Tag Archives: Canada

Trudeau Prepares Sacrifice Of Canadian Job Market For Her Majesty

Remember Ottawa Justin is nothing more than her majesty’s spokesman…

Report: Canada Comfortable Resisting Trump By Intentionally Missing Trade Negotiation Timeline…

According to a CBC article citing a “Senior Canadian Official”, the Trudeau government is completely “comfortable” missing an October 1st deadline to join the U.S-Mexico trade alliance:

…”The source who spoke to CBC News on background, due to the sensitivity of the talks, said the external political pressure “is not a good enough reason,” for Canada to be forced into a fast finish.”… (more)

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This statement follows a series of actions by Canadian Foreign Minister Chrystia Freeland and Justin Trudeau which highlights their intent to resist any trade agreement while counting on domestic politics to deliver electoral forgiveness.  Indeed for all intents and purposes it would appear Justin and Chrystia are willing to damage their economy for political benefit.

Meanwhile the Mexican government is affirming their intent to go forward with a bilateral trade deal if needed because the U.S-Mexico joint agreement is in their best interests.  According to Mexico’s Chief Negotiator, Kenneth Smith-Ramos:

“We hope the U.S. and Canada will conclude their bilateral negotiation shortly. If that is not possible we are ready to advance bilaterally with the U.S … the agreement in principle that we closed with the U.S. is positive for Mexico because it preserves free trade and modernizes our trade agreement …”

A year ago it seemed almost impossible to see an agreement with Mexico that would facilitate the interests of both countries.  However, with the successful election of Mexican President Lopez-Obrador, a remarkable populist shift dramatically changed the landscape within the Mexican economic outlook and policy.

Outgoing Mexican President Peña Nieto, structured his economic policy around accepting multinational corporate investment and the parasitic outcomes at follow. Exfiltration of wealth and exploitation of resources/labor are an outcropping of predatory multinational trade exploitation and globalism.

Retention of the multinational schemes generally leads to massive corruption. In the U.S. this corruption is known as “lobbying”, in Mexico the process is called ‘bribery’; however, the activity is the same.

The incoming Mexican President, Lopez-Obrador (AMLO), is more of an economic nationalist; and quite remarkably his economic outlook, at least as his team has described the objectives so far, is quite Trumpian. You might even say: “Make Mexico Great Again”.

Both U.S. President Trump and Mexican President-elect AMLO have similar outlooks toward predatory multinational corporations and economic exploitation. If you think about how Mexico was used by the multinationals in the past twenty years; and then think about a very real possibility of a U.S President and Mexican President having an economic friendship; well,… holy cats, those multinationals could be remarkably nervous right now.

AMLO supports labor and has an agenda to create a strong middle-class. President Trump supports labor, and his economic agenda is laser focused on a strong middle-class. AMLO views Wall Street multinationals as predatory by disposition. President Trump views those same multinationals as tending toward predatory behavior and in need of correction for their participation in the erosion of the American middle-class. AMLO is a strong Mexican Nationalist. President Trump is a strong American Nationalist.

As long as AMLO stays away from the authoritarian tendencies of power, ie. government ownership of private industry; surprisingly he and President Trump are likely to have a great deal more in common than most would think. Both populists; both nationalists.

This explains why the framework of the U.S-Mexico trade agreement was possible to construct. Right now both teams are filling in the details.

With AMLO and President Trump, Mexico and the U.S. have joint-interests in an economic trade bloc. President Trump and President Lopez-Obrador have common objectives; and with the economic approach outlined by AMLO toward using Mexico’s energy resources as leverage for expanded investment, the U.S. is well positioned to help.

President Trump is well positioned to assist the united trade bloc with expanded cross-border investment for economic development. AMLO wants a higher standard of living for Mexican workers; President Trump wants greater parity between Mexican workers and their U.S. counterparts. Heck, it was U.S. Commerce Secretary Wilbur Ross and USTR Robert Lighthizer who first proposed raising the Mexican minimum wage. Now both countries have agreed to an incremental Mexican minimum wage aspect of $16/hr within the auto sector.

Combining the wage aspect with the content and origination agreement, this has become a win/win for both AMLO and President Trump. The multinationals within the auto-sector might not like it, but they’ve already put a massive amount of money into plant and manufacturing investment in their existing Mexican footprint. They have no choice.

