When a mortgage is issued, money is injected into the economy from… nowhere.
Most people don’t realize this. Most think that mortgages come from money that originated in the real economy that is actually deposited in the bank, but that is most definitely not where mortgages come from. This ignorance is very widespread… poll intelligent people you know… you will find that most do not understand that commercial banks have the power to create new money. (A recent survey of UK Members of Parliament showed that the majority of them (85% !!) did not understand the source of mortgages… stunning information).
If somebody borrows $2 Million from a Canadian bank to buy a $4 Million Vancouver home, that $2 Million is created from nowhere. Nobody earned that money; the economy gets an artificial boost unrelated to any actual economic productivity within our society.
Vancouver has seemed to do well economically over the last 15+ years, largely because of the issuance of new debt. Vancouver has ‘imported’ money… from foreign sources, yes, but also from fresh air (and the latter source is greater and more important).
RE and closely related economic activity makes up 25% of BC’s GDP (2016). Construction is by far the largest new job generator in BC. Our economy has become highly dependent on an ever expanding RE sector (and ever increasing prices).
There were $38.4 Billion mortgage loan approvals in BC in 2010 on new and existing residential properties. (At 4.7 Million population this is $8,170 per capita per annum). We’d imagine more recent figures are considerably higher.*
BC has a GDP of $250 Billion (2015), so GDP per capita is $53,250.
Some of the newly issued mortgage debt must lead to the retiring of some old mortgage debt (when a sale completes) but we do not have figures regarding net new mortgage debt, which would be interesting (any readers have that?). That figure would represent the actual amount of newly created money released into the society from mortgages.*
When one considers that the ‘new money’, now in the hands of the seller, can then be used to be invested back into local RE (and leveraged again with more mortgage debt), one starts seeing how the RE ponzi can expand so malignantly.
Furthermore, if even a fraction of the new money is spent in other areas of the local economy, this makes our economy even more dependent on RE debt issuance. Add to this the ‘wealth effect’ of RE owners saving less and spending more because they believe their home is worth more and more, and one sees how dependence on RE price-expansion can spread deeply and broadly into an economy.
We don’t see any evidence that any real economic engines supporting Vancouver RE prices have fundamentally changed. There has not been growth in non-RE local economic activity anywhere near commensurate with the increases in RE prices. All evidence is that RE prices are still in a speculative bubble, fueled by debt.
This last year has seen a stalling in detached home prices and a 25% blow-off in attached prices.
If prices blink and lenders pull in their horns (with or without rising interest rates), the superficially virtuous cycle of a speculative debt-fueled bubble will implode, prices will plummet, mortgage debt will remain, and the cycle will become very vicious.
With Vancouver’s economy so overdependent on RE, we expect the inevitable reconciliation to lead to a deep local recession and many consequent adverse stresses on our society. Let’s hope we can weather the storm.
*PS: we’d welcome any updated figures from readers, especially info re net new money from mortgages.
Chart above from Ben Rabidoux.
hat-tip to El Ninja for links to these images:
This should be printed on leaflets and dropped from the sky like psyops over North Korea.
The emperor has no clothes and the “wealth” of this poor province is an illusion.
the banks create credit, not money … v important crunch time distinction
Agreed.. as we said.. ‘mortgage debt will remain’…
But it’s still fair to refer to ‘new money’, as the effect on the way up is of lots of money from nowhere.
The money is created from nowhere? I forgot about that strain of macrotourism. Life was so much simpler when we paid for things with cows and spices.
The argument here is not about money as a medium of exchange, but the emptiness of the “wealth” created by mortgage lending + rising prices.
[VancouverSun] – Douglas Todd: Explosive B.C. court case details seven migration scams
…”A shocking B.C. Supreme Court case that pitted two rich families from China against each other provides grim revelations about the kind of migration, tax, and real-estate scams regularly occurring in Metro Vancouver and beyond.
Immigration and tax lawyers are stunned that the Fu and Zhu families became embroiled in a lengthy civil suit over three multi-million dollar houses they purchased together in Vancouver, since their case provides evidence of their illicit schemes around real estate, tax avoidance and immigration.
