“I am probably one of the few on this and other blogs who sat thru a RE collapse first hand in Canada back in the early 80′s when I was a banker here in Calgary…”

“I am probably one of the few on this and other blogs who sat thru a RE collapse first hand here in Canada back in the early 80′s when I was a banker here in Calgary. I watched the second mortgage portfolio I managed for National Trust Company go down from 100MM, to about 65MM, in a little over 12 months due to foreclosures and property devaluation. This was at a time when CMHC financing needed 15% down, and we actually took such obscure concepts as credit worthiness, debt to income ratios and past payment history into account “before” we dished the money out. Also, most second mortgages were in the amount of $15-25K on average, as most houses were not much above $125-150K at the peak. If any you thought it was bad last time………..this time around will make history look like picnic.” …
“I was averaging 75 – 100 foreclosures / quit claims a month over 1983/84. And, I just ran the second mortgage and personal loans department. We also had a humongous first mortgage department with its own problems. Thing is, I distinctly remember foreclosing on a ton of realtors’ spec properties, and also their primary residences, as well as that about 75% of the places we eventually got back had been listed in vain (priced too high) for 12-18 months beforehand.”
Carioca Canuck at VREAA 27 Dec 2012 5:58pm and 28 Dec 2012 8:28am

“I was there, too. Was working for a Trust Company that was scrambling to save its own sorry arse after having dished out too much credit. People were desperate to get loans but easy lending had dried up and rejections were the game of the day if you could not bring collateral. Hardly a day went by when I did not see someone sobbing at the loans officers desk. They brought in art work and antiques and junk they thought was valuable to persuade the manager. Nobody cared though. You know how much that stuff is really worth when only cold hard cash, bonds or securites will suffice? Not a spit. I was an assistant then and a mere observer but the image stuck. Never get in debt over your head because when the day of reckoning comes even your friendly banker will pull the plug on you and never give it a second thought. Most people do not realize that internal policy changes at financial institutions where lending is concerned are bureaucratic and very inflexible when the mood changes. It is just a machine that will not be swayed by sentiments and emotion. And all that crap that you thought was valuable is not worth ten cents on the dollar anymore. So I agree with Carioca. This next go-round is going to be quite an experience for the novices in the crowd.”
Farmer at VREAA 27 Dec 2012 10:53pm

“I was a loans officer at a medium sized Credit Union in the 80s.
Heartbreaking. Homeowners were dropping off the keys, walking away.
We did not have the heart to foreclose, ended up as landlords of properties valued way below the mortgage.
After 3 years, the auditors forced us to write down the properties to market value, which almost bankrupted us.”

Real Estate Tsunami at VREAA 28 Dec 2012 7:11pm

Thanks to Carioca Canuck, Farmer, and Real Estate Tsunami for the above anecdotes.
Interesting to see that three regular readers saw battle during the 80’s RE collapse. There is little substitute for first-hand experience when it comes to markets.
– vreaa

56 responses to ““I am probably one of the few on this and other blogs who sat thru a RE collapse first hand in Canada back in the early 80′s when I was a banker here in Calgary…”

  1. If Vancouver does get much worse it will be interesting to see if/how governments will go about administering palliative care. It certainly won’t come from the private sector without government guarantees.

    • Agree completely. All the talk of the private sector taking more of the burden from CMHC makes no material difference to the central issues.
      No private company is going to step up and take on any liabilities that effectively try to support this market, unless they have government support, or a way of stepping away or collapsing (which makes their support meaningless to start with).
      Thus, any meaningful attempts at support would have to directly or indirectly come from government.

      We are not in favour of government intervention. It is, in the long-term, in the best interests of almost all parties for the market to be allowed to seek out prices based on fundamental values.

      • Which is why IMO the refrain from local RE economists has been one of bubble denial, and pointing to inexact external shocks as the only cause of market distress in the coming years. To call a bubble then ask for a bailout is untenable ground, hence the shock and horror when tshtf.