In an generally overlooked outcome the nationalist interests of Mexico, specific to AMLO, are very close to alignment with the nationalist MAGA agenda of President Trump. Canada is the globalist oddball in this tri-fecta; which makes a trilateral deal almost impossible, and explains why Mexico is so willing to sign a bilateral agreement.

The U.S. economy is expanding at an unprecedented rate, and Mexico prepares to surf the MAGAnomic tsunami known as Donald Trump.

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Finish by listening to Canadian Ezra Levant of The Rebel to break it all down for us…

Source: by Sundance | The Conservative Tree House

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Canadian Economy Lost 51,600 Jobs In August – Largest Drop In Decade

Canada’s economy unexpectedly lost 51,600 jobs, with wage gains slowing and Ontario recording its biggest employment drop in nearly a decade, removing any urgency for the central bank to accelerate rate hikes.

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The nation’s largest province lost 80,100 jobs in August, all part-time, the biggest decline for Ontario since 2009. Nationally, the economy lost 92,000 part-time workers, though a 40,400 gain in full-time employment is one sign the labour market is firmer than the headline number suggests.

“The wacky world of Canadian jobs data stayed that way in August, but there was at least one positive amidst a generally downbeat report that came on the heels of an upbeat July. That positive was in a solid 40,000 rise in full time work, but that was swamped by a nose-dive in part time jobs,” Avery Shenfeld, managing director and chief economist with CIBC Capital Markets, wrote in a note to clients. 

The data released Friday by Statistics Canada in Ottawa reversed strong employment gains made earlier this summer, including sharp increases in Ontario. But the overall picture is one of a labour market gearing down markedly from last year and an economy not at risk of overheating. That reinforces expectations the Bank of Canada will take a cautious approach to increasing borrowing costs.

The jobs numbers are “consistent with a gradual rate hike path and really not a whole lot of urgency,” said Robert Kavcic, a senior economist at BMO Capital Markets.

The Canadian dollar slipped after the jobs report, down as much as 0.3 per cent to $1.3182 per U.S. dollar. The currency rose as much as 0.4 per cent Thursday after Bank of Canada Senior Deputy Governor Carolyn Wilkins said the central bank’s top officials debated this week whether to accelerate the pace of potential interest rate hikes, before finally choosing to stick to their current “gradual” path.

The Bank of Canada has raised interest rates four times since mid-2017 to keep inflation from moving permanently beyond its 2 per cent target, and indicated it will need to make additional hikes to keep price gains from accelerating because the economy is roughly at capacity.

So far in 2018, the economy has shed 14,600 jobs, but the number masks a 97,300 gain in full-time jobs. Part-time employment is down by 111,900 this year.

The net loss in August — which was the second largest monthly decline since the last recession — drove the unemployment rate to 6 per cent, from 5.8 per cent a month earlier, while wage gains decelerated to their slowest this year. However, the jobless rate still remains near four-decade lows.

Economists had expected a gain of 5,000 jobs and an unemployment rate of 5.9 per cent, according to the median estimate in a Bloomberg survey.

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Other Highlights

-Wage gains for all workers slowed in August, with average hourly pay up 2.9 per cent from a year ago. That’s the slowest pace since December.

-Wage gains for permanent employees were down to 2.6 per cent, the slowest since October

-Actual hours worked were up 1.6 per cent from a year ago, after an increase of 1.3 per cent in July, reflecting the increase in full-time workers

-By industry, the decline was broad-based and included a loss of 16,400 jobs in construction and 22,100 in the professional services sector.

Source: by Theophilos Argitis | Bloomberg News

Toronto Home Prices Sink Most on Record: Did the Bubble Just Burst?

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The three-month average home price in the Toronto area is down a record 14.2% following a flood of new listings and an interest rate hike by the Bank of Canada.

Sales fell most in eight years. Did Canada’s housing bubble just burst?

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Bloomberg reports Chill Descends on Toronto Housing as Prices Drop Most Since 1988.

Total home sales in Greater Toronto dropped to 5,977 in June, the lowest level since 2010 and down 15.1 percent from the month prior, data from the Canadian Real Estate Association show. Average prices are down 14.2 percent since March — the fastest 3-month decline in the history of the data back to 1988 — while the ratio of sales to new listings sits at its lowest level since 2009.

