July 4, 2022
- UGLY 4 MONTHS AHEAD
- STRESS TEST TO 7.49%
- INTEREST RATES EVEN HIGHER – WATCH JULY 13
- CASH IS NOT TRASH
- WHAT EXACTLY IS A TRILLION?
- ASTOUNDING SF PRICE CRASH FEBRUARY TO JUNE
- SALES CONTINUE TO PLUMMET EVERYWHERE
- THE NUMBERS: JUNE 2022, 2021, 2020, 2019
- HELOCS WILL GO
- OZBUZZ WRITES FOR REAL ESTATE INVESTORS
- CRYPTO CRASH – BITCOINS, ALTCOINS, SCAMS GALORE
- STOCKS CRASHING – LARGEST IN 52 YEARS
- BUYING IN PORTUGAL
- REVENGE OF THE LITTLE MAN
- QUESTIONS, QUESTIONS
- TOILET OF THE MONTH – GET DOWN TO BUSINESS
l start out by answering this asked question first. What exactly is a trillion? Indeed, few of us can relate to tis oft quoted number:
Q: You had a slide showing the difference between 1 million and a trillion. You showed that a trillion seconds would be more in years than all recorded history. Can you reproduce for me and send it?
A: Indeed! We throw these numbers out and they don’t mean very much – UNTIL you DRILL into them.
- A trillion is a ‘million million’, a one followed by 12 zeros!
- A trillion dollars would buy more than 1 million Canadian homes – at an average price of say, a million.
- Have the cash? You could spend $1 million a day for 3,000 years. Eh? Yep!
Major Point: Million, Billion and Trillion – huge – I mean HUGE numbers
SALES ARE DOWN EVERYWHERE
S&P had the worst 6 months in 52 years! Imagine that!
$9 trillion has been lost in S&P 500 with the DOW also down 30%.
Bitcoin worst quarter since 2011!
$2 trillion lost in crypto in a few months. Inflation soaring. Largest destruction of wealth in history.
People many who had real wealth, gambled it away and could not hang on to it.
The US CPI climbed to a yearly rate of 8.6% in May to mark the highest level since 1981. Canada close behind, and – not to be outdone – the Euro zone inflation hits record 8.6% as the European Central Bank prepares for its first-rate hike in 11 years.
Outcome? Ugly 4 months ahead!
Central banks around the globe raised rates FAST the last 3 months (double even in the US). Countries such as Canada, Australia, the United States and New Zealand are seeing buyers turning away. No more multiple offers.
Actually, here is another point: Bloomberg Economics says that 19 OECD countries have combined price-to-rent and home price-to-income ratios that are higher today than they were ahead of the 2008 financial crisis. That means more pressure to back off.
We said last month that ownership allows us the feeling of household wealth, makes us confident and we stretch for higher payments and debts. When we feel prices are not rising, nay – see them falling – we feel bad…and it accelerates down faster.
CASH IS NOT TRASH
I quoted Ray Dalio last year a lot (have all his books) but from time to time, some of you remind me of his statement: “Cash is trash”.
Well, here I part company with the esteemed. Cash is not trash. Try to survive without it. When Dalio spews advice it is to the ultra rich. Yes, if you have $5 million you want to be diversified. If you are over 60 you want to sleep at night. In fact, if anyone had listened to him last August and ever since and diversified into stocks and bonds (nay crypto) and then done so internationally…they are still crying themselves into their sleep every night.
Long term subscribers or ‘zoomers’ or ‘Landrushers’ (yes, we are working on next one) have heard me advise you to get into cash in an amount that is first age related and now market related.
I showed this slide at the World Outlook conference this February (and countless shows before).
I now advise RE investors to get into most cash for at east the 4-6 months. Why?
- Markets have turned lower in sales, prices are following.
- Watch for rising rates, but it is possible that the FED is going to pivot and stop raising. Not likely but possible. If there is a pivot or if there is a continued increase in rates, it will make a HUGE difference on market outcomes. HUGE! Wait it out! If he drives economy into recession ( 5-12 months for now)
No one knows either how we as a people will act psychologically to a stop in handouts, an inventory buildup, FUD, etc…,etc.
Before I jump on the next investment train, I want to be sure it is actually leaving the station …before I jump. (When sure, jump on with both feet and other body parts.)
Keep your cash when sure! Then pounce!