        I hope the rest of the country realises, when the brays for bailouts come, the wool will have been pulled over their eyes. There was no external shock that caused a crash, it was stodgy old greed.

      • As David Dodge said, the whole system is too big to fail now anyway, so the gov’t would have no choice but to step in if/when the SHTF. It goes without saying that If such an arrangement was ever made, only the healthy part of the business would be privatized too.

      • Cyril Tourneur

        Ya. The cattle farmers in Alberta are going to be tickled pink when they realize their taxes are subsidizing underwater mortgages in Yaletown.

      • Wait until they have to forgive thousands of distressed mortgages, including the speculators. I don’t see this being much different from how the U.S. handled its housing crises. Just look at what’s happening again with Fannie Mae.

        This won’t end until someone defaults.

      • … I’ve been wanting to post this nugget for a little while. Readers may be interested to know that (outside London NB) UK prices are now down to 2003 levels on average, five years after the crash. In other words if you bought in 2002, you would have seen growth of 0.5% pa. Also potentially of interest may be the extent to which London skews the whole UK numbers. Relevance here is the influence of TO on the overall Canadian scene – and where Vancouver might be come 2018?

      • Real Estate Tsunami

        Cyril, agreed.
        During the 80s, BC was awash in cash. Witness the distribution of the BRIC shares to the populace.
        Also, mortgage holders who were hurt by high mortgage payments were subsidized. I was one of them.
        But now the coffers are empty. Any bail out will have to come from The Great Canadian Taxpayer aka The Great Canadian Cash Cow, which ties back to your cattle farmers.
        Personally, I like a little pink in my steak, but this one will be burnt right down to the T-bone.

      • “The cattle farmers in Alberta are going to be tickled pink when they realize their taxes are subsidizing underwater mortgages in Yaletown”

        That is the angle that would need to be getting significant media attention over the coming months. The local media ‘experts’ are repeating the lines that BC`s economy is fine as long as there are no EXTERNAL shocks. That is the gambit designed to enable pleas for bailouts — to FIRE as well — to be considered. There will always be something external that is coincidental with a BC recession that can be used to excuse why BC`s miracle is falling short of expectations.

        I don’t write to a wider audience but if I did, I would be letting the rest of the country know where the bailout money is likely to be going if left unchecked, and how it’s high prices, not external shocks, that are to blame for an impending BC recession.

      • Everyone seems to take it as a given that there *are* enough people with real jobs to cover all the stupid bets.

      • This move was not supportive of the market it was a bailout behind the scenes. Imagine the fear had these guys hit the financial skids. This in my mind suggests things are much worse than even we expect.

      • Ralph Cramdown

        “We are not in favour of government intervention. It is, in the long-term, in the best interests of almost all parties […]”

        So what kind of non-intervention are you wishing for? Should CDIC not guarantee bank deposits? Should the government not demand that CDIC backstopped banks insure all mortgages >80% LTV? Should the government set maximum interest rates, calculation standards and minimum rights of redemption for mortgages held by federally regulated institutions?

        I’m not trying to be nitpicky here, but man has experimented with the entire spectrum between laissez-faire and dirigisme, especially as regards real property, mortgages upon same and savings banks. Laissez-faire sucked almost as much as the opposite extreme. If you think a bunch of punters getting wiped out at the end of a property boom is annoying, study the ones where the savers got wiped out, too.

        Me, I’m definitely not a libertarian in the mold of Rand/Heinlein. I believe that, absent fairly restrictive regulation, the strong will fleece the weak and then I’ll have to deal with an indigent, fleeced underclass.

      • Backstopping deposits versus liabilities that are multiple times your revenue are totally different. If you want to know the end game to that intervention, just look at Japan.

      • Real Estate Tsunami

        Ralph,
        IMO, the Government should guaranty the banks a certain spread i.e. 3 %. This is what they did before the wave of deregulation in the 90s.
        This would stop them from “chasing yield”.
        Another step in the right direction would be to force them to spin off the investment arms, leaving them with retail only.
        IMO, investors and speculators should be left to fend for themselves, and prudent borrowers and savers should always be protected.
        And most importantly, no business should be “too big to fail”.

