"This Is Going To Blow Sky High" - Observations On Canada's Housing Market

Tyler Durden's picture

For months we've been warning about real estate bubbles re-emerging in various markets around the world from Canada to Australia (see "There Are 66,719 Empty Mansions In Vancouver" and "Vancouver Home Sales Crash 40%, As Toronto Home Prices Soar 22%").  And while facts and figures clearly indicate that certain markets are bubbling over courtesy of all the same mistakes that caused the 'great recession' in 2008, nothing helps to confirm the truly obscene nature of a real estate bubble quite like attending a good ole-fashioned, get-rich-quick real estate expo. As such, below are the musings of one financial market observer who recently attended the Canadian Real Estate Wealth Expo as a joke but walked away convinced the system is about "to blow sky high."

* * *

Originally Authored By Tim Bergin of On Beyond Investing

Originally, I thought this would be a bit of a joke.  There were billboards in all the Toronto subway cars advertising the Canadian Real Estate Wealth Expo - learn how to become a millionaire.  I thought this was so ridiculous, it may be fun.  What better way to experience the top of the housing market than watching Tony Robbins and Pitbull along with a bunch of US real estate professionals explain how Toronto real estate is the path to riches.

Prices were originally $150 per ticket, but I was able to buy for $50.  While it deeply bothers me that I paid $50 to these shameless (amoral) self-promoters, I thought it would be worth it to witness, in person, the top of the housing market.

I had thought, there can’t be that many people stupid enough to attend this, but I was very wrong - 15,000 people were there!  I was blown away.  Bubbles are largely psychological.  This crowd was tangible proof of that.  15k people in one spot listening to Americans explain why real estate in Toronto is an exceptional investment.  The whole experience was horrifying.  The crowd was very well-dressed, middle- to upper-middle class (from appearances), and super excited to hear how much money could be made if you just buy real estate (most of them clearly already owned).

The first real segment of the expo was a panel of Canadian developers and real estate agents giving their views on the market.  It actually started off a touch bearish, which surprised me.  Two of the panelists were saying that prices are exceptionally high and no market goes up forever.  With that slight bit of caution thrown out there, it became a real estate FOMO-building talk.

There are, apparently, two very important things to know when dealing with real estate.  First, you have to face your fear; this fear is to be ignored and then you should ‘just do it’ and 'buy now'.  The next step is find what you can afford and then buy it.  Ignore all ‘non-doers’, don’t overanalyze or focus on the numbers, just fucking buy.  To allay fears the speakers are actually quite clever as they shift between a long to short term focus when it suits.  For example, now is a great time to buy because short-term the market is on fire. If, however, markets cool then you just hold because it always goes up long-term - and you are a savvy long-term buyer, aren’t you?  By showing no scenario where you can lose I can see how this pitch works on the susceptible.

The second important factor in real estate is financing.  Not everyone has money, so what can they do?  The answers were shocking.  Be ‘creative’ was the first response.  Pool your money, borrow from friends and family, own just 5% of a house, get the money however you can and just do it - remember, it only goes up.  Other financing suggestions were get cozy with a lender and they will ‘bend the rules’ for you!  The fact that the biggest condo developer in Canada (Brad Lamb) said lenders will bend (but not break, apparently) rules to get you financing in front of 15k people with most people smiling and nodding was shocking.

So there you go - when it comes to Toronto real estate, just do it (using borrowed money any way you can get it).

The booths outside of the presentation hall were just as troublesome.  Plenty of “high double-digit monthly yields”, retire early with real estate, “everyone needs a place to live - buy apartments” type messages.  Almost all of these pitches were second lien lending.  Most offered yields in the 8 to 10% range.  The presentations all suggested that you can borrow money, if you don’t have it, at 4% and then buy these investments at 10% - easy money.

The apartment pitch booth was like most other pitches - it revolved around stable cash flows + mortgage paydown by renter + equity appreciation = profit.  (Now that all sounds great but owning a condo at current prices in Toronto is a negatively carrying asset, so where does this cash flow come from?)  Further, investing in apartment funds is even better if you borrow the money to do so.  The pitch goes on to explain that levering a 30% return makes you more money than not levering...

