Real Estate

Vancouver housing bubble?

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JuanExprales wrote: Is it possible the gov't chooses to let CMHC go under? What do you envision happening to banks if that happens?
It's possible, but it would take a major meltdown (worse than the US). Banks don't want this. If banks want anything, it's a controlled decrease in prices... or a "soft landing" like we keep hearing about. The banks know that legalities mean nothing if a country is bankrupt or heading there. Remember, this is still a democracy we live in. Mob mentality and public outrage will defeat any court order or government plan. If banks are posting record profits and collecting 100% insurance claims on the backs of canadian tax payers (who are all watching their house prices plunge and losing their jobs), then that's how a revolution starts. Just look at Greece. As soon as things got bad, then pensions got cut along with numerous other things.

If a Government can cut pensions (which were promised) to citizens, then why can't they cut CMHC insurance fees which were also promised? Citizens paid into pensions their whole life the same way homeowners paid into CMHC insurance. If things do get bad, then the government can do anything they want. Keeping a country solvent comes before anything else, and so if things were to get bad enough banks would be the first ones to take a cut. But if it came to this, the banks probably would step up to the plate anyways and take on a ton of near worthless bonds, etc.
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PF4RedFlag wrote: CHMC can decide to review the files of many borrowers and go after the banks who faked mortgage applications.
The CMHC's ability to abrogate its obligations on insurance is very limited. After all, the CMHC is reliant on the banks for continued lending in order to keep prices propped up. If the banks feel unduly harassed by the CMHC, they certainly have the ability to leave the sector altogether.

At some level, the CMHC was responsible for doing its own due diligence as well, especially on the outrageously bad insurance policies they've been writing.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Moody's cuts ratings of six Canadian banks

15 minutes ago by Thomson Reuters

Jan 28 (Reuters) - Moody's Investors Service has cut the ratings of six Canadian banks, including the Canadian Imperial Bank of Commerce and Bank of Montreal, by one notch due to concerns about rising consumer debt and "elevated housing prices."

The other banks cut were Bank of Nova Scotia, Caisse Centrale Desjardins, National Bank of Canada, and Toronto-Dominion Bank.
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dgodsell wrote: Moody's cuts ratings of six Canadian banks

15 minutes ago by Thomson Reuters

Jan 28 (Reuters) - Moody's Investors Service has cut the ratings of six Canadian banks, including the Canadian Imperial Bank of Commerce and Bank of Montreal, by one notch due to concerns about rising consumer debt and "elevated housing prices."

The other banks cut were Bank of Nova Scotia, Caisse Centrale Desjardins, National Bank of Canada, and Toronto-Dominion Bank.
This is bad for Canada's RE marketplace as any increase in the cost of borrowing for the banks (although Moody's opinion really doesn't matter to most Canadian bank depositors) gets passed on to consumers themselves.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote: This is bad for Canada's RE marketplace as any increase in the cost of borrowing for the banks (although Moody's opinion really doesn't matter to most Canadian bank depositors) gets passed on to consumers themselves.
It's obvious that your lack of understanding on mortgage markets prevents you to see why. Not only Moody but Fitch also cut Canadian banks rating due to real estate bubble.

It has been explained multiple times to you. Canadian banks stock will go down in the event of the housing bubble burst.
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Ceryx wrote: It's obvious that your lack of understanding on mortgage markets prevents you to see why. Not only Moody but Fitch also cut Canadian banks rating due to real estate bubble.
If you're going to talk to me, at least try and make your sentences coherent.
It has been explained multiple times to you. Canadian banks stock will go down in the event of the housing bubble burst.
Hardly, the other way in fact. Canadian bank stocks aren't sitting at their 52-week highs because investors fear the banking sector in Canada is going to destroy itself.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote: Hardly, the other way in fact. Canadian bank stocks aren't sitting at their 52-week highs because investors fear the banking sector in Canada is going to destroy itself.
So is the US bank stock in 2007 before it pops.
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Ceryx wrote: So is the US bank stock in 2007 before it pops.
US banks were borrowing short, lending long, and the US Federal Reserve inverted the yield curve in that time frame. The result, obviously, was a period of destruction in common equity over the 2005-2008 interval, which obviously ended quite spectacularly.

As for ratings downgrades, Canada experienced a systemic ratings downgrade in the early 1990s in response to large amounts of government debt and a declining resource industry. That didn't stop the common shareholders of Canada's banks from profitting to the tune of seeing their investments quadruple over the 1990-2000 timeframe. Even in light of another bubble which eventually eclipsed the market, the tech stock bubble.