“This case provides unusually candid insight into what those who would abuse our immigration and real-estate systems really think in their own words about their true motives for seeking access to Canada and our real estate,” said Vancouver immigration lawyer Sam Hyman.
David Lesperance, a Toronto-based immigration and tax lawyer, said: “The fact that two different parties … would choose to fully expose their transgressions in a public forum shows either blinding ignorance, or complacency about the ramifications of that exposure, given the longtime lack of enforcement of immigration and tax laws in Canada.”
While both specialists believe the Fu versus Zhu case justifies investigation by the Canadian Revenue Agency, the Canada Border Services Agency and other enforcement bodies, they say the dispute between the families indirectly illustrates the range of common, mostly unpunished migration and real-estate scams occurring in Canada.”…
It’s worth watching Peter Joseph’s Zeitgeist films to gain understanding of how money is created; Mike Maloney too. The banksters are busy.
Speaking of creating something from nothing, the bitcoin thing came on my radar a long time ago listening to Max Keiser. He’s been a big booster. If I’d taken what he said to heart way back when, I’d be rich, but I still can’t wrap my head around it; and what’s to prevent other crypto currencies from materializing. The one thing I have learned from massively Greedy Buffet – there’s a good name for an all-you-can-eat – is that you don’t put your money in that which you don’t understand.
yes! … http://tinyurl.com/y9qf9oe6
yes! … http://tinyurl.com/y9mcr584
yes! … http://tinyurl.com/ybqmbldv
431 Vernon Dr: a miserable little turd of a townhouse dominated by overhead power lines in an industrial area. Have cycled through here thousands of times. Half-price would be too much. Ridiculous staging with Chewbacca cushions, the usual sheepskins – what’s with that?, fake food without utensils … Awful. Wait until the wind blows from the east and you get a whiff of West Coast Reduction. Omg.
[NoteToIllustriousEd: Weekend’s best long read. Added bonus: You’ll find out what Tony Robbins and his entourage were doing in Abbotsford…]
Guardian] – Ghost towers: half of new-build luxury London flats fail to sell:
Developers have 420 towers in pipeline despite up to 15,000 high-end flats still on the market
…”More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”.
The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home.
The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes…
…Steven Herd, founder and chief executive of MyLondonHome, an agency that specialises in new-build homes for investment, says his firm is struggling under the weight of overseas investors who bought in the last couple of years and are desperate to sell.
He says hundreds of Asian investors who had bought London developments off-plan in 2015-16 in the hope of making a quick profit by selling apartments on closer to completion have instead lost hundreds of thousands of pounds. “They intended to flip [buy and sell on] the apartments and make big profits, but it hasn’t worked out like that, and now they are trying to get out at the smallest possible loss.”
He adds that in one case a Russian investor bought an off-plan property in 2014 for £3.1m, but couldn’t afford to complete and sold it for £2.55m.”…
[VancouverSun] – Douglas Todd: Death, taxes and the terrible injustice of Metro Vancouver’s housing crisis
…”A second-generation Vancouverite, from the Kerrisdale neighbourhood, Wozny says he’s a fiscal conservative who believes the best way to support B.C.’s middle class is by having everybody pay their share of taxes.
Metro Vancouver has become a place of radical inequality, he said. There is no longer any realistic connection between the city’s average wages (which are low by Canadian standards) and real estate prices.
If all Metro residents shared the burden of paying for public infrastructure, he said prices would drop to the point where the market would function properly and the middle class would find housing more affordable.
“Housing in this dysfunctional market has become a reflection of unequal rights and obligations. Government intervention is obviously required,” Wozny said in an interview, during which his friendly, energetic demeanour belied his grim medical prognosis and treatment regimen.
The immense volumes of foreign capital finding their surreptitious way into Metro Vancouver’s residential real estate, he said, are largely “unaccounted for, untaxed and unregulated.”…
Yet not a peep about Greedy Jim or other billionaire wage slave feudal lords that suck the life out of us. A VIP. A vertically integrated parasite.
It’s easier to point the finger and scream Yellow Peril.
How about the greedy pigs at Loblaws that admitted to price-fixing bread. Fourteen years.
How about the richest family in Canada? Not a peep about them. They have 40 billion and cash flow.
It’s all China China China.
