Did Canada Just Pop Its Housing Bubble?

Tyler Durden's picture

The Canadian economy is rolling over and their recent jobs situation is worse than the US (and it's always cold weather-y up there?!) but the last great pillar of the 'recovery' in Canada is perhaps about to get crushed. As the WSJ noted recently, Canada's housing market is the most expensive in the world (60% over-valued by historical standards) and one simple reason explains it - Canada has been very open to foreign investors, which means that in an age of unprecedented global liquidity cash-rich wealthy individuals who are looking for places to park their excess funds can do so in its housing market. Until now... As SCMP reports, Canada’s government has announced that it is scrapping its controversial investor visa scheme, which has allowed waves of rich Hongkongers and mainland Chinese to immigrate since 1986. Soft landing?

 

Deutsche Banks's house-price-to-rent index says Canada has the most expensive housing market in the world - 60% over-valued...

 

"Canada, for example, is very open to foreign investors, which means that in an age of unprecedented global liquidity cash-rich wealthy individuals who are looking for places to park their excess funds can do so in its housing market far more easily than in Japan, with its closed system. "

 

As it's home price index hardly missed a beat while the US plunged... (different scales but point is to illustrate drastic difference when financial crisis started - and where the liquidity went...)

 

Via The South China Morning Post,

Canada’s government has announced that it is scrapping its controversial investor visa scheme, which has allowed waves of rich Hongkongers and mainland Chinese to immigrate since 1986.

 

The surprise announcement was made in Finance Minister Jim Flaherty’s budget, which was delivered to parliament in Ottawa on Tuesday afternoon local time. Tens of thousands of Chinese millionaires in the queue will reportedly have their applications scrapped and their application fees returned.

 

The decision came less than a week after the South China Morning Post published a series of investigative reports into the controversial 28-year-old scheme.

 

The Post revealed how the scheme spun out of control when Canada’s Hong Kong consulate was overwhelmed by a massive influx of applications from mainland millionaires. Applications to the scheme were frozen in 2012 as a result, as immigration staff struggled to clear the backlog.

 

In recent years, significant progress has been made to better align the immigration system with Canada’s economic needs. The current immigrant investor program stands out as an exception to this success,” Flaherty’s budget papers said.

 

For decades, it has significantly undervalued Canadian permanent residence, providing a pathway to Canadian citizenship in exchange for a guaranteed loan that is significantly less than our peer countries require,” it read.

 

Under the scheme, would-be migrants worth a minimum of C$1.6 million (HK$11.3 million) loaned the government C$800,000 interest free for a period of five years. The simplicity and low relative cost of the risk-free scheme made it the world’s most popular wealth migration program.

 

A parallel investor migration scheme run by Quebec still remains open. Many Chinese migrants use the alternative scheme to get into Canada via the French-speaking province and then move elsewhere in Canada. The federal government has previously pledged to crack down on what it said was a fraudulent practice.

 

Flaherty also announced yesterday the scrapping of a smaller economic migration scheme for entrepreneurs.

 

All told, 59,000 investor applicants and 7,000 entrepreneurs will have their applications returned, Postmedia News reported. Seventy per cent of the backlog, as of last January, was Chinese, suggesting more than 46,000 mainlanders will be affected by yesterday’s announcements.

 

The Immigrant Investor Program, which has brought about 185,000 migrants to Canada, was instrumental in facilitating an exodus of rich Hongkongers in the wake of the 1989 Tiananmen massacre and in the run-up to the handover. More than 30,000 Hongkongers immigrated using the scheme, though SAR applications have dwindled since 1997.

So, the Canadian government is looking a liquidity-splooging gift-horse in the mouth and saying "no, thanks" - an impressive decision to take given the potential weakness in the real economy... we'll see how long it takes for the decision to be unwound or altered...

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ZeroPower's picture

The Canadian economy is rolling over and their recent jobs situation is worse than the US

 

It's comparable or even better than recent US jobs reports. Just look at the monthly data.

booboo's picture

That was a joke right? Soooo... nobody told you that the data.......never mind.

The Dunce's picture

Canada sucks.  I don't blame the fat mayor of Toronto for smoking crack.  Have you seen the price of houses in Vancouver.  Yikes.

