RBC, TD – “At the moment we see signs that the housing market is slowing, and the risk of a sharp correction are diminishing.”

“Canada’s two largest banks, the Royal Bank of Canada and Toronto-Dominion Bank… both said they have seen a distinct slowing of the Canadian housing market in recent months.
A slowdown will have an impact on TD and RBC alike, since they are among the biggest mortgage lenders. However the banks said efforts by Ottawa to cool the market in recent months through new lending guidelines and the elimination of 30-year mortgage amortizations last year, are better for the sector and the economy in the long run.
“Where the direct costs to the banks of a sharp correction will be quite absorbable, the effects of a large correction on the economy warrant prudence,” Mr. Clark said. “At the moment we see signs that the housing market is slowing, and the risk of a sharp correction are diminishing.”
Questions have arisen this year about potential overheating of the housing markets in Vancouver and Toronto, particularly involving condo sales. RBC’s head of retail banking, David McKay, said the bank is watching those markets carefully.
“There are a couple of hot spots across the market that we are watching closely,” Mr. McKay said. “But you can’t really generalize across the country. So it’s very important that you maintain kind of a regional and at times city-specific strategy.”

– from ‘Banks brace for economic headwinds’, G&M, 24 May 2012

This is an expression of hope for a ‘soft landing’.
We would like to see the models that the banks are using to show that, with sales falling and prices beginning to fall, the risk of further price drops decrease.
We ourselves see the markets set-up for price falls begetting price falls, and think that the risk of a “sharp correction” has increased with the market slowing.
Anyway, we’ll see how this plays out.
– vreaa

33 responses to “RBC, TD – “At the moment we see signs that the housing market is slowing, and the risk of a sharp correction are diminishing.”

  1. 4SlicesofCheese

    I say this is not new, this is an opinion piece.
    What say you reality check?

    • reality check

      Yes I agree. It is an opinion piece but the difference is that they have some credibility behind their opinion.

      • rc -> Are you familiar with all the commentary that was going on in the US as their housing bubble imploded?
        What were your “credible” sources (the central bankers, the bankers, the mortgage brokers, the realtors, the politicians) saying as that happened?
        Doesn’t this give you pause for thought?

  2. homelessindunbar

    When did the get rid of the 30-year amortization mortgages? (mentioned in the article above). Last year they got rid of the 35- year amortization mortgages but as I understood it the 30-yr mortgage is still alive and kicking….

  3. homelessindunbar

    As my father says, I stop reading the newspapers and be uninformed or I can read the newspapers and be misinformed.

  4. I wonder what the outcome of the following story will say about where the market’s going:

    Brand new (1 year old) house at 2502 West 36th (corner of 36th and Larch), never lived in. Listed last October for $4,998,000. Price dropped over ensuing months to $4,888,000. Listed as sold in Feb. 2012 for $4,100,000. Back on market now for $4,888,000.

    • Occasionally, houses will sell among business associates – scratch my back, I scratch yours.

      I am not necessarily saying this occured here, but as a control statement!

      Common practice in Asia and keeps the market fluid – rather like Wall Street market makers.

    • not especially dignified … but situations like this now conjure vision of heapin’ hot XL-sized pot of Dog_House chili

  5. We checked out two condo open houses at the H&H building (1133 Homer) today. We liked one that was 950 sq ft, 2 bed, 2 bath, storage room, decent little patio, great kitchen with high-end appliances, in-suite washer/dryer (a very big selling point for the better half). The building’s new and has some nice amenities. Price was $620K. The realtor told me “It’s a great time to buy right now, people are looking around and realizing that prices are going down and interest rates are still low!”

    So that’s some nice logic for you. Massive price decrease risk, with higher interest rates at renewal time a near certainty (assuming locked in as long as possible). It’s interesting that a realtor is acknowledging prices have gone down, I wasn’t aware that was the case with Yaletown condos. I didn’t mention a thing, she was the one who brought it up, and I didn’t bother arguing with her. I like the place, might have bought it if it was $250K cheaper.

    • “It’s a great time to buy right now, people are looking around and realizing that prices are going down and interest rates are still low!”

      He’d probably also recommend investing in Greek stocks and buggy whip futures.

      Good grief.