My favourite local yokel one percenter was felon Lord Black. What a pill.
the problem isn’t foreign capital, nor is it jim … the problem is a failure to enforce rules that are sufficient and already exist
[Global] – How over 46,000 wealthy immigrants took a back door into Vancouver and Toronto’s housing markets
…”Over 46,000 wealthy immigrants took a back door into Vancouver and Toronto’s housing markets over the past three decades, according to custom Census data obtained exclusively by Global News.
That back door is the Quebec Immigrant Investor Program (QIIP).
Established in 1986, it offers permanent residency to international business people with net assets of at least $1.6 million, who make an interest-free investment of $800,000 in la belle province — and the government returns their money after five years.
Applicants are supposed to settle in Quebec.
But data shows just how many of them have ended up elsewhere – leaving Quebec with their investments, other provinces with their health care bills, and cities with flows of foreign capital that have been linked to soaring home prices.”…
[VancouverSun] – Douglas Todd: How Canada’s most expensive municipality grew alert to foreign capital
…”For Booth, the battle began in 2014, when an Asian realtor in West Vancouver came to her with three years worth of data she had collected on how the housing market was rapidly skewing in the hillside municipality, where residents routinely elect centre-right provincial and federal politicians. The realtor provided evidence that buyers with non-Anglicized Asian names were dominating the market.
At open houses for the most expensive properties, observed Booth, Cameron and realtors, up to four out of five potential buyers were speaking Mandarin or Farsi, with some at times each buying two or three houses. Livable homes and decorative trees were being mowed down, replaced by “big, square monstrosities” that often went empty or under-utilized, Cameron said. A recent count revealed 1,700 detached homes in West Vancouver are unoccupied, about one-tenth of the entire stock.
“We could observe all this happening before our eyes. You’d have to be hiding your head in the sand not to see it. We are a microcosm study of the housing issue at the high end,” said Booth.
The long-time councillor and former school trustee laments the painful irony that West Vancouver’s population has been slowly declining — with many long-time, middle-class residents cashing out, and the young leaving — while prices are rising in response to increased demand by investors and well-off newcomers.”…
Politicians are such pathetic grovelers.
Vancouver’s luxury market is stagnating, with lowest sales since 80s. Including West Van and Van West — two areas that Lyin’ Brian liked to insist would remain feverishly sought after.
This is happening in an environment of super-low interest rates and positive economic growth.
dude, 10 yr and T-bond getting torched … 2008 the baby … this time the momma
Clicked on a vid that said a billionaire wanted to be off Forbes’ Greedy Pig List. Thought it might be someone seeing the light and divesting. Sharing, No. It was a repugnant billionaire parasite gleefully boastfully recounting that various sources had wildly differing numbers regarding his greed. One at 3.2B one 5. something; another in the 6B range. He knew the numbers they put out and got a real charge out of saying them. The porcine-eyed brown-nosing reporter lapped it up smilingly, thrilled to be in the presence of God Greed.
The rich pig does a BTW that Forbes is actually a buddy of his, but still won’t do him a favour and take him off that annoying billionaire list. Get out the violins.
Meanwhile, one of the richest women in the world, J. K. Rowlings, was taken off the list. How did she achieve this feat? Well, WTF, she gave a pile away. She is still insanely rich. Will never be able to spend her fortune. But she’s off the list.
Compared to the world’s poor, you are a billionaire many times over. Walk your talk.
fwiw, you seem more about hating those on the ladder above you than helping anyone below you … if you look around, we’ve been down that class warfare path a few times now and it hasn’t worked out not once
Typical socialist mindset. Not about helping the needy, but resenting the successful.
Brainwashed defending the repugnant rich. Kneel before royalty knaves. Be their wage slaves. Send your sons to slaughter in their wars. Be bitches to repugnant riches. Muhammed Ali knew better.
Watch Lifestyles of the Rich and Famous with adoring eyes. Send fan letters. Or Kevin, ooh, you’re such a shark. Love how you want to crush people like cockroaches. You’re my hero. Love your Hermes tie and fancy shoes. What a pleasure it must be wasting time on Shark Tank all dressed up instead of sitting at home in your jammies.