The Paramount Equity pitch was also interesting and stated in all caps “HIGH DOUBLE-DIGIT RETURNS ON YOUR CASH, RRSP”.  This product pays monthly, is a second lien mortgage, with a one year term and LTV <85%.  Paramount uses clever language that states they cover the cost of defaults.  By that they mean they pay some of the fees, not the default risk itself.

There was a space to pick up business cards.  I got quite a few from real estate investors.  I plan on emailing them all to learn just how bad their pitch/product is.  I want to learn more about how these second lien investor pools are sourced and just how bad this is going to be.

Also, perhaps there will be an opportunity to meet a bunch of distressed sellers, before they even know it themselves…

Nowhere in any of this was there ever a mention of risk, the dangers of leverage, how terrible negative equity can be, how that can trap you, etc.

The amount of shadow leverage in this system is crazy.  The terms on these second lien loans is 1yr.  What happens when all of these loans are called?  Even lenders with first positions will see clients sell when these loans become due and there is no money to pay them.

This is going to blow sky high.

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Bill of Rights's picture

Funny how this FBI could not prove who did 911, yet they have proof Russia was involved in our elections. This entire abortion is bull shit. Always be suspicious when liberals side with one entity of the world.

Fake

Canadian Dirtlump's picture

The day this housing market goes nuclear, I'm going streaking. I can't fukking wait.

 

 

Luc X. Ifer's picture

The event itself speaks clearly to the ones having a functional inteligence between their ears that the Toronto's real estate Ponzi scheme is at peak bubble and very close to kaboom. This is what Ponzi schemes owners do when their con is close to pop and be revealed, they organize mega parties and shows to calm and reinforce the belief in their solvability in everybody around so that their scheme functions just a little bit more on life support. This is the signal to pull-out ASAP not to put money anymore into it.

Mano-A-Mano's picture
Mano-A-Mano (not verified) Luc X. Ifer Mar 20, 2017 7:54 PM

The entire Western World will pay dearly for the greatest injustice of the 20th century.

http://biblicisminstitute.wordpress.com/2014/07/15/the-greatest-injustic...

kavlar's picture
kavlar (not verified) Mano-A-Mano Mar 20, 2017 7:55 PM

Like they say, Karma is a biyatch.

xythras's picture
xythras (not verified) Joe Trader Mar 20, 2017 9:21 PM
Canada will fell the burn as soon as the chinks will run out of their fake paper money. Trump will be there and kick some yellow ass. 

The Upcoming Trade War Between the US and China Will Be the Biggest in the History of the Planet

http://dailywesterner.com/news/2017-03-20/the-upcoming-trade-war-between...

 


blue fin's picture
blue fin (not verified) xythras Mar 20, 2017 10:03 PM

The canucks are about to get screwed.

Well, c'est la vie, as they say it.

 

philipat's picture

Another great contrary indicator of RE market tops is the number of daytime TV shows covering House flipping, fixer-uppers, house auction bargains etc etc. All with the theme of getting rich quick by "investing" in Real Estate.

Manthong's picture

Well, the good news is that there are plenty of Mexicans ”migrating” up there to buy the houses.

..or maybe they will just displace the Eskimos.

..if the kid pulls off his shirt and jumps on the snowboard, they might all become hosers and follow him.

 

Manthong's picture

“shadow leverage”

..is that anything like a huge dark pike up one’s posterior?

Manthong's picture

Troo-doo…

“our diversity is a source of strength”

Yeah right… divided we stand united we fall.

..makes sense to a real hoser

Toronto Kid's picture

Getting screwed is when it's reasonable to say you didn't see it coming. There is no way that any Canadian can say they didn't see this financial disaster coming.

Manthong's picture

hmm.. maybe the market could be equitably stabilized by imposing a 15 percent tax on home sales or something like that.

..better yet, how about a 50 percent tax on food, childbirth and most recreational activity?

..but you better goddam leave the Montreal and Vancouver strippers out of that equation.