  2. Well, it seems another RE collapse is all but assured now.

    http://www.vancouversun.com/business/real-estate/Vancouver+real+estate+buyers+waiting+price+collapse/7754204/story.html

    Stick around guys. Lord knows there will be much hand holding required.

    • I think that’s the first MSM article I’ve ever read mentioning dollar volume.

    • BullWhip29… intentionally or otherwise, that link is all the SaturdayMorning ‘Zen’ one could hope for…

      Did you read the names of the Realtors on the signage appearing in the leader illustration!?!…

      Ruby Banga! Carlos Grosso!

      [NoteToEd: IanFleming’s ribaldry – as regards telegraphing his characters’ personae with a ‘judicious’ name choice – was infamous… but when YVR Realtors’ signage more closely resembles the EndCreditsRoll of a TelaNovela… there can be no doubt as to the outcome. Scripted or otherwise…]

    • Yikes! RoboRedaktor strikes again, ED – right here… and all I did to incur his wrath was type the names of two VancouverRealtors whose signage appears in BullWhip29’s most excellent link.

      • Naked Official #9000

        Disloyal cadre!

        The party moves in mysterious ways!

        All the better to squelch your disharmonious barking!

    • Overbuilding of single-family homes in Metro Vancouver is difficult because land is so limited, Somerville said.

      this guy don’t get out much…. they could build them easy but refuse by building chicken coop sized hovels with stainless and granite to mystify the buyers into thinking they are getting a good deal while they can hear the neighbour blow his nose through the walls next door.

      why do people believe what these shills say? is it because they teach or are called professionals? after the bubble bursts will his next classes be called “stay away from real estate 101?” and “how to study past bubbles”

      Read more: http://www.vancouversun.com/business/real-estate/Vancouver+real+estate+buyers+waiting+price+collapse/7754204/story.html#ixzz2GUgW3SFV

      • “Why do people believe what these shills say?”…

        What a marvellous question… In lieu of an ‘illuminated scriptural’ disquisition, I offer the following historiographical musical interlude, KC [&TheSunshine!?!]…

        But first… an instructive lyrical abstract…

        ….HEARD SOME talk about Papa…
        Doing some store front preaching.
        Talking about saving souls and all the time leeching.
        Dealing in debt and stealing in the name of the Lord.

        Mama just hung her head and said,
        “Papa was a rolling stone, my son.
        Wherever he laid his hat was his home.
        (And when he died) All he left us was ALONE.”
        “Hey, Papa was a rolling stone.
        Wherever he laid his hat was his home.
        (And when he died) All he left us was ALONE.”

        Uh!

        Hey Mama, I heard Papa call himself a jack of all trade.
        Tell me is that what sent Papa to an early grave?
        Folk say Papa would beg, borrow, steal to pay his bill.
        Hey Mama, folk say that Papa was never much on thinking.”…

        [NoteToEd: In the 21stC, ‘Illuminated Scriptural Disquisitions’ are, essentially, classic music videos… Hmmm… do you think an ‘original’ 3/4″ Sony U-Matic BVU {insert fave artist/track} will ever fetch as much at Christies/Sotheby’s as a Gutenberg?]

    • Lol, Muir is practically plagiarising himself. From Dec 28th:

      “Three years ago we saw the largest financial crisis since the Great Depression and an ensuing global recession. If that’s wasn’t enough to trigger a correction in an asset bubble, I don’t know what is,” Muir said.

      http://www.vancouversun.com/business/real-estate/Vancouver+real+estate+buyers+waiting+price+collapse/7754204/story.html

      From Nov 23rd:

      “The big test was 2008. That was the year of the doom sayers, when the largest financial crisis since the Great Depression besieged us and the collateral damage hurled us into a global recession… If such a severe financial crisis and global recession couldn’t trigger a meltdown of the housing market or pop any asset balloon, what could?”

      http://www.yattermatters.com/2012/11/bubbleloney/

    • RoboRedaktor strikes again.