Oh, and if rich already – like owning your $2 million house …go to https://www.youtube.com/watch?v=VGsFRHfrues&t=12s
And live your money!
MORTGAGE MARKETS ARE A’CHANGING!
We did allow that the stress test would be over 7%. Now ace broker Kyle Green says: “The stress test going to around 7.49% with many lenders has reduced borrowing power by about 20%.”
“We’re starting to have more appraisal issues right now, especially if the offer was written 2+ months ago. Condos are fine, most THs are fine but probably 10% – 20% of our SFH appraisals are coming in low now. Way bigger issue in Ontario, it’s not as bad here.” Wowzah!
We had a ‘secret’ on stress test last month. Kyle continues: “ A lot of clients are going variable as the stress test is barely higher than the 5.25% previous stress test rate (until the upcoming hike of likely .75%). Can still get a variable at Prime -.5% right now, which is 3.7% – .5% = 3.2%. If someone wants a fixed, going variable for 12-18 months and then locking in could be a wise move.”
Good advice if bonds keep coming down. In the short-term banks worldwide jumped on the inflation fighting band wagon and is raising. Britain now projects 11% inflation for July!
As last month: If inflation stays near 7%, the BOC will go to .75% on July 13.
THE TOP BANKING REGULATOR ANNOUNCES A RULE CHANGE
We thought that a change to the HELOC mortgage maybe (should be?) coming. Now it is announced that there are new guidelines for certain types of real estate loans, including shared equity mortgages, reverse mortgages and conventional mortgages that are paired with revolving credit lines. These are conventional mortgage loans paired with revolving lines of credit known as HELOCs that homeowners can dip into as they see fit, without being obligated to pay that portion back on any sort of schedule. The new regulations will kick in once a readvanceable loan exceeds 65 per cent of the underlying home’s value. Currently, an owner can technically borrow up to 80 per cent on such a loan. Ok, take a deep breath.
The new rules will not be in force until late 2023, but OSFI says that as things stand now, data from the Bank of Canada suggests there’s $200 billion worth of HELOC that is currently outside of that 65 per cent threshold. That’s out of $1.8 trillion of total housing debt.
SO, ARE CANADIANS DEADBEATS?
You’d think so when you hear CMHC and BOC talking. But BC has all time low defaults: Statistics from the Canadian Bankers Association show that there were just 777 mortgages in arrears out of a total of 711,354 mortgages in BC on March 31, 2022. A record-low arrears rate of just 0.11 per cent. So, why on earth do they worry about us honourable mortgage payers? They should worry about the 25% some people pay in Visa or 19% on Costco…
ABOUT WRITING FUD
A flood of responses about so called FUD. It’s funny to me. I have never done anything else but told the truth as I saw it.
- Steadfastly maintained that inflation will always be higher eventually. Yes, this time too.
- Timing for any investor (yes, also real estate investors) is even more important – as nothing goes up or down in a straight line.
I use the monthly factual numbers (since 1993 for my REAL ESTATE INSIDER newsletter and for 8 years previously as president of the (then) largest real estate in the country.)
I also use worldwide facts of events and changes that could impact possible buyers and sellers. That’s it. And all of it is my opinion! MY opinion.
To me the numbers told the story in the past and the possible future and I think they do so now. I have opinions on those numbers. I am sure if you studied the numbers, you would actually be forced to agree.
One response I like (of course): “Ozzie, keep giving me the goods. Much better to hear what you don’t want to hear, then to live in a fool’s paradise.”
“There are two kinds of people: those who do the work and those who take the credit. Try to be in the first group; there is less competition there.” — Indira Gandhi
A SALUTE TO CALGARY
CALGARY CONVERTS OFFICES TO RENTALS. The conversion of excess Calgary office space into residential units is underway. Vacancies are running around 30 per cent, so the City announced the first three projects in the “Downtown Calgary Development Incentive Program” – a $100 million fund, to rejuvenate the ‘desolate’ core. Three developers in Calgary have been given the green light to transform lifeless downtown office buildings into rental housing, which will remove 414,000 square feet from the market and create 401 residential units (about $31 million spent). A great idea! As an aside. Our office is in the Elektra – downtown Vancouver, which was the first such conversion – YEARS ago. (The former Hydro building was converted as a mixed-use office/rental unit a long time ago.)