The June data comes after a series of measures by policy makers to tighten access to the market — and before the Bank of Canada hiked its benchmark interest rate last week, the first increase since 2010 that will further pinch mortgage eligibility. Prices and sales also fell in nearby regions such as Hamilton-Burlington and Kitchener-Waterloo, CREA data show.

Lawmakers, concerned that escalating prices could lead to a disorderly correction, imposed measures including tightened mortgage eligibility rules and a tax on foreign buyers. Toronto’s market has lost momentum, while in Vancouver sales plummeted last year on similar measures but have since rebounded.

The economists expect Toronto to follow Vancouver’s path — price adjustment at the top of the market with less impact at lower prices. Meanwhile, cities like Montreal and Ottawa look strong.

Vancouver rebounded after the restrictions and economists expect Toronto will do the same.

But at some point sanity will return. The bottom in both markets is a long way down.

By Mike “Mish” Shedlock

Canadian Housing Bubble Debt Stiring Financial Crisis Fears

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Toronto Condo Boom.

Everyone is fretting about the Canadian house price bubble and the mountain of debt it generates – from the IMF on down to the regular Canadian. Now even the Bank for International Settlement (BIS) and the Organization for Economic Co-operation and Development (OECD) warn about the risks.

Every city has its own housing market, and some aren’t so hot. But in Vancouver and Toronto, all heck has broken loose in recent years.

In Vancouver, for example, even as sales volume plunged 45% in August from a year ago – under the impact of the new 15% transfer tax aimed at Chinese non-resident investors – the “benchmark” price of a detached house soared by 35.8%, of an apartment by 26.9%, and of an attached house by 31.1%. Ludicrous price increases!

In Toronto, a similar scenario has been playing out, but not quite as wildly. In both cities, the median detached house now sells for well over C$1 million. Even the Bank of Canada has warned about them, though it has lowered rates last year to inflate the housing market further – instead of raising rate sharply, which would wring some speculative heat out of the system. But no one wants to deflate a housing bubble.

During the Financial Crisis, when real estate prices in the US collapsed and returned, if only briefly, to something reflecting the old normal, Canadian home prices barely dipped before re-soaring. And this has been going on for years and years and years.

The OECD in its Interim Economic Outlook warned:

Over recent years, real house prices have been growing at a similar or higher pace than prior to the crisis in a number of countries, including Canada, the United Kingdom, and the United States. The rise in real estate prices has pushed up price-to-rent ratios to record highs in several advanced economies.

Canada stands out. Even on an inflation-adjusted basis, Canadian home prices have long ago shot through the roof. The OECD supplied this bone-chilling chart. The top line (orange) represents Canadian house price changes, adjusted for inflation:

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In the US, several national indices have now exceeded the crazy prices of the Housing Bubble that started blowing up in 2006. In some cities, the median price has shot way past the prior bubble highs – in San Francisco, by over 50%! But other cities have lagged behind, and the national averages paper over the local bubbles.

In Canada, real estate is more concentrated. The Canadian market is about one-tenth the size of the US market. But the two largest local markets, Toronto and Vancouver, together make up 54% of the Teranet National Bank House Price Index. So when these two local bubbles begin to deflate – or implode – they will create enormous havoc across Canada.

Real estate is highly leveraged. It’s funded with debt. Many folks cite down-payment requirements in rationalizing why the Canadian market cannot implode, and why, if it does implode, it won’t pose a problem for the banks. However, an entire industry has sprung up to help homebuyers get around the down-payment requirements.

So household debt has been piling up for years, driven by mortgage debt. Statistics Canada reported two weeks ago that the ratio of household debt to disposable income has jumped to another record in the second quarter, to a breath-taking 167.6%:

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The BIS now too, in its Quarterly Review, jumped on the bandwagon of issuing ineffectual warnings about this pile of debt, fingering particularly China – and in the same breath Canada:

According to the BIS early warning indicators, which are intended to capture financial overheating and potential financial distress over medium-term horizons, credit growth continues to be unusually high relative to GDP in several Asian economies as well as in Canada.

Estimated debt service ratios, which attempt to capture principal and interest payments relative to income, appear to be at manageable levels at current interest rates for most countries, although they point to potential concerns in Brazil, Canada, China, and Turkey.