  6. “said the bank is watching those markets carefully.”
    Yeah, and crack dealers watch their markets too. It’s debt, not progress, debt. Vancouver from about 200 miles up looks like a zit.

  7. Don’t know what to make of these sold listings. The first is a property on McGill that sold for $499,000: http://www.vancouver-realestate-condo-and-home.com/RecentSales.php/Details/82/2515-mcgill-street-vancouver-east-british-columbia#viewdetail
    The second, from the same realtor’s page, is -like the first- a detached home in Killarney that sold for $383,000: http://www.vancouver-realestate-condo-and-home.com/RecentSales.php/Details/21/3171-waverley-av-vancouver-bc#viewdetail

    Am I missing something here?

  8. yltnboomerang

    Looked at a place to rent this weekend; looking for a little more space. It looked really nix, reno last year and clearly looked staged to me. Owner is divorcee and moving to the island. She tried to sell it for 6 weeks with no luck. She is so frustrated and doesn’t want to pay for the staging anymore as she has to move soon. Asked of she was still selling and was told no, going to keep it and will sign a lease.

    First, she couldn’t sell, I really felt like saying you should just drop the price as holding out will result in a much lower price when you eventually sell. She has never been a landlord before so my guess is lease or not it will get listed very soon in the near future. We said thanks but no, not unless she signs a two year lease that says the new owner cannot move in until the lease expires.

    We’re not moving.

  9. yltnboomerang

    Another funny phenomenon perusing the Craigslist ads, search for “brand new” and you will find all the speculators that have recently completed and are asking for rents based on their costs not based on market rates. For example, 2bdrm 900 sqft:


    We are right around the corner right now in a better location, bigger unit (2 yrs old) and pay 1800. Our landlord has never raised the rent and I’m sure will offer to lower it when we eventually gives notice as he needs us. BTW, he lives with his wife and three kids in his parents basement.

  10. Now remember the housing bubble is the result of two things. Crazy low interest rates engineered by the government. Plus a federal agency which wipes away risk, allowing lenders to make homeowners out of people too challenged to save. Oh, and that Property Virgins babe realtor’s tube top. Forgot that.

    The agency is CMHC and borrowers putting less than 20% down (almost 100% of first-time buyers) must pay a hefty insurance premium. This does not insure them, but rather their lender. So banks can shovel money out the door, secure in the knowledge if their clients default on the mortgage, taxpayers will make them whole. A few things have happened as a result: banks have lowered their lending standards; people with putrid credit get the same low rates as Justin Beaver; and the real estate market’s erupted, resulting in higher prices (and bigger loans).

    Something else, too. Banks have been using CHMC to insure ‘conventional’ mortgages as well – ones with a bigger down payment. This makes the mortgages more attractive when bundled into securities, called ‘covered bonds’ which are then sold to investors (does any of this ring a bell?).

    Just two banks alone (BMO and Scotia) sold $4.5 billion worth of covered bonds in January, and last year investors snapped up $25 billion of these things – supposedly high-quality, being backed with residential mortgages insured by CMHC.

    Ironically, these bonds then help the banks lower mortgage costs, so people can borrow their brains out and force house prices higher (requiring more loans). This is how you get stuff like BMO’s 2.99% fiver which caused such an endorphin rush among the horny.

    Still with me? Good. Now we have a problem. Over a year ago CMHC convinced Parliament to boost its insured lending ceiling to a staggering $600 billion – about the size of the federal debt. Seventeen months ago there was $100 billion cushion left. By last autumn it was $60 million and in a few months it will be gone. It means taxpayers are on the hook (between CMHC and the national debt) for more than a trillion dollars. Scarier, CMHC has reserves so small they’d be wiped out if only a small fraction of its high-risk mortgage debtors defaulted.

    More immediately, unless CMHC is bloated even further by an act of Parliament, it won’t be able to insure all the loans lusty young buyers and greedy old bankers wish to cover. Kinda like a money drought.

    “It may serve to tighten the housing market,” warns TD economist Sal Gulati. In fact, it could do worse. The entire real estate structure now rests on the ability of 20-year-olds without any net worth to buy $400,000 houses from 68-year-old Boomers, thus rescuing them from themselves. It could be history’s greatest wealth transfer. The old guys get cash. The young victims get debt. If things tank, the bank gets the house, the taxpayers get gored.