Q: That was a great question: “If you lose 10 pounds, where does it go?” As a lark, I asked my husband and then we debated it with friends. No one knows? Do you?
A: The correct answer is that fat is converted to carbon dioxide and water. You exhale the carbon dioxide and the water mixes into your circulation until it’s lost as urine or sweat. If you lose 10 pounds of fat, precisely 8.4 pounds comes out through your lungs and the remaining 1.6 pounds turns into water. Apparently, we breathe it out. Google it.
So many inquiries. AGAIN: I am not a crypto guy. But lets face it is not just crypto that’s crashed (Yes, crashed!).
Everything is crashing. However here is a video of February 22. 2022 – pre crash that made some very interesting points. Watch this:
“History’s largest financial scam: Crypto currency” https://www.youtube.com/watch?v=hVdKRaxNwdU
But as crypto markets collapsed this week, the value of that pile of global cryptocurrencies has fallen from that $3 trillion to less than $1 trillion US. In other words, the value of 2 million or so Canadian houses just vanished.
Q: Your crypto winter comment raised my eyebrows. Indeed. If they could be mostly RE buyers, it means further downturns are ahead. Staggering losses make a big sucking sound to the real estate buyer market.
A: Crypto is you against you. Fewer buyers means poorer real estate markets.
Q: How can you write that all crypto is a scam and a fraud?
A: I didn’t. The people I quoted. High brow entities – the SEC. Also, I said most. Prediction: Out of the 18,000 alt coins fewer than 100 will survive. Why? Fraud and scam. So not all, BUT clearly most!
Q: Hello Ozzie. I am a long-time follower of your great advice. Can you repeat the message you had on how much cash you should have at any age? Thanks so much. Best regards
A: You were not the only one. 17 inquiries and/or debates. See above.
Q: I can’t find anything anywhere to back up your claim of “Xi telling Chinese to sell property internationally”. Can you send me the articles where you read this? Thanks R
A: Found in all major newspapers. Here is the WSJ:
Q: Can you please change the email notification address from zz@xxx? Actually, I get several requests for adding emails for friends or other changes.
A: Thanks for subscribing and I like you would like to make sure you get it as soon as it is done. But please note with 24,000 subscribers it’s difficult to make individual changes (we are a minimum overhead company). The best way is aways to go to ozbuzz.ca and enter your new email. The program will send the note to the defunct email and stop using it.
Q: Why do you give for free what I used to pay for? How does your biz model work?
A: When I am being paid, I MUST do things. When not, I can or cannot. My blog however generates sales of thousands of books, tapes, and dozens of leads to our meetings…etc. However, there are moments…I wonder myself.
Q: Such a great newsletter! I pushed it on my group today. Great content as always!
A: Thanks, but get them to sign up. Ha-ha.
Q: Thank you for your continuing Sage Advice. There are too few with your knowledge, humility, and experience in Canada today. Please add my new email at…
A: Oh humility – yep that’s me. I just had to publish that, but please read above and sign in at ozbuzz.ca. Thanks.
Comment: Thanks for the past presentations. As always, you ‘delivered greater value than your fee’ which you quoted as a testimonial and this is still true today.
Q: I heard that millionaires are coming to Canada. We are the No. 1 choice. True?
A: We wrote about it two years ago. Yes, we are desirable, but not No.1. But by many: https://www.visualcapitalist.com/migration-of-millionaires-worldwide-2022/ – which stands us in good stead.
Q: OzBuzz – I thought it was excellent again. You gave perspective that we have been here before. I actually am so glad to have taken a more serious note this time when you called a top. I didn’t take action in 2008 or 2016/17 so this time I made sure I did take action.
A: Note the cash suggestion
Q: I was at the Limitless conference last week with xxx xxxx and xxxxxx. Needless to say, their marketing packaging is fantastic, but the content is lacking… I found myself disappointed with some speakers including the headliners because I follow you and you have king info.
A: I shamelessly publish all kudos. Thanks.
Q: I liked you answer to the comment about speaking too fast. Also, your comment on ‘don’t let them put you in their box. Be in your own box, but be noticed.’
A: Ha-ha. Mike Vance (Former Dean of Disney Uni and creator of the “Think out of the box” phenomena.) Told me in the 80ties … “Don’t ever slow down. Tell them to listen faster.”
He told me the same for big, unusual words. Let them find a dictionary!