The BIS developed a metric – the “credit-to-GDP gap” – that compares current credit levels to long-term trends and serves as an early warning indicator for financial crises.

Everyone wants to know when the next financial crisis happens. It will happen, but once again, it will surprise the economic establishment because, in the eloquent words of the BIS, debts always “appear to be at manageable levels” – until suddenly, they’re not.

The country with the highest credit-to-GDP gap is China (30.1), and the second highest is Canada (12.1). When it comes to debt creation, it’s not a good idea to be mentioned in the same breath with China. Turkey (9.6) is next in line. Then Mexico (8.8). And Brazil (4.6). Oh, and Australia (4.4)! So housing-bubble Canada is in excellent company!

The only saving grace is the permanently near-zero-interest-rate environment. Because that’s what it takes to keep this thing from deflating, according to the BIS, and even then there are “concerns.” But these countries, particularly Canada, are going to be in trouble when rates rise even a little.

So have central banks painted themselves and their entire bailiwicks into a corner with their ingenious emergency policies that have been dragging on for eight years? You bet. Is there a way out? Nope. Not a good one, at least. It’s just a question of when and how – and who gets to pay.

By Wolf Richter | Wolf Street

 

Canada; The Myth Of An Epic Housing Bubble And The Next Great Housing Collapse

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Condos along Vancouver’s waterfront. (Photo: Getty Images)

Summary

  • U.S. investors betting on an epic U.S. style housing bust occurring in Canada have been doing so for a considerable period with no clear proof. 
  • Claims of a broad-economy wide housing bubble that is ready to burst are significantly overstated with no clear evidence that a bubble exists. 
  • The majority of price growth is coming from Vancouver and Toronto and there are specific reasons supporting higher prices in those markets. 
  • The conditions in Canada’s housing market are strikingly different compared to those that existed in the U.S. during the lead-up to the 2007 housing meltdown.

It appears that ‘group think‘, ignorance and cognitive dissonance have come to dominate the argument around whether Canada’s housing market is in bubble territory and poised to burst sometime soon. Struggling U.S. hedge funds, many of which missed out on the ‘big short‘ of book and movie fame, have been betting heavily on an epic Canadian housing meltdown by shorting Canada’s major banks, but to date have incurred considerable losses.

Then you have the chorus of economists, analysts and investors who have been claiming that not only has a massive real estate bubble formed in Canada but that it is poised to burst. In many cases, these proclamations go back as far as 2009 and despite being reiterated by naysayers now for close on seven years, a housing bust has yet to occur. Many including acclaimed investor Canada’s own Prem Watsa have stated that Canada’s housing market resembles that which existed in the U.S. during the run-up to the subprime crisis.

These claims rest upon a broad-range of assertions that a number of one-off, disruptive and unsustainable factors are driving Canadian housing prices ever higher, creating the perfect storm that will cause the bubble to burst in a spectacular manner. These claims, many of which have been voiced for some years now, include:substantial amounts of foreign (read Asian) investment;

  • lax lending standards;
  • large volumes of subprime mortgages;
  • growing financial stress being placed on households; and
  • the growing risk of external economic shocks.

However, it appears that many investors, particularly those based in the U.S. are ignoring the fundamental differences between the two markets and local attributes that will not only prevent an epic meltdown but backstop prices for some time to come. Let’s take a detailed look at some of the major myths that are regularly wheeled out by those who claim that a massive housing bubble exists in Canada and is poised to burst any time.

#1 There is a massive economy wide housing bubble

One of the main drivers of the massive U.S. housing meltdown was that frothy prices were not restricted to specific regional markets or segments but instead constituted an economy-wide housing bubble that was highly speculative in nature. And the risk that this posed to the U.S. financial system and economy was magnified by the prevalence of non-traditional and substandard lending practices as well as considerable volumes of inferior mortgage backed securities.

Yet in the case of Canada, overheated or bubbly housing markets are restricted to a small number of regional markets and market segments, with the growth of housing prices either slowing or falling across other regions. By the end of June 2016 it was only a handful of markets including Toronto, Vancouver and Hamilton-Burlington that experienced double-digit growth.

