Phil Soper, CEO, Royal LePage – “I think the impact of mortgage regulation is being blamed far too often these days in what is clearly just a natural cyclical slowdown in the market driven by overpriced homes. We were due for a slowdown.” [We Agree]

“The real estate industry has ramped up its attack on rules making it harder to borrow but its challenges face one big obstacle — mortgage restrictions are working exactly the way the federal government wants them to.
In the past week the Canadian Association of Accredited Mortgage Professionals weighed in with complaints that Ottawa’s restrictions were killing consumer confidence and even raised the stakes further by suggesting the entire Canadian economy was at stake.
Toronto builders joined the fray, calling out the federal government for rules it maintains have a lot to do with the cooling market in the city that saw sales in October dip 14% below their long-term average.”


“One executive who says he’s changed his tune on the government’s crackdown is Phil Soper, chief executive of Royal LePage Real Estate services. When the latest regulations came out in July, he was one of the first to suggest the time was wrong, but he’s gone full circle since then.
“At the time, I thought it didn’t make sense,” said Mr. Soper. “I’m being contrary again. I think the impact of mortgage regulation is being blamed far too often these days in what is clearly just a natural cyclical slowdown in the market driven by overpriced homes. We were due for a slowdown. The timing was unfortunate but it’s not a major event. I think chances of it being reversed are close to zero.”

– from ‘As tougher mortgage rules slow housing market, critics call for a reversal’, Garry Marr, Financial Post, 26 Nov 2012 [hat-tip CM]

We agree with Phil regarding mortgage regulations being erroneously blamed. And hats-off to him for admitting his earlier error in judgment. We suspect we’d likely disagree with him on the magnitude of the coming ‘slowdown’, however.
The spec mania was waiting to pop, would have done so with absolutely no precipitant at all (spec manias finally collapse under their own weight; fallacious ‘reasons’ for the collapse are always blamed).
We’ve already started collecting
‘Erroneous Theories For Falling Prices’. Number five is ‘Tightening Of Mortgage Rules Caused The Crash’.
– vreaa

20 responses to “Phil Soper, CEO, Royal LePage – “I think the impact of mortgage regulation is being blamed far too often these days in what is clearly just a natural cyclical slowdown in the market driven by overpriced homes. We were due for a slowdown.” [We Agree]

  1. breaking… Carney named as UK central bank chief…

    • Just in time.

    • PommyB**tards. Never fails. Every time Brittania experiences a spot of ImperialBother, it’s the ColonialCousins who are summoned to the slaughter.

      [NoteToEd: Alternatively, could it be that the OldLady O’ThreadNeedle’s BullionVaults are ThreadBare – and they’d rather that were discovered while a JohnnyCanuck was ManningTheTill? TeeHee!]

  2. I don’t know where people get the idea that going into debt is good. The fact is, if interest rates were even just a fraction of what my parents paid, nobody would be able to afford these homes. Condos prices would plummet. I think we have really dug ourselves into a hole. If economy improves and interest rates rise, then a ton of people will go into foreclosure and housing prices would plummet, putting us back into recession. What other scenario is there?

    • Another scenario is that the economy doesn’t improve and interest rates rise anyways. At least in terms of employment, all the construction might mean this is as good as it gets.

      • Cranston Snord

        In reply to YVR Housing Analyst (@YVRHousing)

        >The other possibility here is that the loan is some kind of study/student loan that is actually subsidized by us.

        Yup. Student loan. Should have clarified that.

        Even in current economic times, Banks are happy to give new MD students $90K student loans pretty much as soon as they ask and show their admission documents. With a little negotiation, ~$120k.

        Really sort of scary.

    • Everything is financed. Debt is a wonderful way of financing provided the earnings can support repayments. These days I’m not convinced all forms of financing supporting housing will have the necessary returns.

      Look at it this way. You have $1million to buy a house. You can use your own money and finance the purchase or use someone else’s money and finance the purchase. You either loan to yourself at an imputed rate of interest or you borrow from the bank at a defined rate of interest. If banks are willing to lend to you at a rate of interest below what you can achieve elsewhere it’s arguably best to finance the purchase from the source giving the most favourable terms. Right now getting a 5 year loan is at terms approaching free.