  3. “Muir expects sales numbers to pick up in 2013, because the market fundamentals are strong.”
    Yup, nothing to see here. La la la la la …
    Tracy Sherlock, books editor of the Vancouver Sun simply regurgitates whatever the industry is feeding her. Disappointing. But, if the Sun doesn’t print the official line, perhaps Rennie and others pull their full page advertising.

  4. Great comments. I remember the early 80’s well buying my first home in 79 and selling just as prices were coming off the peak in 81. Only a fool knew it couldn’t be maintained but I recall the abuse I took for saying the market would tank. This is the same market but with way more reckless lending. As the other posters said, CMHC needed 15% plus a fee and was to be avoided at all costs. To see CMHC turn into this ATM machine for burger flippers and hair dressers is just disgusting.

    The one thing to remember for those who use the “80’s crash was caused by high interest rates”, there were no HELOC’s or easy car loans which creates a high interest similarity. This is going to be a major disaster about to hit all courtesy of Harper and Flaherty’s Easy Home Loan Plan. Conservatism my ass.

  5. Real_Professional

    How quickly everyone forgets, but of course this time is different

  6. Real Estate Tsunami

    Yeah, the trials and tribulations of the early 80s.
    Remember, Nelson Skalbania, The King of Flippers. Went on to own sports teams, and then crashed like the RE around him.
    Now we have The Condo King. same difference.

    • How can one not forget Skalbania going on the BCTV news begging for his wife to come back. It was pathetic to watch a grown man grovel after blowing multi-millions out his ying yang. Whose it gonna be this time? Rennie ? Muir? LOL

    • I worked for Nelson back in the day – it was quite a ride! He never bothered with flipping houses though, it was large scale heavily leveraged downtown towers that he flipped, usually to Japanese interests. He would buy a building, say 777 Hornby, for $3 million and turn it over within a week for $5 million, for example. (I just pulled those numbers out of my ass but they are pretty close to what I recall). It was also not him that gave his wife a hotel, but his wife (second) that owned the hotel that enabled him to live a decent life after losing a ton of money. He was always a blast to work for though.

      • Real Estate Tsunami

        Observer, you were a lucky man. You witnessed history!
        And I’m sure you had a blast. Everyone loves a winner until he start’s to lose.
        You should write a book. I’m sure it would be very relevant today

      • Carioca Canuck

        There’s a name I forgot…………….he was quite the character. Making deals on the back of napkins over a boozy lunch. Between him and the Ghermezians, and Peter Pocklington it wouldbe hard to pick the biggest slimeball.

      • Thanks for the refresher, Observer. Was it the Georgia Hotel by any chance. My memory is fading a bit here but those were some pretty heady days and there was a lot to keep track of. Remember Murray Pezim and the wild west rides on the TSX by any chance. Vancouver was much more relevant then in the big scheme of things. It was a financial center by its own rights and a global center for small caps, startups and penny miners. Despite the shenanigans I kind of miss those days. Spent way too much time boozing with the brokers and wheeler dealers though until it started to really slow me down. They were pros though if you could see past the theatrics and drama.

    • Go visit Skalbania at the Wedgwood Hotel, he owns it with his wife, they apparently treat their staff like pigs in a barnyard..

  7. vancouverbubbleman

    not to worry- this weekend i was told the market has already fallen as far as its going to here in vancouver – hahahahaha. i have been told numerous times that things will turn around in the spring. im not sure what is going to change in 8 weeks when spring hits. i overheard three ladies yesterday in a coffee shop talkin real estate. one said she had her place listed but nobody was willing to pay what she wanted so she pulled it. i guess she thinks if its not listed then the value still remains at her lofty expectations. the other one said she cant believe that people think market will fall here-she said it dumfinds her ( not a real word ). the other was doin renovations and complaining that her husband works 16 hrs a day- wonder why. i told one of my friends that we will fall 50 % or more on west side sfh. she almost fell over. i said that only takes us back to 2009 levels which were way overvalued already. she pulled out the “arent we like nyc or london” i said come on ….you know better than that. she laughed and said i know- gonna be lots of people walking around in shock but it will be good for the city in the long run.