In fact, it was the considerable increase of house prices in those markets which for June rose by 16.8%, 11.4% and 14.2% year-over-year respectively, which was responsible for the Canadian national average growing by 11%. Other regional markets such as New Brunswick and Quebec grew at more modest rates of around 3%, whereas Novia Scotia remained flat. Then you have Alberta and Saskatchewan, which are among the most affected by the prolonged slump in crude, where house prices fell by 1.4% and 1.6% respectively.

It is these points which indicate that Canada’s housing market on whole, is starting to cool with the growth in the national average house price predominantly being driven by Toronto and Vancouver. This does not necessarily mean that either of those housing markets have entered bubbles with a range of market specific dynamics responsible for the ongoing price growth.

#2 A massive influx of foreign investment is responsible for higher housing prices

Probably one of the biggest myths regularly bandied about by those that claim the market is in rarefied bubble territory and ready to burst, is that the tremendous inflow of foreign investment, particularly from China, is driving prices to unrealistic levels, particularly in Toronto and Vancouver. While it is certainly undeniable that these markets are attracting considerable amounts of attention from foreign investors this is not the only or most important factor in causing prices to surge in those markets.

Even naysayers such as Capital Economics economist Paul Ashworth believes that surging house prices are not being caused by foreign investment but rather by Canadians taking advantage of cheap credit and relaxed lending standards.

In fact, according to a range of reports and research conducted by a number of economists there is very little evidence to support the assertion that foreign money is driving up housing prices. According to an article from Canada’s National Post earlier this year, vacancy rates in Vancouver are on average 2% which then increases to 7.5% for condos, with very few of those vacant properties being foreign owned. The same article goes onto state that it is the laws of supply and demand that are responsible for higher housing prices rather than foreign money.

Recent data from the B.C. government shows that between June 10 and June 29 only 3.3% of all real estate deals in Vancouver involved foreign nationals and as a share of sales by value they only amounted to 5.1% of all sales. This is a far cry from the figures to be expected from a market where foreign money is responsible driving property prices into a bubble.

Indeed, if we take a closer look at the property markets of Vancouver and Toronto it is possible to identify specific market dynamics that are responsible for higher prices and these factors will continue to push them higher for some time to come.

#3 Toronto and Vancouver are in bubble territory

According to the naysayers, Canada’s housing market is now truly defying common sense and that a colossal housing crash is on its way, with the housing markets in Vancouver and Toronto caught in massive bubbles. This they claim is supported by factors such as Canada being judged to have the most overvalued housing market among developed economies and that global investors are increasingly betting against Canadian housing in record numbers.

Nonetheless, there are also a range of factors that indicate that these claims are alarmist and inaccurate, with no evidence to support the view that housing bubbles exit in either market. Will Dunning, chief economist of industry group Mortgage Professionals Canada, believes that prices are sustainable and not representative of a property bubble, stating that this talk has been going on since 2008 with no evidence of one existing. He even went on to state:

Housing bubbles do not exist in Canada, . . .

If we turn to what defines an economic or market bubble it becomes apparent that Dunning could certainly be right. For a housing bubble to exist people have to be buying houses for purely speculative reasons and this has to be across a considerable portion of the market. Then to illustrate that a bubble exists there has to be expectations of self-fulfilling price growth and that those unrealistic expectations are leading to increased and excessive activity in the housing market.

The theories postulated by Nobel award winning economist Joseph Stiglitz also supports these notions, he defines a bubble as where the reason that the price is high today, is only because investors believe that the selling price will be higher tomorrow.

None of these factors in their entirety apply to Canada’s housing market nor those of Vancouver or Toronto. If anything it is far more mundane market specific factors that are driving housing prices ever higher. A group of academics from the University of British Colombia while proposing placing a tax on vacant properties in order to reduce the level of foreign investment in Vancouver have stated that the fundamental drivers of higher prices are higher demand and limited supply. Upon taking a closer look at the markets of Vancouver and Toronto this becomes very apparent.

You see, Toronto and Vancouver are defined as global gateway cities that sees them cast in the same light as global cities such as London, New York, Paris and Hong Kong that have far more expensive real estate markets. This makes them important destinations for immigrants, with them accepting around half of all external immigrants to Canada.