    If Ottawa doesn’t increase CMHC’s ceiling, real estate’s flames will lose their fuel. Prices will tumble and recent young buyers will be in negative equity until menopause. But if hundreds of billions more are added, Canada’s bubble grows more dangerous and the consequences more dire.

    What will F do? Odds are he’ll up the ceiling, while restricting credit – eliminating the 30-year mortgage and dropping amortizations to 25 years. That will increase monthly payments for virtually every new buyer. At a time when prices are inflated and local markets volatile gasbags, it will do nothing but hasten, and deepen, the inevitable correction.

  11. Carioca Canuck

    If you are looking to rent do you want to have some fun ?

    Tell your prospective landlord that you “will” sign a long term lease (12+ months) on one proviso that will be written into the contract.

    If the property is listed, or the ownership changes hands for any reason, the lease becomes null and void and you can exit the property without penalty and after 30 days notice upon becoming aware of either the listing, or the transfer of ownership, and that they are legally obligated to advise you of same when it occurs.

    I have a friend in our office who is looking to rent for his family as he just moved here from BC, and he was commenting the other day how “fishy, desperate, and deceitful” most of the landlords of the numerous vacant properties he had spoken to seem to be. He didn’t trust any of them to be frank and he felt that he was getting set up as the renter “in situ” to increase the listing value and prospect of selling the property he was looking at moving into. As he asked my advise a few weeks ago about his concerns, I told him to try my experiment.


    No one agreed to it, a couple of them had the blood rush out of their faces after repeatedly telling him they were not going to list the place during his interviews (so why would this condition matter then…..right ?) and one confessed the place was getting listed as soon as she put someone in it. He has decided to rent a purpose built luxury condo rnetal from a national property managment company instead……someone that I used to rent from.

    • Is it really a positive feature to buy a property already encumbered by a renter not of your own choosing? I’m not doubting what you’re saying… just seems counterintuitive to me. But what do I know – I’m a scumbag renter! 🙂

      • It allows them to put “generates $$$/month with good tenants in place” (buyer to verify the square footage and quality of the tenants if important). To the house hungry (read: uninformed future amateur landlord) eager to get in before they’re priced out forever, it’s a huge plus. Logic is overrated, you buy now!!11!!

    • Great story.

      Honestly, I feel landlords here who are supposedly looking for renters but also keeping one eye on the market in case they want to sell, and are not being frank about that with potential tenants, should actually be legally obligated to do what you suggest.

    • happened to me 3 years ago, i rented in Yaletown Park 3 (freaking awful, tiny place, shitty construction, and especially bad on the side facing the supposed “park” made of rocks, the 5pm sun made the place an oven for 6 months a year with windows facing in only one direction so there was no air circulation, but i digress). 2 months after I rented the landlord sold it. i gave her some snark but she just looked smug about it. the landlord was a schoolteacher from Abbotsford who lived at home with her parents, who I’m pretty sure made less money than me, the lowly renter.

  12. So the banks here are hoping for a soft landing. They must be dreaming or just not paying attention as the worlds largest property bubble continues to deflate. The negative news out of China continues to surprise most markets (some are just slow learners) and as both commodities and share prices fall together, are impacting pretty much everyone. We might be fairly well insulated from European woes in this country but China is a whole other kettle of fish. I came across a great article this morning written by a Vancouver local who often does good coverage on China’s issues. He is feeling as dismal as I am about the future in this regard. The evidence of trouble is mounting quickly as he clearly shows in his charts and we should take note as big changes in sentiment in Asia often have a strong tendency to negatively affect North American markets. Could this be what is behind the sudden lack of buying interest in some Vancouver neigborhoods? Maybe and maybe not but with the speed with which we are seeing reaction to the deceleration in Chinese growth there are sure to be repercussions here and elsewhere. Certainly this is already showing up as bad news in our own TSX as commodity prices fall and of course the damning coorelation between declining stock markets and property bubbles bursting is not a happy one. If only China was not so big in everything it does. As the worlds largest consumer of most commodities it matters a great deal what happens there. I often like to tell people to just forget Euro issues. They are more an irritant and media distraction than a real concern and the problems they are having are all easily soluable should they choose to make it happen. So Europe is a circus but keep your eye on the real ball. This year the big story is the going to be all about China and just about nothing else as their great property deflation continues and threatens the hopes of a genuine global recovery. The health of our own property markets hinges on our important trading relationships in Asia and the many related feedback loops via markets in the US. That connection is the one we will feel…so here is the article I was mentioning…