It took the French Revolution to make change in the past. It took J.K. Rowling to serve as an example – a slap in the face to the repugnant rich. It will take the fear of a guillotine to make change going forward.
For non-wealthy people to give to charity is playing into the hands of the repugnant rich. Greed is not good.
are things so bad you’d dump it all in favor of … what? … if they got rich following the rules, then they deserve it and everyone including you is better off … if they cheated their way there, apply the rules … what’s the alternative? … the one you may be thinking of has been tried a few times already and it’s very clearly a lot worse than what we got
“Buyers stunned as new homes lose value.”
And who wouldn’t be? We all know that real estate is only ever supposed to go up.
pffft! … http://tinyurl.com/k6ouzck
[Guardian] – Anger over glut of ‘posh ghost towers’ planned for London: Councils in capital have approved thousands of £1m-plus flats despite crisis in affordable housing, new figures show
…”London councils have granted property developers planning permission to build more than 26,000 luxury flats priced at more than £1m each, despite fears that there are already too many half-empty “posh ghost towers” in the capital.
Builders are currently constructing towers containing 7,749 homes priced between £1m and £10m, and have planning rights to build another 18,712 high-end apartments and townhouses, the Observer can reveal. Politicians and housing campaigners said the figures show councils are prioritising the needs of the super-rich over those of hardworking young Londoners…
…Anne Baxendale of Shelter said: “The UK is in the grip of a housing crisis and nowhere is this more apparent than in the capital – and these luxury developments are certainly not the types of homes most Londoners need. The government must close loopholes which make it easy for developers to build high-priced homes that are way out of reach of ordinary families, rather than the affordable ones most people actually need and can afford.”
David Lammy, the Labour MP for Tottenham, said the figures “reveal a travesty being played against the working class and young Londoners”.
“The public keep being told we are building more affordable housing, and people can see cranes up all over London,” he said. “But this shows that councils are prioritising the fancies of overseas millionaires and billionaires before the needs of hardworking young Londoners.”…
[VancouverSun] – Douglas Todd: Why illicit foreign casino cash often goes straight into Vancouver housing
…”Global intelligence agents have come to call the Asian-Pacific network of corruption, drugs, tax avoidance and real estate that Cooper is exposing “The Vancouver Model.”
Metro’s casinos have become infamous for the way B.C.’s former Liberal government allowed them to be exploited to help make possibly billions of dollars in “dirty” money appear “clean” – particularly by injecting it into residential housing and condo development.
Cooper says his sources “took a lot of risks” to unveil how high-stakes Chinese gamblers, called “whales,” have been funnelling illicit cash into gambling chips, especially at Richmond’s River Rock Casino.
Using freedom-of-information law, Cooper obtained reports in which an official with the B.C. Lottery Commission noted that 97 of its 100 top rollers were East Asian. Cooper also dug up reports suggesting one out of four of China’s major 100 alleged financial fugitives were living in Canada, with many of them believed to be in B.C.
One Metro Vancouver gambler was accused Lai Changxing, alleged mastermind of a billion-dollar drug-smuggling operation in China, who owned property in Richmond.
An audit of 800 “VIP” gamblers at River Rock Casino found their most common profession was “real estate.” Almost half their $53 million worth of transactions in one year were flagged as “suspicious.” The second and third most common professions among the biggest gamblers were “business owner” and “construction.”
Many high-stakes gamblers at River Rock also declared themselves as “housewife” or “student” – with one youth forking over $819,000 in cash to buy casino chips. Investigators believe housewives and offspring are often used as fake “nominees” to hide the true source of wealth in money-laundering and real-estate schemes.”…
J K Rowling could become one of the greatest agents for social economic justice the world has ever seen. She has the money, and she has the power of the word. Most importantly, she has the minds of young. Just like Harriet Beecher Stowe who was instrumental in ending slavery with her book ‘Uncle Tom’s Cabin’, so too could Ms Rowling make the world a much better place. Housing for all. Food for all. Education. Medical. Clean water. Toilets. Security.
What would make the world a better place is the elimination of state interference in the free exchange of ideas, goods, and services.
This article is a must-read if ever there was one. Simply scandalous.
omg … please define social economic justice … and how to decide who owes who what … glwt