  8. The housing bubble that popped in the early 80’s was in Western Canada while Central and Eastern Canada were not affected. The housing bubble that popped in the early 90’s was centered in Toronto and area while the west was still recovering from the 80’s. Today in 2012, it looks like the housing bubble is spread throughout Canada but too differing degrees.

    Here are three charts to look at
    Average house price for select Canadian cities 1980-2011

    Hard to spot the price bubbles but the next chart identifies them extremely well

    Here are the same cities indexed to 1980 and adjusted for inflation

    In the last chart, Vancouver has had 3 previous peaks, the current one is in bizarro land

    • Real Estate Tsunami

      Kevin, WOW,
      If this graph is right (and I have no reason to doubt) and if I am a home owner, I’d phone my realtor right now.
      They say “lies, damned lies and statistics”, but this statistic speaks the forbidden truth that the RE cartel does not want you to know.

    • UBCghettodweller

      vreaa, could you feature this with accreditation to the original source?

      Thanks Kevin for the graphs! Sweaty palm inducing stuff.

  9. “Canada Mortgage and Housing Corporation, as agent for Her Majesty in right of Canada, guarantees the timely payment of the principal and interest set forth in this Certificate and Circular in accordance with terms and conditions applicable to the NHA MBS, pursuant to the powers given to CMHC in sections 4 and 14 of the National Housing Act, R.S.C. 1985 as amended which expressly provide that “Every right or obligation acquired or incurred by the Corporation under this Act, whether in its name or in the name of Her Majesty is a right or obligation of Her Majesty”, (Section 4), and “The Corporation may guarantee payment of any or all principal and interest, or both, in respect of securities issued on the basis of housing loans” (Section 14). It is certified that no provision of any law or contract adversely affects the rights of the holder to the benefit of this guarantee.”

  10. Real Estate Tsunami

    Good. The Queen is now backstopping the Canadian RE market.
    She’s got enough money.
    This probably means that only Canadians of British origin will be bailed out.
    This means the offshore Germans will be left holding the bag.

    • Naked Official #9000

      Disharmonious sedition!

      Seditious disharmony!

      You are all splittists! Anti-capitalist roaders!

      Canadians of British descent?

      Ha! This treaty port is ours – we need it to export the coal, zinc and copper you dumb colonials can’t figure out how to mine yourselves! But first, we must harmonize the breeding grounds of your great caribou herds in Nunavut!

      As for the dwindling WASPs, we will punish these red haired barbarians for their crimes during the Opium Wars 150 years ago! (plus it provides great cover for the glorious atrocities of the Party against our slav.. Err people)

  11. Most RE “experts” don’t seem to understand that an interest rate increase from 2% to 4% is exactly the same as going from 10% to 20%. Even a 1% increase from such low levels would be huge in percentage terms. Many people would be insolvent if rates even started approaching normal levels.

    • Real Estate Tsunami

      Casual,
      The RE experts know, they are not stupid.
      They all are reading from the same tightly controlled script.
      Don’t forget the “media is the message”.
      Control the media and you control the message.

  12. “Many people would be insolvent if rates even started approaching normal levels.”

    That’s what blows me away, the amount of agents and MSM touting low rates as normal when they are emergency rates as a temporary measure. Watching the credit counselors in the media the past few days showing 30% increases in people struggling to make ends meet due to over extending themselves is just the tip of the iceberg. I can only imagine how many won’t make the tough decision to seek help and will just go down in a ball of flames.

