Winnipeg’s Real Estate Market: A bubble waiting to burst!

Is there a Canadian housing bubble? Is there a bubble right here in Winnipeg? If we were to listen to the ramblings of 99% of our Real Estate agents or the Winnipeg Real Estate Board, there would be a resounding NO!

However, it is of course in their best interest to keep pushing Real Estate along with their banking buddies, so right out of the gate their words hold little weight on this issue. The best way to get a true picture of where our current state of affairs is truly at, sits with global investors and economic leaders. And, every one of them from Doug Casey to Max Keiser say look out - because Canada is about to crash and crash hard.

The top reasons they give is that since 1999, Canadian banks have systematically lowered mortgage lending standards, encouraged banks to take excessive risk, eliminated the need for money when buying real estate, and turned what used to be an accomplishment and a privilege into a right and an entitlement.Sound familiar to our US friends sub-prime issues of 2008?

So, this brings into light the question, is there a Sub-Prime problem in Canada? When Doug Casey was asked this very question he said absolutely! In fact both he & Max Keiser both agree, our American friends have nothing on us when it comes to taking a perfectly useful asset like a home and turning it into a pile of casino chips!

Canadians have indeed ventured down the same road that the Americans forged. We've turned home ownership into a cult, then an economic holy grail, only difference is somehow we think it’s different here. Not only is this incorrect. The reality is we practically invented it.

Now, for the uninitiated, what exactly is Sub-Prime? Well, “Subprime” simply means lending to people who would not qualify under traditional guidelines. For example, buying a home once meant you needed a 25% down payment, then the bank would cough up the other 3/4's. Prior to 1999, nobody with less than a 10% down could qualify for mortgage insurance, (or get home financing). But after that, the feds dropped the bar to just 5% – opening the floodgates for both credit and higher house prices. Suddenly banks were encouraged to give 95% financing, since the taxpayers were wiping away the risk through CMHC. Subprime was born in Canada!

More incredibly, in 2003 CMHC eliminated all restrictions on the amount of money people could borrow in a high-ratio, high-risk loan, and still be insured. Suddenly, the way was clear for  beater Vancouver & Toronto 2-bedroom / 1-bathroom shacks to change hands for over a million-dollars with deposits small enough to fit on a few credit cards.

In fact, once the Harper Conservatives took office – just as the US housing market was imploding – Canada embraced the sub prime culture as no country on Earth has done before. Over many objections by MLA's, economists and scholars alike, Parliament incredibly approved dangerous 40-year-long amortizations and 0% down payments, which ignited the greatest surge in Canadian real estate values ever. (Since then, 40 has turned into 35, then to 30 and soon to 25, as the feds struggle to contain the damage yet to come.)

The result has been an orgy of personal and household debt. After all, when you don’t really need money to buy a house, why wouldn’t you? And, hey - with that new house why not toss in a new car for the wife and a new truck for hubby. And, gee-whiz - while we're at it, why not grab that cottage at the lake, and snag a new boat, motorcycle & RV as well. After all, you're worth it - aren't you... But, can you truly afford it? Consumer debt in Canada now equals 92% of the entire Canadian economy. This is just a hair below the level US debt achieved before America exploded in 2008.

But why stop with shrinking down payments, fluffing risk, pushing debt and inflating prices? Not content with financing houses for people without savings or investments, our big banks have gone that final, noble, sub prime mile and totally eliminated the need for money. Most of them offer ‘Cash-back” mortgages, (so once you agree to borrow a steaming pile of debt, they’ll give you enough cash to close the house deal). CIBC, for example, hands over 7% of the borrowed amount (95% of the house value), for 102% financing. So, there's the incentive for that shiny new boat & RV! Oh Yeah!

Not only that, but ‘self-recognition’ mortgages have allowed the self-employed, commissioned salespeople and other dangerous types to score mortgages without even verifying their incomes. So not only does Canada offer no-money-down deals, but also liar loans, interest-only mortgages, payment-skipping and 125% financing. All backed by Ottawa, which means lenders smile every time a Wal-Mart greeter with no assets buys a $500,000 home in Lindenwoods.

So, what now? Well, as our great Canadian Real Estate bubble begins to fall apart the Big-Banks are putting brokers on the chopping block as demand for prime borrowers is shrinking. BMO and CIBC have already been expanding their mortgage retail business. Best part is, when the sub-primes in Canada finally implode, the banks will blame brokers.

And, what about the weekly propaganda still coming from the Winnipeg Real Estate Board? These realtors know full well that Winnipeg housing is in a bubble, and they know their propaganda of lies has fooled many. They outright say people in Winnipeg are a herd of sheep and to a large extent, they're absolutely correct.

Will you fall for the continued WREB propaganda of lies and buy in this market?

Kevin F.
Winnipeg Report Blog