The reasons for this are predominantly economic with both cities, particularly because of the prolonged slump in oil prices, have the greatest concentration of jobs in Canada, with around 25% of total employment in Canada. And according to economists’ from Bank of Montreal these two cities accounted for all of Canada’s job growth in 2015.

It is these factors which according to National Bank economist Stefane Marion are responsible for the working age population in Toronto and Vancouver to be growing at a rate that is 70% faster than the national average.

The prolonged slump in oil has magnified this phenomenon, with the deep economic slump in Canada’s oil patch significantly impacting the economies of Alberta and Saskatchewan. This has not only made those regions less appealing to immigrants but triggered a marked uptick in the number of households seeking to relocate because of higher unemployment and falling wages.

Meanwhile, The Economist has theorized that this rapidly growing demand is placing considerable pressure on housing supplies particularly because of their unchanging supplies, stating:

The supply of housing is rather inelastic, so in the short term house-price inflation is driven more by demand factors, such as the number of households, disposable income, interest rates and the yield available on other assets. In recent years all of these have helped to push house prices steadily upwards, especially in big cities.

The constrained supply situation caused by limited inventories in both cities is easy to see. As the chart below illustrates, Toronto’s housing inventory by June of this year was at less than half of its 10 year average and a third lower than the previous year.

Source: Canadian Real Estate Association.

When turning to Vancouver it is possible to see that for the same period inventories are around 60% lower than the 10 year average and a third lower than a year earlier.

Source: Canadian Real Estate Association.

With expanding populations, driven by growing internal and external migration, causing demand to swell coupled with extremely limited housing supplies in Toronto and Vancouver there is considerable support for higher prices, which means there won’t a correction in those markets anytime soon.

#3 The Conditions in Canada are similar to those in the U.S. prior to the financial crisis

One of the biggest myths concerning Canada’s housing market is that the conditions that exist are similar to, if not the same as those that existed in the U.S. in the lead-up to the massive housing meltdown that almost caused the U.S. financial system to collapse in 2007.

According to ratings agency Moody’s:

. . rising levels of Canadian household debt relative to income, along with rapidly increasing house prices, have created conditions similar to those in the United States prior to the financial crisis of 2008.

Then there is Steve Eismann who rose to fame betting against the U.S. housing market in the lead-up to the subprime crisis. He is making similar claims to Moody’s but was doing so way back in 2013 and has been recommending that investors bet against Canada’s mortgages lenders and banks.

It is this which has attracted the attention of short-sellers and now sees Toronto-Dominion Bank (NYSE:TD) and Bank of Nova Scotia (NYSE:BNS) being the first and third most shorted stocks on the TSX.

However, there are a range of reasons why Canada is not a repeat of what was occurring in the U.S. back in 2006, key among these is far higher underwriting standards for loans and a distinct lack of subprime mortgages.

It appeared that way back in 2006, anyone with a pulse could obtain a mortgage with mortgage underwriting standards relaxed to levels that were ridiculously low. Then there was the huge influx of fraudulent applications and an extremely lax approach to checking applications for accuracy. This easy money helped to fuel ever rising house prices and give a leg up to the next round of frenzied speculation. No one, from mortgage brokers, to the major banks wanted the merry-go-round to end as they all sort to cash in on the growing frenzy.

Clearly, Canada has not reached this stage yet and in fact it is doubtful that it ever well, with its property market certainly not caught in the same type of speculative frenzy.

Furthermore, it was the presence of considerable volumes of subprime mortgages that essentially precipitated the U.S. housing meltdown. It is estimated that they made up somewhere between 18% and 21% of all mortgages originated in the run-up to the housing crash. Whereas, in Canada subprime mortgages are estimated to make-up less than 5% of the market, and that was when the market was at its peak. With Bank of Canada pushing for tighter mortgage underwriting standards since this figure was released, it will certainly have fallen.

Aside from these key differences there are also a range of other Canada specific factors to consider including:

  • the lack of non-recourse mortgages, a greater prevalence of mortgage insurance;
  • the fact that borrowers on average have higher levels of equity in their homes; and
  • lower loan-to-valuation ratios for non-insured mortgages.

As a result, these differences mean that the market is not exposed to the same degree of risk nor the same volume of rapid defaults that forced U.S. lenders in 2006 and 2007 to flip repossessed properties as quickly as possible, causing prices to cascade ever lower.