      • UBCghettodweller

        A friend of mine who is going to medical school realized this and is planning to take out the largest loan possible. Money that isn’t spent on tuition/housing will be invested. It’s not difficult to find places to put money that are both safe and earn notably more than the interest on the loan.

        … Either it really is a good strategy, or we’re both missing some fatal flaw in the plan and are just as bad as the house hornies in Vancouver with our lack of perception of risk and returns. Care to comment?

      • I’ve heard of that too. I don’t know if it’s a good plan or not, depends upon how arrogant the fellow is 😉

      • UBCghettodweller ->
        The success of the plan will depend on
        (1) whether your friend has any investing knowledge/skill ‘edge’ to bring to the table, and
        (2) luck.

        If it REALLY was “not difficult to find places to put money that are both safe and earn notably more than the interest on the loan” then there would be absolutely no reason imaginable* for the lender to lend to your friend, would there? They’d simply do what you friend was going to do with the money, wouldn’t they? So, there has to be something more to it than that.

        Now, your friend may have investing skills that the lender doesn’t have… this is the ‘edge’ he/she (would it be correct to guess this was a he?) would have to bring to the table to outperform and still keep the risk comparable to that of the lender.
        There is a (strong?) possibility that your friend is not an expert in assessing risk, and is likely planning to take higher risks than the lender. For instance he/she may believe that a ‘balanced portfolio of dividend stocks’ are a no-brainer to deliver more than the interest on the loan. Well, they may, but they may not. They may drop 30% next year and, despite their ongoing dividends, may leave your friend’s plan slaughtered. There’s the risk (and, if this is what the plan is banking on, this is where the need for luck comes in).

        Many who are new in investing take positions relatively oblivious to the real risks involved. If the position gains, they are led to believe they are a genius investor (and then, most commonly, go on to a string of similar bets, usually being wiped out eventually); if it loses, they usually conclude that “you can’t make money in investing”. [Both outcomes are tragic].

        So, is your friend a skilled investor? Do they intend to do the work to gain knowledge and skills?
        or do they just, largely, feel lucky?

        The potential ‘fatal flaw’ is the incorrect assessment of risk.


        * PS: The other possibility here is that the loan is some kind of study/student loan that is actually subsidized by us, the tax-payers of Canada, and your friend is planning to use a form of arbitrage: borrowing at a (subsidized) very low rate and investing securely at a low but higher rate. If this is the case, then that’s against the spirit of the loan and possibly against the legal agreement of the loan. Your friend would simply be pocketing the subsidy instead of using it for it’s intended purpose, to support his studies. If this is the case his dilemma is a moral one.

        PPS: Note that I managed to get through the above without reference to the abysmal record MDs have as investors. 😉

      • “The potential ‘fatal flaw’ is the incorrect assessment of risk.”

        Of course.

        In this particular case we’re talking about someone being trained to be a highly-performing medical professional who has the fate of lives in his hands, having to make quick, bold and confident decisions in difficult and chaotic circumstances.

        To take prudent risks with money well above what he really needs will surely be done with the utmost of care. Many doctors have shown this to be true for as long as I can remember.

  3. “We were due for a correcti… emm I mean a slowdown”.

  4. The best way to get someone to change their minds is to first agree with them.

    Soper is likely playing another angle here, this looks like a safety play: establishing a lower bound for price drops, then changing his mind back if prices continue to drop, will have more political influence than if he continues to oppose.

  5. UBCghettodweller

    Even in basic science, in complex chemical reactions, sometimes catalysts are mistaken for starting materials or intermediates.

  6. He said the same thing in 2004. I can’t find the paper but saw the headline just a couple of months ago when we found an old issue in my dad’s basement about the downward prices in Toronto being due to prices reaching unaffordable levels. This was back when the GTA housing costs were around $450k average.

    I wouldn’t put stock into anything the talking heads say. They cover their asses in every way that the wind blows.

  7. um, “half circle” perhaps?

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