Freddie's picture

Make all those Chinese triads and commie party looters robbing the Chinese blind stay in Quebec.  They will be begging to go back to China after dealing with the cheap Quebecois. 

Freddie's picture

LOL!  Well at least they have a good sense of humor. 

msamour's picture

If I go to your country and start insulting you in my language will you understand? That asshole is lucky he didn't get his ass kicked. One popular thing to do up here is take an asshole like that, and tie him up to a tree in the woods. Pour some honey on him. Let the bear take care of the rest...

 

Fucking ass wipes!

ReactionToClosedMinds's picture

very good ....very funny....very true

DumpsterFire's picture

According to douche bank, U.S. housing is undervalued.... WTF?

Carpenter1's picture

Chinese Govt. talking to Canadian Govt. "Stop facilitating our embezzling criminals or we'll stop buying your resources."

Canadian Govt. "GULP!, ok, right away!"

 

And like that, the housing bubble ends

ReactionToClosedMinds's picture

that very well may be true sadly ..but still good comment

pitz's picture

Very little of Canada's resource output ends up in China. 

disabledvet's picture

really? well they sure want it to.

Lore's picture

I have no problem with this comparatively insignificant and apparently temporary influx of solvent Chinese migrants who can pay their bills.  They bring their capital, invest, create jobs, pay taxes.  And we're only talking a few tens of thousands of investor applicants: a mere slice of the population of one small city.  Wouldn't at least 91.8 million Americans love to be in the same position! 

Seriously, my observation from travel across the nation and discussion with family realtors is that the Chinese phenomenon is highly concentrated in small parts of a few major centers and doesn't influence the broad Canadian real estate market at all. Regional markets seem driven to a much greater extent by local resource wealth, small 'c' conservative government, Agenda 21 manipulation, demographics, and other factors. It's noteworthy that <1% of mortgage holders are in arrears. Canadians carry an awful lot of debt, but seem to be managing it.

Furthermore, read the following article and you get the sense that the Harper government may be closing the gates to pre-empt a boomerang effect: 

Thousands of Chinese-Canadians lured back to Hong Kong by better job prospects than Vancouver can offer (National Post, 27-May-2013)

Surgical deflation of the hottest urban bubbles (e.g., "HongCouver's Glass Skyline") could be the intended effect, with promise of greater stability overall. Knowing how absurd Vancouver prices have become, I favour a strategy that checks speculative forces that otherwise exacerbate market volatility. If this interpretation is correct, more such measures could and likely should be in the pipeline. Rgds

Carpenter1's picture

You seem to think these are primarily hard working entrepreneurial people. Maybe you're unaware  of the gargantuan losses  China has suffered due to embezzlement. Hundreds of thousands of Chinese officials, politicians, and business types have fled the country with trillions of dollars, not Yuan, dollars. 

 

No, these are not "solvent Chinese migrants who pay their bills." These are thieves needing a place to stash their stolen cash. Maybe you're cool with that too, so long as it ends up in your hands. 

 

 

Lore's picture

Well, the few that I know personally are NOT "thieves," and I'd rather invest in one of their productive enterprises than put my trust in psychopaths on Wall Street.

Furthermore, their eligible daughters are educated, well spoken, know who their real parents are, and don't show up for a date looking like Wal-Mart dumpster trash.

Regards

MeelionDollerBogus's picture

When in Rome... I'm sure China labels the founding of Taiwan as the same, embezzlers & thieves, but we regard Taiwan as a real nation & NOT part of China, don't we?

Carpenter1's picture

A distant 2nd to US, but a country Canada is desperate to court given the US economy's problems.

ebear's picture

You're kidding, right?   The Chinese govt. (AKA Communist Party) are the chief embezzlers.  Besides, immigration is not the key driver behind the bubble.  A lot of this property is owned offshore and managed through trusts.  Until they change the rules on foreign ownership, the bubble will persist.

It's really very simple.  The world is awash in money - much of it looted from places like Russia, China, India, Brazil... need I go on?   That money has to go somewhere.  So, what does it look for in these unstable times?  A nation with liberal foreign investment rules and a history of upholding the Rule of Law.  It also doesn't hurt if the people are welcoming, being mainly immigrants themselves, and that the country isn't overpopulated or lacking in anything resourcewise, thus ensuring social stability. So name one other country that fits that description?

