Canada’s White-Hot Housing Market Gets “Jingle Mail”

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Banks are heavily exposed.

By Christine Hughes, Canada, Chief Investment Strategist, OtterWood Capital:

Canada just experienced its worst monthly plunge in retail sales since 2008 as a sharp increase in inflation whacked consumers. Read…  Forget Deflation. Stagflation Arrives in Canada

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  29 comments for “Canada’s White-Hot Housing Market Gets “Jingle Mail”

  1. Ptb
    February 21, 2016 at 10:35 am

    I’d always heard that default on mortgages in Canada were full recourse. Bad info is everywhere. So it hits your credit for 7 years. Not too different from the US bankruptcy.

    The looney devaluation must be making real estate a “buy” for currencies that have held up against it. The British changed tax law for foreign buyers of real estate so they are now looking at Canada.

    • aca
      February 21, 2016 at 10:55 am

      They are full recourse everywhere but Alberta.

      • rete
        February 21, 2016 at 12:39 pm

        …and Saskatchewan

    • February 21, 2016 at 12:07 pm

      Even in the US, mortgages are full recourse in most states, including some of the hardest-hit during the housing bust, like Florida. There are only about a dozen non-recourse states. But that hasn’t stopped the banks from getting hit.

      Investors put their properties in separate LLCs. So good luck trying to collect beyond what that LLC owns, which is usually nothing but that property. And regular people who default on their mortgages usually don’t have enough money to make it worthwhile for a lender to go after them. And if lenders go after them, defaulted borrowers can declare bankruptcy. So lenders usually don’t.

      That full-recourse loans will protect Canada’s banks is a myth. Look at what happened in Florida during the housing bust.

      • rich
        February 21, 2016 at 5:06 pm

        “Investors put their properties in separate LLCs.”

        In the US, really big RE investors can do that, but unless you are someone like a Donald Trump, banks today will lend to one’s LLC, but will also usually force one to sign on the loan, personally. Most small US banks, that are still in business, have learned a thing or two since 2008.

      • West
        February 22, 2016 at 9:29 am

        Wolf, Florida is not a full recourse state for a primary residence on a first mortgage. Of course, assuming an investor/flipper uses mortgages listed as primary residence for multiple homes inside the state, the issue gets murkier. Another trick is to file homestead exemption on all the properties to get nice tax breaks, even though state law forbids this and local governments around here watch that one quite closely, or say they do.

        • West
          February 22, 2016 at 12:38 pm

          Earlier comment should read “effectively” as the banks have a very poor track record of going for deficiency judgements thus far. I wonder if they will get sold off and come back in a few years and haunt prior foreclosees?

      • Shawn
        February 22, 2016 at 1:32 pm

        Non-Recourse and Recourse State list

        “Currently, 12 states have no-recourse statutes. These states are Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington. In these states the lender can legally foreclose but has to accept the loss if the house sells for less than the loan balance.”

        Does that mean in CA I can foreclose, but I’m still on the hook for the loan balance?

        • February 22, 2016 at 2:13 pm

          CA is non-recourse. So homeowners are not on the hook for the loan balance after the foreclosure. But read the fine print of your mortgage. Make sure it’s a purchase mortgage, etc.

    • interesting
      February 21, 2016 at 8:50 pm

      “So it hits your credit for 7 years”

      not that it mattered, during the last RE price crash in the US people lived mortgage free for years and when the bank finally came for their house they had a nice big fat down payment and had no issues buying another home…they even had a name for them, boomerang buyers.

  2. Ptb
    February 21, 2016 at 1:11 pm

    In California they can decide to go after a judgement, but they hardly ever do. It just goes to trustee sale.

  3. John Doyle
    February 21, 2016 at 4:23 pm

    I feel confident that housing mortgages will become a tsunami of defaults in the not too distant future. The world economy as a whole is not too far off tanking as deflation turns nasty and jobs and income disappears.

    Private indebtedness can only be resolved by a total reset. Declare a debt jubilee and revalue property way down to levels that applied before QE type money got into the system. Make all loans that banks created from thin air defunct, with no recourse to foreclosure.