We're basically into 5 years of Canadian bank stagnation. RY's stock is basically now only breaking through levels first reached in October, 2007. Despite a dramatically stronger balance sheet.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote: US banks were borrowing short, lending long, and the US Federal Reserve inverted the yield curve in that time frame. The result, obviously, was a period of destruction in common equity over the 2005-2008 interval, which obviously ended quite spectacularly.
Same with the Canadian banks. Why do you think their mortgage rate actually fluctuate?

Every economists in the country think banking stock/sectors will be affected during the housing downturn. This includes rating agency such as moody or individual advisor such as Ben Rabidoux.

You really should go to their seminars.
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Ceryx wrote: Same with the Canadian banks. Why do you think their mortgage rate actually fluctuate?
Canadian banks do not borrow short, lend long. Their books are matched. Go look at some balance sheets sometime. Mortgage rates fluctuate based on inputs from the bond market, and spreads are determined by the lending preferences of the banks (which is also a function of their cost of equity capital, amongst other factors).
Every economists in the country think banking stock/sectors will be affected during the housing downturn.
Sure, business at the banks is going to change significantly over the next few years. Layoffs are now underway or in the planning stages in the mortgage originations section of the banks. Collections will probably grow. Emphasis will shift from selling mortgage loans to selling investment loans and other products. There's no denying that.

But history has shown us that a lending rotation away from houses and consumer credit is very positive for the Canadian banks. Despite the doom and gloom stories that a few mis-informed people spread.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote: Canadian banks do not borrow short, lend long. Their books are matched. Go look at some balance sheets sometime. Mortgage rates fluctuate based on inputs from the bond market, and spreads are determined by the lending preferences of the banks (which is also a function of their cost of equity capital, amongst other factors).
Why is that? I thought you said bank used GICs money to fund mortgage?
Sure, business at the banks is going to change significantly over the next few years. Layoffs are now underway or in the planning stages in the mortgage originations section of the banks. Collections will probably grow. Emphasis will shift from selling mortgage loans to selling investment loans and other products. There's no denying that.

But history has shown us that a lending rotation away from houses and consumer credit is very positive for the Canadian banks. Despite the doom and gloom stories that a few mis-informed people spread.
I'm not saying that Canada banks will suffer as bad as US one.

But To say banks actually benefit from housing crash is just incredibly ridiculous.
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Ceryx wrote: Why is that? I thought you said bank used GICs money to fund mortgage?
GICs are bonds.

But To say banks actually benefit from housing crash is just incredibly ridiculous.
I've laid out the reasons why this is the case, due to a) spread widening, b) a general asset rotation away from fixed income in the broader market which should drive P/E multiple expasion on the stocks themselves, and c) the necessity of the BoC/GoC to engage in QE to keep the economy propped up during the transition phase until another growth sector emerges.

You've failed to point out anything ridiculous about any of this.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote: GICs are bonds.
Really?

I've laid out the reasons why this is the case, due to a) spread widening, b) a general asset rotation away from fixed income in the broader market which should drive P/E multiple expasion on the stocks themselves, and c) the necessity of the BoC/GoC to engage in QE to keep the economy propped up during the transition phase until another growth sector emerges.

You've failed to point out anything ridiculous about any of this.
Your theory is based on somehow Bank will increase profit margin as interest rate goes up. What you didn't realize is the rate goes up because the bond yield goes up.

The profit margin is the same for bank when interest rate goes up or down.

Bank makes money on mortgage volume, the margin is consistent.
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Ceryx wrote: Really?
Yes really. Bonds are just debt instruments, generally with a fixed interest rate and term to maturity. Same as GICs. Banks are really agnostic as to whether they issue a million dollars in bonds at x% or a million dollars in GICs at x%, netted for all expenses of course (obviously a bank won't offer as good of a rate to a GIC buyer because there are significant costs of running a branch network, etc. that don't exist if they're just issuing a billion dollars worth of bonds to a pension fund).
Your theory is based on somehow Bank will increase profit margin as interest rate goes up.
I told you why this would occur.

The profit margin is the same for bank when interest rate goes up or down.
Not true by any stretch of the imagination. First they earn more on the basis. Second they earn more on the spread between zero-cost funds (ie: chequing accounts that don't pay interest ...most Canadians have these!) and investment. Third, interest rates spreads do expand in response to deteriorating collateral quality.
Bank makes money on mortgage volume, the margin is consistent.
This is not correct. Margin is not consistent by any stretch of the imagination. The CMHC has been instrumental in destroying margin in the industry because the banks were able to treat mortgages as risk-free government bonds in their portfolios, with spreads against risk-free debt trending towards (but not meeting) zero.
TodayHello wrote: ...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...

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