Manthong's picture

Maybe I am Loonie this morning..

..but it is time to go out and get a twofer in the Great White North.

Eh?

 

Peg C.'s picture

The Habs say "c'est la vie," not the Canucks. ;-)

Lore's picture

Your "Chinks" (old-fashioned racist term for Chinese) constitute a fraction of the local market. One might as well blame them for the soaring DJIA.  "Chinese capital flight," to the extent that it is indeed happening, seems to be a side issue compared to the overarching danger of systemic corruption.  Everybody has their hands dirty, from psychopathic real estate agents to developers to politicians to credit issuers to regulators.

On that note, I am sick of hearing local entitlement-acculturated libtards bastardize the word "affordability."  For starters, every house has a price at which it sells, making it "affordable" to SOMEone. And what a coincidence, that the loudest gripes about "affordability" arise in the midst of the most desirable places to live!  Shop outside the hot zones, and you'll be amazed by how much you can stretch your (borrowed) dollars!

The pricing mechanism at the center of bubble zones has been ruined by all the incredible corruption, which IMO includes selective government tampering (rent controls, tax breaks, subsidies, rapacious taxation).  Market manipulation always distorts valuation.  I have real estate agents in my family who tell shocking anecdotes about the dirty tactics employed by rotten people in the industry.  Corruption seems to run deep.

Most importantly, anybody who deliberately maxes out their mortgage eligibility, leveraging themselves to the hilt, deserves their popped-bubble "upside-down" debt hell absolutely.

cue in cue's picture
cue in cue (not verified) Lore Mar 21, 2017 7:56 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

JuliaS's picture

Canadian housing market is heavily regulated (corrupted) with taxes and rebates. When government picks winners and losers and engages in price fixing, there's always speculation. Add zero interest rates and the outcome is certain. Bubble will grow until it can't grow anymore and then it'll pop.

Affordable housing programs of which there's plenty, drive up the cost of living. Subsidizing rentes for low income tennants drives up rents. First time buyer incentives ensure a constant influx of greater fools and most media outlets in Canada get the majority of their ad revenue from RE.

When Canadian housing market collapses, you'll see many newspapers and TV stations go out of business as they're nothing but cheerleaders for RE agencies with some filler thrown in to make them sound less biased.

We've seen plenty of fake news come out of Canada in recent years with agents pretending to be buyers. People paid to stand in lines in front of condo towers etc.

Whoa Dammit's picture

OT:  Portland to put homeless in volunteeer homeowner's backyards. Great comments too, like:

 

Should liven up those summer bbqs with the kids. While everyone grills you can watch your backyard neighbors fight and roll around on the ground in a drunken stupor urinating on themselves.

http://www.thegatewaypundit.com/2017/03/portland-put-homeless-people-hom...

Xena fobe's picture

Sounds like an article from the Onion.  Funniest thing I've read in months.

ZD1's picture

At least the commie thugs who run the Peoples Republic of Portland are not (yet) dictating that home owners must house the homeless in their backyards?

philipat's picture

LA should borrow this scheme and put refugees in the back yards of the Hollywood "stars" who have been so vocal in their support and anti-Trump illegal alien policies and in support of these poor people?

John_Coltrane's picture

I bet the refugees would really enjoy the infinity pools and spa facilities in the stars back yard. And ready access to a variety of mind altering drugs would be a bonus for the refugees.

Maybe the stars could train them as pool cleaners, maids and nannies to offset the costs? I really like your concept.

Stars could loan out their Teslas so the refugees would have transportation. Hey, they're self-driving right?

Possible script for a Simpson's episode I think.

Luc X. Ifer's picture

The commie gov should summon Bill Gates, Tim Cock & Co. to offer shelter to the homeless but they don't. Guess why. How stupid people can be, when are they gonna understand who's the system and for whom's benefit trully the system exists and functions. 

Manthong's picture

..don’t forget the projectile vomiting and butt effluent part of the party.

The kids will get a good lesson.

Luc X. Ifer's picture

Fuck u, u fascist muslim mother fucker.