    Cam Hui article “Focus on China, Not Europe”

    Chinese companies defaulting on Coal and Iron Ore shipments? This can’t be good

    Needless to say the picture this paints is not rosy and we shall all be on the edge of our seats awaiting a stimulus from the Peoples Republic that will enable an even bigger building boom than the one that is now concluding. (That is black humour, by the way. Just in case it was not obvious.) The truth is, there is almost no possibility that reflation can be achieved in China’s case. The level of capital construction and the massive investments poured into housing, malls and transportation were already unprecedented in history. Represented as a percentage of the economy, China’s stimulus post-Credit-Crisis was off the charts. And so we will now see an unwinding in its place and hope that the rate of change will not be too sharp. You see it is not about whether China growth will slow or not, (that is a certainty) but only how quickly it all happens. Repercussions will be felt everywhere but Vancouver housing is particularly vulnerable due to the cities close ties to both Hong Kong and the Mainland. The relationship is a long one and the fates are intertwined more deeply than elsewhere. Perhaps only Australia and Korea will feel the slowdown as accutely. Unfortunately it is too late to suggest that heavily indebted property owners to sell and get out. That advice had an expiry date six months back. Instead, we might just be fatalistic now and prepare for the inevitable as little can be done to save those who are already drowning in debt. Housing prices will drop relentlessly in Vancouver from here on out with little respite until “balance” is achieved. That price point might well be below the mean reversion that so many doubt is possible. But I do not doubt it. Not for a moment. Based on the fact US housing is still in decline, that much of Europe has entered a recession, that property bubbles are bursting across the globe in unison and that China cannot possibly hope to stem its current decline we are heading for a long anticipated reckoning that is quite beyond the scope of any government intervention. The next program supports will not be designed to pump up the economy but rather to contend with the inevitable outcomes of one that is certain to end in a nasty recession. They will be less about boosts than bandages.

    • Thanks, Farmer.
      Agree regarding the broad and specific importance of China (and the deflationary effects of RE collapsing around the globe).
      And that once Vancouver prices start rolling to the downside in earnest, there will be no government interventions large enough to be capable of reversing them. ‘Bandages’, as you say.

      • Talking about RE collapsing around the world, I would suggest to read this book:

        2015 – The big fall of Western real estate


      • Yup, bandages is the best we can hope for. There is not much money available this next time around for another reflation attempt and everyone now knows it will just make things that much worse anyway. It is really unfortunate though that the Vancouver peak has coincided with the China-bubble blow-off top. It really does not get worse, timing wise. But then just about any major event would have triggered an end to the price growth here at this stage of the game. While others have fretted over the potential for rising interest rates or a new regulatory regime brought about by the folks at the Office of the Superintendent of financial Institutions, too few have noticed the real elephant in the room is still the health of economy. We sweat over a US recovery and get the cold shivers at the thought of the Greeks bringing us a Lehman type event when we should really be worried that commodities just took a dive and one of our largest trade partners is behind the declines. The China construction slowdown is all too real. Unlike the fiction of a Greek departure, this major Asian event is actually happening before our eyes. And it is huge. We can easily assure anyone who asks that the negative repercussions have only just begun. Not that it matters much in the end. A conclusion to the Vancouver bubble will not feel any different to the real casualties who will only know that they were in fact under the influence of popular delusion when they signed away a lifetimes income for the opportunity to own a house at the peak. But you just could not warn them away when the mood was hot. Nothing could dissuade them as we all know so well. I just don’t know if I am in a mood to forgive all those poor slobs their ignorance. I mean the ones who kept insisting all was well as they rode the market to its end and got caught as it fell. I mean, cripes, this was all so predictable!!!! Cheers.

  13. Pingback: “Looked at a place to rent this weekend. Owner is divorcee and moving to the island. She tried to sell it for 6 weeks with no luck.” | Vancouver Real Estate Anecdote Archive

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s