I have been lucky. I have an accent. I am instantly recognizable. I didn’t get it right away, but don’t stand in but lift yourself out of the masses – anyway you can.
For years I refused to bend on PPT and used Lotus Freelance Graphics instead. Every event I attended (after Lotus quit) I had to bring my own computer. I stayed in ‘my box’. I overheard at a big event a total stranger say to another: “No, he is that strange Lotus guy, but he is funny.”
Of course, now that I adopted PPT I refuse to make all the same layout that every other PPT user uses. Now participants offer to help me out….ha-ha. Hey, I’m in MY box.
Now of course: Being in you own box forces you to be interesting or funny or both…or you will have to stay there!
USING BCC VERSUS CC
Q: Received an annoying ‘information email’ that I did not ask for, did not need, or wanted. I like the organization…easy to forgive, just delete. Not so fast.
The sender did not use the BCC button but the CC button…Now several hundred people have my personal private email. Is that a revenge situation?
A: Nah, not really. But it is annoying. That’s why we use MailChimp… A friend of mine returned a bcc (230 EMAILS) and replied to the sender with all bcc to “stop running down main street Langley in the nude. It’s offensive!”
Q: Home buyer incentive is a joke. Now the government is projecting price declines? So now they want to limit their potential losses? Now?
A: Yes, CMHC and the BOC are forecasting sharp declines. I’m not surprised that they want to limit potential losses. But how, why, and how much do they expect the market will decline and by when?
Q: You pointed out that from the seventies to the 2000s the interest rates hovered between 10% and 13% for a 5-year term. So, if we can have rising prices with those kinds of high rates, why can’t history repeat?
A: So, yes rates are important because they affect mortgage payments (as in higher) and fewer people qualify at higher rates, important!? Fewer buyers, less pressure on existing stock. But there are two other aspects:
- The speed of increase of rates…if rates rise over a few years, we get used to it (the boiling frog theory) and we adjust. Markets go sideways.
- The key is Psychology of the marketplace. Both on the way up and on the way down! Imagine someone told you there would be 45 offers and the winning bid is $300,000 over ask?! Yet, it DID happen.
Psychology? ‘FOMO’ and then expectation ‘make more money if we get in now’. As long as buyers think prices are rising, they find a way to make payments!
Psychology on the way down? If they don’t believe anymore, they run! And fast! This is happening shortly…Many owners will not believe it and not act until their own fomo/psychology changes.
See below- starting everywhere…
Q: A subscriber rant: Why rent control? BC contemplates rent control. Learn from Alberta instead where for years ample rental units have been constructed and rents are far lower than in BC although there are no rental caps whatsoever.
A: Agreed. Rent controls never solve what they are intended to do. Dozens of examples worldwide.
Q: Listener says my $12 mortgage payment increase per $100,000 with each .25 per cent raise is incorrect. He says: 4 increases at .25% = equal 1% per 100,000 = that’s 1,000 a year and that means its not a $48 increase but an $83 increase for every $100,000
A: Well, dear listener thanks for sharing, but that is true only if you pay it off in one year. With a 25-year amortization the increase in payment is approx. $48 per 1% increase per $100,000.
However, with an average mortgage of $600,000 that comes to close to a $300 increase and if rates (like in the US) go up by 3% then that $600,000 mortgage payment increases by almost $900 even with accounting for amortization. And the $1 million mortgages? Is $1500 more per month.
Q: Retired and interested in buying property in Spain or Portugal (Residence and safety emphasis rather than investment gain) Do you have any opinion whether the present is a good or bad time for this. Also, can you recommend any information sources to purchase or free, dealing with this subject.
A: I wrote a lot about places to retire to in many many blogs. For golden visa plus investment I wrote about Malta, Greece, Portugal, Spain.
If you buy a certain priced real estate, all offer a program that lets you become a resident and all have an English-speaking expat base. Yes, we want a nice place – but readers tell me they wished they had:
- Bought near an expat community
- Researched tax situation (with money that they bring – tax on capital). As well as money they earn in the new country and money they earn outside (back home say).
- Researched the golden Visa (Price level needed to buy at to get golden visa)
- Understood the impact of Brexit. (British people are leaving Spain in droves- without Brexit they cannot stay.) Lose access to all European states because of Brexit.
- How many years before getting the resident visa?
If I buy today – how many weeks must I spend in the country per year at a minimum?