Final musings

The differences between Canada’s housing market and that which existed in the U.S. in the run-up to the housing meltdown, which almost caused the U.S. financial system to collapse, are strikingly important. They highlight that not only is a sharp correction or housing meltdown unlikely but that in marked contrast to the claims of naysayers that there is in fact no evidence of a housing bubble. If anything while some regional markets are cooling, Vancouver and Toronto’s ever higher housing prices can be attributed to demographic pressures, higher demand and constrained supply. These factors will push prices higher in those markets for some time to come and backstop prices if there is a sharp economic downturn. For all of these reasons it is difficult to envision an epic Canadian housing meltdown occurring any time soon.

by Caiman Valores | Seeking Alpha

Leak Reveals Secret Tax Crackdown On Foreign-Money Real Estate Deals In Vancouver

Confidential briefing for CRA auditors outlines strategy to tackle suspected tax cheats who do not report global income or who ‘flip’ homes – but reveals that last year, there was only one successful audit of global income for all of British Columbia

A backhoe destroys a C$6 million mansion in Vancouver’s Shaughnessy neighbourhood this year. The destruction of the well-kept home prompted community outrage and was cited in a briefing for Canadian tax auditors looking into Vancouver real estate transactions. Photo: Twitter / @DeborahAMG

A secret strategy briefing for Canada Revenue Agency auditors has revealed plans to crack down on real estate tax cheats in Vancouver, with 50 auditors being assigned to investigate purchases funded by unreported foreign income.

Presentation notes for the seminar, delivered to auditors on June 2 and leaked to the South China Morning Post, show that only one successful audit of worldwide income was conducted in British Columbia in the past year, in spite of Vancouver’s reputation as a hotspot for immigrant “astronaut families” whose breadwinners often work in mainland China and Hong Kong.

The plans, which come amid a furore over the role of Chinese money in Vancouver’s runaway housing market, were provided by a Canada Revenue Agency employee who attended the June 2 briefing. The briefing is identified as a “protected B” confidential document on the cover.

The cover for a confidential CRA briefing for auditors. Photo: SCMP Pictures

But the employee feared the sweep would prove inadequate. “Sure, they’ve upped the numbers because it’s hitting the papers,” they said. But on average, they estimated, each redeployed income auditor would only be able to conduct 10 to 12 audits per year – about 500 or 600 in total. “This is nothing,” compared to the likely scale of the cheating, they said.

Confidential briefing notes for CRA auditors reveal how the Canadian tax agency is targeting unreported global income and other issues related to real estate sales in the Vancouver region. Photo: SCMP Pictures

That estimate is in keeping with the briefing text which says the crackdown will “review the top 500 highest risk files within our region”.

The briefing lists four areas being targeted for audit under the CRA’s “real estate projects”, launched in response to “significant media attention”: unreported worldwide income, property “flipping”, under-reporting of capital gains from home sales, and under-reporting of Goods and Services Tax (GST) on sales of new homes.

‘High-end homes, minimal income’

The time-consuming global income audits will tackle “individuals living in high-valued areas in BC who are reporting minimal income not supporting their lifestyle”, as well as those who buy “high-end homes with minimal income being reported.”

The supposed case of a C$5.8 million home bought by someone who claimed a tax break intended for the poor is cited in the CRA briefing. Photo: SCMP Pictures

The presentation includes a photo of a luxury home supposedly bought for C$5.8million whose owner claimed the “working income tax benefit” for low earners. It also lists the tuition fees of Vancouver private schools.

 

Confidential briefing notes for CRA auditors show that 50 income tax auditors are being redeployed to tackle real estate cheats in BC. Photo: SCMP Pictures

Property flippers who swiftly resell homes for profit will meanwhile be audited to see if their properties truly qualify for exemption from capital gains tax, granted to people selling their principal residence.

The briefing describes various excuses given by owners who moved out of newly purchased homes, including a negative feng shui report, the “bad omen” of tripping over a crack in the sidewalk, and a painter dying in the home.

It cites the highly publicized case of a well-kept 20-year-old, C$6million mansion that was simply torn down after being bought, prompting community outrage.