    Steve Keen offers a method in his Forbes articles, and others are touting debt jubilees. The banks lose out but stay solvent this way.

    • interesting
      February 21, 2016 at 9:16 pm

      “The banks lose out”

      not just them, what about us idiots that didn’t load up on piles of debt? We were so stupid as to be responsible but those that were smart and reckless get off scott free.

      sometimes i feel really stupid for playing by the rules and being responsible, the idea of rewarding bad behavior with a debt jubilee REALLY pisses me off.

      • John Doyle
        February 21, 2016 at 11:00 pm

        Yes, being responsible isn’t always rewarded. But Steve Keen suggested a payment to those like you who were responsible, to even up the score.
        Unfortunately I didn’t keep his blog but it’s been in Forbes magazine. so should be located there.

        • Patrick Walker
          February 22, 2016 at 7:54 am

          Yes, Stephen Keen has said that the government or central banks should issue equal cheques to everyone but stipulates that the money given be applied to debt first. Those in debt get cleared. Those that have been responsible can have a Merrier Christmas.

          I suspect that banks won’t and not sure this plan will actually work or be enforceable. You’ll have third party brokers who will likely find ways to buy discounted cheques from people. They will maintain their debt, but they will have cash to spend. Sort of how the local bodega handled food stamps. People would sell their food stamps for ten cents on the dollar so they could get cash instead.

        • d'Cynic
          February 22, 2016 at 4:45 pm

          How would this reward the prudent? If the checks are applied to dept, any dept, but especially mortgage dept. It will make the reckless whole, and just drive the price of properties ever higher, so the prudent will still not be able to afford anything.

          Next subject: lets assume the banks take the hit. What do you think the pension or some mutual funds are allowed to hold: safe investments like banks.

          There is no easy escape.

        • John Doyle
          February 22, 2016 at 8:35 pm

          To make the debt jubilee work, house prices – for example- would be revalued down say to a level prior to the QE era. This will also affect the houses paid off so the money injection is not repaying debt but asset devaluation.
          If it was badly managed then maybe your grim situation might arise.

          Remember Banks lend money they get for free, so wiping it is not taking away any basic assets, just income.

        • February 22, 2016 at 8:50 pm

          Look, John, you’ve been posting your crazy notions about a “debt jubilee” here so many times I’m sick of it. This is pure propaganda. We have a well-functioning procedure for shedding debt, called “bankruptcy.”

          If you borrowed too much money, don’t expect everyone else to eat your debt. Pay it off yourself.

          When central banks start buying up debt to let it default on their books, it impacts us all via price bubbles (and the terrible consequences bubbles have when they burst) or inflation, or both.

          In particular, it will create even more moral hazard than there already is – among creditors and debtors alike.

          It’s just another form of QE. And QE was a terrible thing to do. But this time, you want to be the direct beneficiary. I get that. Would be nice, getting other people to eat your debt indirectly and over time.

          And my patience with this propaganda has expired.

  4. MAS
    February 21, 2016 at 6:23 pm

    Here’s a good url for your readers, if they have not already seen it.

    The market in Canada could collapse in another 2-5 years or it could collapse tomorrow. It just depends on Oil prices which I predicted a long time ago would head down to 20 dollars a barrel and frankly I think even lower now, the dollar which could bottom out at 62 Cents or lower and of course Chinese money laundering. It also depends on people and how desperate or scared they become. Lastly it also depends on how many people the Liberal Gov’t will lay off in the future. There’s no money in the penny bank and sooner or later boy wonder will figure that out and start laying off just like Chretien did in the 90’s, but that won’t come until after the crash, which will make it even tougher for Canadians.

    Either way Canada’s RE market is on it’s last legs and these next few years will show it.

    • VegasBob
      February 21, 2016 at 7:36 pm

      Just don’t underestimate the willingness of the powers that be to perpetrate any fraud they think necessary to keep the bubble from imploding…

    • Achilles4756
      February 22, 2016 at 2:35 am

      There’s a very smart guy out there by the name of F. William Engdahl who is adamant that sometime here in the very near future—he says this summer—some type of transgression will happen that involves the straights of Hormuz closing/ be blocked that will cause oil to go back over 100 bucks a barrel for quite a while. He talks about super tanker insurance skyrocketing and other things that will catch many off guard.