  13. Hmmmm…1982…, Alberta,… Edmonton, 24 years old,…
    Oh Yah…
    I remember the mantra…
    “Oil will never go down in price….”… “people will always need Alberta Oil…”
    Yup everyone wanted that dirty oil from the oil sands… at a sharp discount to the market price…
    …. back when the “$14 billion dollar Heritage Golden Carrot Trust Fund” was going to fund Alberta’s growth forever,… Oil money flowing like rivers through the streets…
    I was making $300.00-$450.00 a day cash, … in tips working as a waiter.
    … and then the lemon folded… in what 6 months.
    By then the Province was posting budget problems…
    Interest rates soared to 21% as my student loan… became due
    The highways there were lined with “Special Toys” for sale… at new and improved prices…
    Housing went bust… 24% mortgages… I know people who wound up there…
    I had moved to Vancouver barely 3 months ahead of that mess… lucky GOV based welfare job in the government run post office… in Vanvouver…
    now…
    What were the sacred refrains…

    “Oil always goes up, it will never go down…”,”… everyone needs our (dirty) oil..”
    “… jobs at “Syncrude” will never go away…”, “Our oil will last forever..”…

    Facts lost on the under 31 generation for sure…
    Maybe remembered by those who were slightly older… 45 or under…
    After that (45+) you should be smart enough to remember…
    … or you deserve to be crushed… completely…

    Sold… not at what the market says in fact less,… but at a very, very good profit margin none the less. 3x.
    Bought very cheap so I can, could and did sell well under market ( B.C. Assessment/Real Estate Board. Same beast ) value…and still make handsome profit without loss.
    Private sale…
    Safe… but now a Gypsy… oh well…
    Have found places that interest me at 1/6 to 1/4 my sale price… if I leave Van. proper…
    Hmmm… free and clear and with several hundred T’s in cash… less work…,
    leaving the most special place on earth… for its special cheap suburbs… now discounting hard…
    Hmmm…
    Retired Commie Free Market Capitalist, Austrian School…

    Silver

  14. We did not have the heart to foreclose, ended up as landlords of properties valued way below the mortgage.

    :) This had absolutely nothing to do with heart.

    • Real Estate Tsunami

      Bubbly,
      This was a time when Credit Unions were still very small.
      We pretty much knew everyone personally.
      So, we cared.
      Not like the monster Credit Unions of today, which are just banks in disguise.

      • My point was that for a bank, the decision whether to keep a property or foreclose and put it on market is simply a business decision. You can see it very well in the US right now. Among other things, banks are worried about flooding the market with more inventory. Often, they don’t foreclose because they are either overwhelmed (supposedly) or think that the “owners” who defaulted on their mortgage should stay and take care of the property.

  15. Ahh the 1980’s….

    (2) anecdotes….

    —Where we once lived, had a neighbour who bought in late 1970’s The value doubled in 6 months..then then market tanked…he went broke..sold to another guy for 1/2 peak price.

    —Another party, a Dentist had moved from Vancouver and bought an acre with an old house..paid approx $350,000 in the early 1980’s….a peak price. However, his neighbour went belly up..and sold his acre for $100,000 to the dentist.

    Dentist sold both parcels approx 4 years ago for approx $ 6 Million

  16. Real Estate Tsunami

    Bubbly,
    Point well made and taken.
    But as you stated, “it was strictly a business decision”
    Business decision based on what?
    Short term profits, executive bonuses, tunnel vision, moral hazard?
    Any business action that ignores human consequences will be doomed to fail.
    As Emanuel Kant postulated “Always act in a way that maximizes benefits for the society at large”.

    • Sure, it may have been one of the factors.
      A used car salesman nice to the customer, not because he has a good heart, but because it’s good for business.
      Benefits to society from private enterprise are it’s natural side effect (and not the primary incentive)

    • I worked for a Credit Union that tried hard to keep people in their homes back then. They have at different times accepted interest only payments, or in the 80’s, offered to rewrite mortgages at the new lower rates. That is why I remain a member, Local credit unions make their own decisions “in house” and in my town they took care of their local base.

      “it was strictly a business decision” – the reference was for a bank.

      • Real Estate Tsunami

        Ambass,
        In those days we made business decisions based on what was in the interest of the client. Now decisions are based on what’s in the interest of the business.
        No wonder the country is going down the crapper.

  17. The same thing can be said about “Cash” in our time. If you have cash in the bank, your kids will go hungry from 2008 to maybe 2015.

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