Yes, we are getting a response now, but the government has known about this issue for a few years. They held back

CRA employee

The briefing does not say the owners of this home, or the $5.8 million home, are tax cheats and nor does the SCMP suggest so.

The CRA employee said the briefing, which was streamed online, was delivered by CRA’s Pacific region business intelligence director, Mal Gill.

The CRA briefing lists various excuses given by people who moved out of new homes, apparently claimed as principal residences. Photo: SCMP Pictures

Gill declined to discuss the briefing. “I cannot confirm anything to you,” he said, referring the SCMP to a CRA communications manager.

The case of a well-kept C$6million Vancouver home that was simply demolished after purchase is cited in leaked notes for Canadian tax auditors. Photo: SCMP Pictures

A spokeswoman said: “The CRA cannot comment or release information related to risk assessment or non-compliance strategies.”

However, she said real estate transactions in Toronto have been the subject of greater scrutiny, for some years. “More recently, the CRA has been actively monitoring and auditing real estate transactions in British Columbia,” she said.

“For the year ending March 31, 2016, the CRA completed 2,203 files [in BC and Ontario] related to real estate,” she said.

In addition to the 50 redeployed income auditors, the leaked briefing says CRA is assigning 20 GST auditors and 15 other staff to the real estate project in BC.

The CRA source said they leaked the material because, “like many people, I’m pretty disgusted by what’s happening here [in the Vancouver real estate market], and a lack of enforcement has been a part of the problem. Yes, we are getting a response now, but the government has known about this issue for a few years. They held back.”

The CRA briefing reveals that there was just one successful audit conducted on unreported global income in BC last fiscal year. Photo: SCMP Pictures

The employee said they were surprised to discover that only one successful audit of global income had been conducted in BC in the year to March 31. “That’s the ludicrousness of this. I was shocked when I saw this, and they only got C$27,000 in tax revenue out of it,” they said.

Asked whether this might show a widespread problem with undeclared worldwide income did not exist in BC, the source said: “No, what it shows is that inadequate people and resources have been put to the task. These [tax cheats] are highly sophisticated individuals, with good representation from their lawyers and accountants, and we are sending out our least experienced people to catch them. That’s the problem.”

Source cites CRA’s ‘racism fear’

Census data from 2011 has previously shown that 25,000 households in the City of Vancouver spent more on their housing costs than their entire declared income, with these representing 9.5 per cent of all households.

But far from being impoverished, such households were concentrated in some of the city’s most expensive neighborhoods, where homes sell for multi-million-dollar prices.

The source suggested CRA bureaucrats previously feared being labelled racist if they targeted low-income declarers buying real estate “because the vast majority of these cases, involving high real estate values, involve mainland Chinese”.

The crackdown was not intended for public knowledge, and instead was to satisfy “people from high up” in the CRA and government who wanted to know “what are you guys doing about this…there’s stuff hitting the papers every day”, the source said. Yet the briefing says the crackdown “will not address the major concerns about affordability of real estate”.

“The vast majority of these [undeclared global income] cases, involving high real estate values, involve mainland Chinese”

CRA employee

The source said there had previously been little done to check whether taxpayers were secretly living and working abroad while supporting a family in Vancouver. “There’s virtually no liaising done with immigration. The common auditor would never check when people are actually coming and going, to check whether they might be going back to China or wherever to work. You can be lied to, to your face: ‘Oh no, I live here [in Canada] full-time’.”

The leaked documents show that in in addition to the single audit on global income in the last fiscal year, CRA in BC conducted 93 successful audits on property flips, 20 on capital gains tax and 225 on under-reported GST. The audits yielded C$14.4 million in new tax, of which C$10million was GST. There was C$1.3 million in fines.

As of April 29, there were 40 audits of global income under way, 205 related to flipping, 34 related to capital gains and 428 related to GST.

The average Vancouver house price now sits around C$1.75million for the metropolitan region, while the Real Estate Board of Greater Vancouver’s “benchmark” price for all residential properties is C$889,100, a 30 per cent increase over the past year. However, incomes remain among the lowest in Canada, making Vancouver one of the world’s most un-affordable cities .

http://www.scmp.com/news/world/united-states-canada/article/1989586/leak-reveals-secret-tax-crackdown-foreign-money-real

The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email ian.young@scmp.com or on Twitter, @ianjamesyoung70