      Let me say one thing — l listen to him quite often and this is the first time I’ve ever heard him say something like this. In other words,he’s not Jim Sinclair with a proclamation every couple of months that gold is going to 52k an ounce.

      • Jack
        February 22, 2016 at 1:14 pm

        Gold is going to 52k an ounce? Wow! I’m in.

    • willmeister
      February 22, 2016 at 8:09 am

      Institutions like the auditor general ensure that positions in Ottawa will never, ever be cut; on the contrary, the auditor general reports ALWAYS end up expanding bureaucracies in order to generate all the paperwork to “feed the beast” and prove how ‘accountable’ they now are.

      What we will see is the continued erosion of frontline services, but even then, things are already cut to the bone. Between 2000 and 2008, I believe, bureaucracy in Ottawa expanded by 42% while frontline services were cut by 17%, all because of false heroes like Sheila Fraser. The point is, there really isn’t that much left to really cut because what remains increasingly becomes rather overt patronage.

      You would need a total economic meltdown for things to finally register in Ottawa. To paraphrase a Yale professor, the telescopes of Planet Ottawa do not reach Planet Earth. So when the next major crisis comes, I suspect Trudeau will simply follow his father and declare martial law instead of just Quebec, as his father did in order to preserve order … for our own benefit.

      … and if people outside Toronto think they were getting raped before (as Toronto is the funnel by which wealth is sucked right out of the country), they ain’t seen nuthin’ yet. Toronto will be given absolute priority status in an crisis even if it wipes the rest of us out.

    • Filling better
      February 22, 2016 at 10:33 am

      Hohohoho Mary Christmas, another record price

      111 18th ST., No. 4E, WEST VANCOUVER

      ASKING PRICE $2.388 million

      SELLING PRICE $2.388 million


      TAXES $4,534.78

      MAINTENANCE FEE $783.92

      LISTING AGENT Don Eilers, Re/Max Masters

      • interesting
        February 22, 2016 at 5:40 pm

        taxes on $2.4 million? here in California that would be $29,850 per year or, put another way, the taxes per month would be over twice my rent.

  5. Akam15
    February 21, 2016 at 8:51 pm

    I will try to provide the argument people in Vancouver use to justify the sky high price. There is a limited land available for expansion. The border to the south, mountains to the north and lack of transport to the east. They can build vertical but a lot of community opposition to that and most people want a single family house. And a lot of wealth was created in the past decade as people who bought homes in 2006 are sitting on a fat profit. They can withstand a 20 percent drop in prices. And those who bought recently are mostly foreign buyers, so who cares if they lose money, they’re foreigners!!

  6. Mark
    February 22, 2016 at 9:30 am

    First of all when talking about Real Estate in Canada you have to understand who is majority of buyers and where they come from.
    Well majority of buyers (settlers) are former dust baggers imported from all over the world (including me to certain extent) and for them (us) owning house and put up with what ever comes with it is question of pride and investors who are pulse buyers in expectation of fat return in shortest period of time.
    So you can crush market for what ever reason and for what ever you want but they (us, Canadians) will never give up home ownership.
    Market crush will just create new opportunity for people with cash and good credit to load on investors oversupply because they will be first to run for shelter.
    So please SHUT UP and clean first in front of your door, because I don’t see any executives in my area putting houses up for sale.
    We don’t give damn we are TRUE NORTH.

    • Patrick Wilson
      March 5, 2016 at 7:55 pm

      True if not too much govt interference, past housing bubbles burst and markets recovered in short order. More QE or govt efforts to prop up banks only serve to make market worse.

  7. d'Cynic
    February 22, 2016 at 4:52 pm

    The sad part of this video’s conclusions is that it all depends on moves by Chinese authorities. No hope of Canadian authorities making any move. Truly frustrating wait for a leader.

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