewing buyer didn’t know a property was a foreclosure, they will as soon as they decide to write an offer. Even so, all such listings do hold the clue words – ‘as is where is.’ Realtors in Ontario are required to disclose anything of a material nature (defect) which a foreclosed property could be and so should always err on that side but technically they may not need to do so until asked but at the latest, prior to preparing an offer.