That's not to say that prices can't come down.  I'm sure the RE market in Monaco and Geneva have their fluctuations as well, but frankly, until the looting stops, I don't think you'll see much change.  This is not speculation, as most understand it.  It is more a form of insurance.

StychoKiller's picture

Beg to differ, the World is awash in FIAT Munny, NOT MONEY!

20-20 Hindsight's picture

There's a difference between FIAT and "real" money?

MeelionDollerBogus's picture

You wrote THAT... on ZEROHEDGE?
STEP AWAY FROM THE space-time spreadsheet,
do NOT dare try to DIVIDE BY ZERO.
I'm watchin' you.

MeelionDollerBogus's picture

If I was as miserable as that fat fuck perhaps I'd consider smoking crack too.

Wahooo's picture

Yes, I think I just heard her sigh.

eucalyptus's picture

native vancouver-ites might actually be able to afford a shoebox now?

pitz's picture

Not likely to make much, if any of a difference.  Because there was very little "foreign money"  invested in Canadian RE.  The Canadians that run their mouthes off, claiming 'foreigners' are buying Canadian RE, are those who haven't really accepted that immigrants, from Asia, and elsewhere, move to Canada and take out subprime CMHC mortgages just like Canadians who emigrated from Europe and elsewhere have been doing for decades. 

After all, if "foreign money" were a factor in Canadian RE, then overall leverage would be declining.  But when you really dig into what's going on, it is apparent that the root cause of Canada's housing bubble is an enormous amount of subprime credit emmitted into the market.  Canada has the CMHC, guaranteeing nearly $900B of subprime debt.  Fannie & Freddie were only $5-$6T entities at the top, so $900B multiplied by the traditional 10:1 ratio between Canada and the USA, implies dramatically more government participation and subprime mortgage activity in Canada than was ever experienced in the USA at the peak of its housing bubble.   

logicalman's picture

Few Canadians know this.

CMHC looks almost exactly like the US sub-prime madness, just under a different name.

 

pitz's picture

The CMHC even lies about guaranteeing subprime mortgages, on their own webpage.  And incompetent or ignorant Realtors and other sell-siders point to such as 'proof' there's no subprime in Canada.  By definition, nobody would go to the CMHC and ask for subprime mortgage insurance, if the loan in question was considered to be a prime asset. 

logicalman's picture

If you want to see some real madness take a look at tax shelters, Commercial Mortage Backed Securiies, illegal banking practices and identity theft in Canada.

http://paperednotes.com/

 

Dingleberry's picture

We've seen this movie before. 

Reminds me of all the Friday the 13 sequels I watched as a kid. 

Same shit. Same killer. Different victims.

We know the ending.

Spitzer's picture

Trust me.. ZeroHedge member Canadians know this all too well.

I talked my X out of buying a house in 2010. And I guess Im still wrong eh..  It has been awfully hard to cling to reality in Canada over the last few years.

Seer's picture

I can empathize.  I "talked*" my current wife into selling hers in 2009 (I think that's the year).  And yet the market has continued to go up...  But, she'd worked for a large bank and it's quite likely that she'd have been axed and would have had to dump the mortgage.  So, I'd gotten her away from a market that's going to crash, and away from a Big Bank: I'm a good influence :-)

* She's extremely bright.  I just kind of painted the picture and the next thing I knew she was contacting an agent.

LauraB's picture

Hard after 2 years?  Just wait until 8 years have passed.  In 2006, I talked my husband into selling our townhouse and renting a single family home while waiting to buy our own after the bubble popped.  Our kids were 2 and 4 then.  Now they are 9 and 12 and we are still renting.  Lucky for us, we found a single family home in a nice neighborhood to rent at a good price.  Today there are very few SFHs for rent in our area and those that are of equal size to ours are asking about $1000/month more than we're paying.

