“Although Vancouver’s real estate market has been on steroids for years, I do think this boom coming to an end. The rest of BC is not faring so well, prices and sales are down a lot in many areas outside of Vancouver. I work in the financial industry and I know of several clients who have approached us recently about the possibility of going bankrupt. They have made some bad financial decisions over the past 5 years, a lot of it to do with risky real estate investments (and also some just have too much consumer debt, lines of credit etc). Sure, Chinese might come to Vancouver and buy overpriced single family houses, but this is not representative of the entire market. I live in a decent, newer condo building and many units have been sitting unsold for months. Oh and the rent we pay? It’s half the monthly cost of a mortgage payment with 10% down, 30 year mortgage (and yes, in Canada, you only lock in your mortgage rate for 5 years, and no, the mortgage interest is not tax deductible). No wonder those units are not selling. I think 2012 and 2013 will see price declines and more bankruptcies in Canada. Household debt is at an all-time high. This trend is not sustainable.”
- comment from Sally Smith at Global Economic Analysis 20 Nov 2011
[This story is familiar in some aspects, and could possibly be a retelling of an anecdote posted previously at VREAA, from a comment at a different source and under a different handle. This may happen occasionally here. If any original poster notes us doing this, please notify us. - vreaa]
A financial advisor I know says he thinks a wave of foreclosures are going to start within 18 months.
We all believe the roller coaster ride is on its way down. How can we take advantage of this and profit from the upcoming downturn? Is there an easy way to “short” the market? Can we learn/profit from the lessons of the US?
Buy near month, out of the money puts on the Canadian banks and watch the money flow into your account.
have to stick the landing (timing)… otherwise, watch money flow out of account
Ha-ha, I’m kidding. Point is, even if you had the perfect formula for shorting said market, 99% would get it wrong due to emotions.
dude. the can bank and related equities may get smacked but a simple winning bet on that just seems too easy – so it probably can’t be simple. all i know is either we voluntarily do not print to preserve the funny money while large chunks of the banking system + multiple govts implode (i.e. any which way but loose, hah!). or, we have some wacko mondo printage until afterwards a bigger implode with much shredding of social contracts. whichever it be, it can’t be … good for the health.
Agree. You short Canadian RE at your peril (the CDN banks have been weak though).
I don’t get it. Why would banks suffer if mortgages are backed by owner’s other assets and CMHC? The risk is to the taxpayers, not the banks.
Banks likely have more exposure than anyone understands or is willing to talk about. They may own mortgage-backed securities, or securities from CMHC or bonds from other govt entities which will take a hit. They may have business loans or other non-housing real estate loans which will suffer once the general economy sinks. They may do a lot of business with investment firms which have taken on loads of this risk, and will suddenly default on the banks.
“The banks have passed on the risks, so they’re in the clear.” People said exactly that about US banks for years before we all learned otherwise.
My opinion is that anyone who shorts Canadian banks WITH THE RIGHT TIMING, could do very well. But this bubble just refuses to pop when expected doesn’t it?
Also, is CMHC literally guarateeing 100% of these loans? Is it 85%? 75%? Less? Any loan that isn’t covered by CMHC is on some bank’s books. And I assume the banks still hold the HELOC’s and car loans. In a bubble burst the value of many of these drops to zero (poof!). Total write-off.
Why pretend like you are kidding after providing some pretty solid advice. It’s also straightforward to short the banks as a basket by selling an ETF or buying a reverse ETF. In a housing correction, the banks will always get hit to a greater extent than other sectors.
don’t know what the laws are but people at risk should find ways to shelter assets. people not at risk of bk, still at risk of losing mass quantities – what are they thinking? taxpayers should do the same and unload cmhc asap – that would dial up the pucker factor on loose credit issuance in hurry – wishful thinking of course to learn anything since FNM receivership was such a long time ago. mark hanson aka mr mortgage recently publicly declared canRE a bubble. if there can be a single authority, it is he. what does that make the lead dog vanRE? sorry. just ranting.
Anyone notice that this suddenly appeared – without any context that I can reckon – on the CBC website:
http://www.cbc.ca/news/business/story/2011/11/17/f-bankruptcy-myths.html
Is our state news organ working to prepare Canadians for an upcoming storm?
I’m not saying it’s a short idea, but the Wall Financial (TSE: WFC) chart looks like a prophecy for Vancouver RE. Down 40% since the end of the “hot” first six months of 2011. Now this is including the leverage (lots, mostly floating rate), so it’s not the same as asset prices down 40%.