Finally, how real estate is owned (must have local partner etc.?)
You need to do some research. I prefer Portugal. My wife and I spent several weeks there several times. We like the ocean so the Algarve all the way to Lagos. We found great lifestyles, ok prices, lots of English. (My signature picture is the ocean at Lisbon.) Look up Golden Visa info here.
REVENGE OF THE LITTLE MAN
There were a lot of people wanting revenge on being trained by a corporation to do things you don’t want to. Or change you to do. People seem to hate having to create a “case file” on a computer before the company will answer your questions…
- In particular: An outstanding Mortgage balance must get a case file first!
- Cancelling cable account – one number, one hour wait time, get a special box, cannot ring back, must mail.
- Every corporation wants you to be trained to be dealt with from a centralized area, so you never talk to the same person.
- Self check out (like me) there are dozens of people don’t like it and wanting revenge.
- Cashiers trying to get you to pack the grocery bag you bought from them. Some people say by head office edict.
BOOK OF THE MONTH
It’s dated but NEVER old!
“The Power of Myth” and the “Heroes Journey”. Ever wonder who coined “Follow your bliss” and who George Lucas used as a model for “Star Wars”. None other than Joseph Campbell. The Power of Myth is a sort of campfire dialogue between Campbell and writer/journalist Bill Moyers, covering the stories and symbols of civilization. Filmed for a television series at George Lucas’ Skywalker ranch, the series caught the American public’s imagination, and the book became a bestseller. I have had the coffee table version for over 20 years. https://www.amazon.ca/Power-Myth-Joseph-Campbell/dp/0385418868
TOILETS OF THE WORLD
NOW, LETS GET DOWN TO BUSINESS!
THE NUMBERS TORONTO, VANCOUVER, and FRASER VALLEY
The final numbers were not released at time of this issue.
Graeme Frsisque wrote in The Star on June 13 that average real estate prices have fallen sharply in several GTA cities and towns since hitting a peak in February. Here is how much prices have fallen in 30 GTA markets.
When June numbers are released, they will show a much worse story. Anecdotally we hear appraisers are 20% lower on appraisals and more. As well, active listings have risen sharply.
Powerhouse Toronto scares lenders the most.
- The high in sales were almost everywhere in March 2021 (2021!). The high in the average price came almost everywhere in Feb (Ma/Apr) 2022 (2022!)
- Prices will be quoted in the media as being UP and that is correct of you measure prices of today against prices of June 2021. But the decline started THIS February as we told you in our February: ‘THE HIGH IS IN PLACE’ headline,
- Also, the price increases over last June in Vancouver are only 6% in SF, when they were 17% a month earlier (May over May)
Major Point: While year over year prices are up; the price declines THIS year are slumping in all sub-areas. (VANCOUVER SF – 10%, FV SF – 17%, BURNABY SOUTH – 22%. )
All that in 5 months!
VANCOUVER (4 years)
Again: Remember to take the 2020 comparisons with a grain of COVID salt! Snapshot:
SF: (REBGV) reported SF sales declined a further 48% over June 2021. The average price achieved in April of $2,312,000 is down by $214,000!
CONDO: REBGV reports condominium sales are down 25% over June 2021 sales. The condo average price is 9% from April.
- Major Point: Look above at opening comparison of the ‘high in sales’ (usually March 2021) and the high in prices (usually February 2022) and note the sharp declines in sales and sharp declines in prices.
SF home sales continued their sharp downturn (-55%) Prices are much lower. Active SF listings are HIGHER for the first time this year. As well as 2019 June. Condominium sales cracked as well, down 33%.
The numbers tell the story.
MAJOR, MAJOR POINT: Again, as we said on February 9: THE HIGH IS IN PLACE. For the last 4 months we pointed to a changing market…before the interest rate changes and the stock market and crypto crashes. Now, the fast increase in rates really starts to bite. We expect that to continue and even accelerate into the summer. If we are right and July may actually see a .75% increase …all bets are off.
- If you are in building, selling, marketing, developing, lawyering, etc. list yourself in the free BC real estate directory: www.bcred.ca
- Questions to Ozzie and experts: www.askanexpert.ca
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- Who the heck is Ozzie? Go to www.ozziejurock.com.
- Ozzie on YouTube? www.youtube.com/jurockvideo
Your thoughts – AS ALWAYS – are most welcome
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