We made the right move, as our townhouse had tripled in price between the time we bought and sold.  Although prices have fallen in our area, they are still about twice what they were pre-bubble.  This past Sept-Nov, prices seemed to finally be falling back to reality and I was starting to think about buying.  Over the winter, there have been very few sales, but the houses that have sold went for $100s of thousands more than they should have based on the price/sq. ft. of the most recent sales around them (i.e. they sold for more than twice the price that similar houses in their neighborhoods sold for just a month or two before them).  I don't understand how they appraised based on the most recent sales data, unless there is some mortgage fraud involved. Also, several of the houses that sold at the high prices this winter had been sitting on the market for years because they were so overpriced, but sold all of a sudden (probably because there was very low inventory and they were the best houses of what was left).  I'm now watching to see what happens in the Spring as more inventory comes on the market - will the sky-high prices of Dec-Feb hold up or will price declines that started occurring in Sept-Nov resume? 

MeelionDollerBogus's picture

Appraised?
Last time an appraiser came to a friend's house he literally was told to pick a number and that is what would be written down.
Since my friend wanted the real number he told the "appraiser" to go fuck himself & leave.

Seer's picture

Yes.

And recently didn't they terminate 40-year terms?  Maybe they saw that they were holding too much heat to the fire...

From what I could see immigrants tended to have multiple wager-earners in a given residence.  Good in that the loss of a single job might not be catastrophic.  Bad in that there are fewer big earners: lower-wage jobs tend to be more easily severed.

I think that the Chinese influence is more of a marketing thing, a facade in that it provides an appearance that big money wants in (and if big money wants in then all is well).  BUT, make no mistake about it, in some places it's pretty clear that money is being thrown around.

Just when I think that Australia is going to beat Canada to the dive something like this pops up (and while in numerical terms it might not have a lot of punch I'm thinking that it's a big hit to confidence).  The longer they go the bigger will be the crash.  Should be pretty spectacular...

pitz's picture

Most of the immigrants arrive with little more in cash than enough to buy a used car and rent an appartment.  Yes many of them work hard, but its usually lower paying jobs.  But they also borrow hard, in the belief that borrowing for home ownership will get them ahead. 

Seer's picture

That's pretty much it.

I tend to think that immigrants are just the next round of suckers.  At some point the collective will realize that spinning the hamster wheel faster and faster not only is unhealthy but it's pointless.

y3maxx's picture

Western Canadian Provinces will secede before agreeing to this.

Freddie's picture

Agreeing to what?  Letting China invade?  Most of the hosers up in energy rich parts of Central West Canada are like conservatives.   We should band together and take both countries back from the ****ing NWO tribes.

Seer's picture

"Most of the hosers up in energy rich parts of Central West Canada are like conservatives."

Your notion of what a conservative is is, well, interesting...

Shitting in one's water and calling it a success/conservative is a pretty sad thing.

Rock On Roger's picture

Into which water are we shitting Mr. Seer. And where does your shit go? Or maybe you don't shit? Or maybe you don't know shit?

 

Stack On

 

ReactionToClosedMinds's picture

mespeculates "Seer' is a bolshevik wannabe...... but has no idea what I just said

Seer's picture

I know shit.

I'm a farmer.

Thank you for inquiring.

Rock On Roger's picture

I understand now. I have shit on my boots too.

 

Stack On

 

Spitzer's picture

Fuck off you sad sack of ever living shit.

 

Took time from jacking off to watch an anti fracing propaganda piece eh..

Seer's picture

Are you directing this drivel towards me?  If so, well, you're a pretty sad thing...

BTW - I don't riide on ANY bandwagons.

BTW2 - Fucking up one's environment is fucking up one's environment.  The logic in this is independent of any propganda campaign.  The rich fucks getting tax favors from their paid-for politicians won't be living in the lands that they destroy.  Sorry if the facts are inconvenient to your myopia...

Spitzer's picture

keep getting your advice from Micheal Moore and the Daily show all you want

MeelionDollerBogus's picture

The confusion is deliberate: in Canada they actually call themselves the Conservative Party of Canada or CPC.
It's annoying. They don't act conservative to me & the Liberals seem only liberal with compliance to the law (like the "Conservatives").

Osmium's picture

Housing prices in Stratford seemed quite high when I was there in 2002.  I knew a couple that managed to buy a house, but they said they would be eating Kraft Dinner (Kraft mac and cheese) for years because of the high payments.