Mustafa Kemal's picture

Hey Lucifer, you dont have to be  muslim to know the Zionists, with the help of the Evangelicals, stole the palestinian land we now call Isreal. You also dont have to be a muslim to know that this thievery is continuing apace today.

They also invented terrorism with their bombing of the King David hotel.

In the initial phase of the thievery, they created over half a million refugees.

Luc X. Ifer's picture

Fuck u, u fascist muslim mother fucker.

ZD1's picture

The article is about Canada's housing costs, but you Islamic cucks have once again tried to highjack the thread with your ME shit. 

Jews were in the area known as Israel eons before Islam was even dreamed up. 

How many Jews, Christians, and non-Muslims are left in the Muslim countries surrounding Israel? 

Practically NONE. They've all been driven out or murdered. 

 

 

logicalman's picture

Lots of Jews in Iran.

DNA links the Jews to Northern Turkey, not Palesting.

ISIS never attacks Israel for some odd reason.

Just food for thought.

 

zebra77a's picture

In Miami in 1925 an acre of prime real estate went for $1 million.. Ten years later in the height of the Great Depression the same acre went for $1000.. Think our ancestors were retarded just watch we haven't seen nothing yet..

In Calgary and Alberta close to 100,000 people left the province since oil collapsed starting Aug 2015 yet real estate prices did not move .. Sure maybe they did not own but they did rent. The laws there carefully protect the banks from requiring to show its a repo sale, for all we know it could be every second house.

I do know in Drayton Valley, AB the one local bank was getting 25 sets of jingle mail a month people mailing in there house keys in a town of maybe 2500 people.. The gov bodies desperately want even more house price inflation as the mil rate on a $450 K house is a lot more than on $150K house..

The end of this charlatan system is nigh..

jus_lite_reading's picture

Indeed and if you noticed, the price of RE in Canada continued to climb all the way to where it is now while oil dropped to a decade low of $25pb. Why? Simple, like in all of the big cities, many Chinese and Russian billionaires parked their money out of their countries. RE is a tax benefit so long as the taxes stay low. 2017 in Canada is like 2006 in the USA. Sit back and watch. Canada responds to crisis w/ QE, bond buys and other "don't call it inflation" inflation tactics. Then other countries are made to follow suit and the great ponzi continues.

hongdo's picture

True.  When there is actually real money to be made, it is a closely held secret.  When they need your money, the tupper-ware parties are formed.  I remember the early days of the US real estate boom.  The RE agents were scurrying around secretly buying properties and telling people their houses were worth nothing.  At the end of the boom they were scurrying around selling properties telling people the houses werre worth a fortune.

yogibear's picture

Been hearing this for years and nothing happens.

The central bank and government keep propping it up. 

ebear's picture

Bears are always early.  You didn't know that?

divingengineer's picture

I've been making fun of people like these real estate idiots for years.
And watching them build more wealth and live a better lifestyle than me the whole time.
Classic investing metrics don't work anymore.
They'll probably make a mint.
I'll die poor, with a bunch of worthless gold coins under the mattress.

Haus-Targaryen's picture

If you are a north of 75, then that is pretty likely I'd say. 

If you are younger than 75, the crash we've all been waiting for since Bernanke discovered CTRL + P will manifest itself in our lifetimes. 

I have come to the conclusion, now we are in the 2nd longest bull market in the history of mankind, those controlling the money supply and interests rates know this is their last shot.  They understand that once this one blows there is no coming back and no putting things back to the way they were. 

If you think about it, it makes sense why they are doing it.  Their personal power base, their personal fortunes are going to evaporate along with everyone else's.  They'll see themselves from being on TV and getting whisked around the world from cocktail party with other similarly beautiful people to other cocktail parties with other beautiful people to some average schmuck, whose Economic PhD in Keynesian economics has become a scarlet letter. These people will be buying a mid-80s fixer-upper in the suburbs of Scranton wanting to live their life in peace.

For those in charge, this is it.  

