Robert Hogue, senior economist with RBC, as quoted in ‘Vancouver housing testing ‘rationality’, Financial Post, 20 May 2011 - “We fear that the Vancouver market is becoming increasingly disconnected from local demand conditions and vulnerable to a painful correction, especially once interest rates resume their ascent.”
Bingo! We agree. (Although RBC pain threshold is likely considerably lower than that of local bears. They’d likely call 10% very painful, and 15% painful beyond tolerance. We’d see 20% as the beginning of the excruciating descent.)
[For the record, Hogue was already talking about Vancouver RE 'downside risk' in June 2010, and had, furthermore, 'raised the red flag' on our market by Sep 2010.]
- vreaa
Yet, RBC will continue churning out CMHC insured mortgages as fast as possible… All the profits, none of the risk…
True.
But it does point to RBC, or at least one wing of it, aware that some markets have higher levels of risk than others. Let’s say some risk manager runs a few scenarios and in the “10% chance” bucket is prices dropping 30% in 5 years and the market becoming somewhat illiquid. For someone wanting an 80% LTV loan, do you think RBC might be a little bit more concerned than usual? My bet is yes they would and it will show up through higher qualification standards and in some cases flat refusals to loan out money.
Refusal to loan out money? But then RBC would lose business to Capital Direct and Alpine Credits…
LOL yeah but this is not without precedence. The famous one is Progressive Auto Insurance providing upfront quotations that are sometimes on-purpose higher than their competitors (that they display to the potential customer on the screen) so the ones they identify as deadbeat customers will immediately go elsewhere. They just don’t want them as clients because they aren’t set up for handling subprime slime efficiently.
On a related note I heard that Canadian subprime lenders are expecting stellar top line growth through 2011. I wonder why…
that’s really interesting, i’ve never heard any of that before, thanks
和谐 the key is how RBC is set up for handling foreclosures. If they do accept too much slime on the books it becomes a staffing problem when they default. For logistical issues it’s often best to try to pick the customer mix that is serviceable and that can involve some subprime but I think the bar is a lot higher now.
If I was a young whipper snapper looking to cut my teeth in the banking world, I’d ask for a transfer to the mortgage arrears department. You’ll be the wily veteran in very little time when they start staffing up in a few years and looking for leadership. It looks like decent job security for the next decade at least
honestly man i would probably enjoy it
all i have learned from the last 2 years is
“it is always better to have a regular income than to be interesting.” but i can’t recall if that’s Dickens or Wilde.
If housing can go up 10% per year, it can go down 10% per year. Year after year in either case. It’s just a like a stock. If you can’t handle the volatility, don’t buy. Anyone who is not prepared to lose the last 2 years of price gains should not buy. Bull or bear, volatility cuts both ways.
Combined with high leverage, volatility is a serious problem. Don’t combine high leverage and high volatility. I think this should be obvious.
it’s just unfortunate that something that is centrally important to one’s quality of life has become something equivalent to an Enron stock.
“burn, baby, burn!”