Best thing we can do for our own sanity?  Settle into this dysfunctional system for the long haul.  The USSR started counting poured foundations of highrises as "completed buildings" for GDP purposes back in the 70s.  This can go on a lot longer than anticipated. 

Keep stacking, turn off Gergory Mandarino and Alex Jones, turn on James Rickards, the Morgen Report and Andy Hoffmann. 

Prepare yourself mentally for what comes.  When this does happen my career path with *poof* be gone never to return again.  I have a plan as to what to do next.  Do you?

After the USSR's collapse, many people whose careers and livelihoods were dependent on "the system" turned into raging alchies or killed themselves.  Don't be one of them. 

Use this time and the knowledge you have to plan.  Its a gift most people won't ever take advantage of. 

 

Luc X. Ifer's picture

Congrats Haus, I'm born and raised under the soviets and I'm happy to see that more and more the westerners catch-up and see the analogy and how similar are the systems - practically identic, and what logically follows - a replicated collapse however, what was in Eastern Europe is going to be children bedtime story comparying with what it will be because of the global scale of the cancer, not bounded anymore by healtier, functional economies. In 1989, 1990 there were the Western Europe, Japan and US to absorb the shock, now that pillow is gone and we will flat land on tough concrete. 

mtl4's picture

Haus, you're spot on and the reason why this bull market has been able to run is visible in the chart below.  Governments have deliberately kept this low for their own benefit (they can spend indefinitely) but this does of course cause secondary problems in areas like pension/insurance returns, runaway stock markets etc.  It is unsustainable but not everyone knows or understands why, they simply know it doesn't feel right.  Gov't has relied on CB's to manipulate the markets far longer than any expected but they have now lost all market confidence due to simply crying wolf too many times.  This will inevitably lead to an over correction late (attempt to regain confidence) and this will certainly reverse this massive asset (stocks, real estate, art, cars, etc) bull market at some point in the not too distant future but not before bond markets get absolutely monkey hammered.  The "system" has become government and that is the real bubble that is popping just like it did in eastern europe in the late 1980's.  Asset prices may drop when it happens (since credit shrinks) but anything tied to government will be wiped out entirely and thus this is why moveable assets are the best place to be when it goes down.  Real estate will also get hammered since it requires lots of credit to buy at current prices and it's an easy target for gov't to tax when times get tough.

http://static2.businessinsider.com/image/55fc35efbd86ef15008bb4f3/the-50...

ZRizzo's picture

KFC?  Are you celebrating death of D. Rockefeller?

koan's picture

"Is KFC still open?"

Dat fried chikn` doe...

BobEore's picture

While you could have called this past 10 year or so interlude of madness "the China Bubble," that would be to underrepresent the huge amount of European $ that flowed into this market - which appeared to the Yurps as unbelievably cheap.

Both sets of buyers were intent upon exercising their 'right' to move money out of sight of the taxman. In both cases, the closure of ALL loopholes by which to do so will signal 'the end' of the resulting bubble.

Fortunately, the bottom line stability and profitablity of the Canadian banking system has always been maintained by it's vast network of Caribbean money laundering and investment vehicles servicing the world's illict drug and human smuggling trades. They are well positioned to wait out the coming carnage, and be ready for when the next 'buy at the bottom' phase comes round.

House always wins. And Bronfman - not Brittania - rules the waves.

logicalman's picture

I think, if you do a little research, you will find that the Canadian banking system is quite a bit more fragile.

Toronto Kid's picture

If it was all over the NationalPost.com & globeandmail.com at the time, it wasn't a secret frickin bailout. No one can know about secret frickin bailouts in order for them to be secret. 'We forgot' is not a reason to call bailouts a secret.

'We forgot' is not a reason to call anything else a secret either.

Lore's picture

Call it what you like. There was no press until later. 

BobEore's picture

On the other hand...

by doing A LOT of deeper than superficial investigation... including, but not limited to on site study in mentioned southern locales, one might find that the

"Canadian banking system" is but the tip of an iceberg of international intrigue which would astonish those for whom the latest announcement of pending doom for a multi-headed hydra is taken straight up as the final word pon the matter.

Each to their own.