A friend of mine is heavily involved in the consumer credit business here in Canada and he’s seeing early warning signs that the Canadian economy is grinding to a halt.Consumer credit drives a surprisingly large amount of business here in Canada. For example, if you were to walk into the showroom of a mom & pop snowmobile dealer in Saskatoon and you bought a snowmobile on a “plan” it very well could be my friend who is financing your purchase plan (y’know, you pay 10% down and you agree to make a low low monthly payment for three years… that’s known as buying on plan).
You might be surprised by what you can buy on a purchase plan. In addition to the obvious ones, like furniture, cars, motorcycles, snowmobiles etc. you can actually have dental work financed, or you can have elective medical treatments financed (can you say “augmentation”).
Anyways, apparently in the past month in particular, buying on credit is suddenly freezing up solid. With the economic downturn you might think the banks (who are his competitors) would be lending like crazy at the outrageous rates that these “buying plans” charge. Well guess again. He tells me that all of the major players in the consumer credit game in Canada are getting out of the business.
And the list includes some massive entities… like GE Capital Canada, HSBC Bank, etc.
The reason even major financial entities like GE Capital are having to quit the leasing and consumer credit business is that they can no longer “securitize” any of their loan portfolios. Securitize is a five dollar finance word for sell. The industry has historically been driven by the ability to sell some of their loan portfolios.
Well it’s completely stalled. So GE Capital Canada and other majors have closed their doors to new business.
So what does this have to do with Vancouver real estate you ask?
It’s like this. My friends customers (the mom & pop snowmobile store, or the the dentist, or the plastic surgeon) are seeing huge declines in their sales levels because their businesses are now “cash only.” As a result, their businesses are hurting. The mom & pops will have to lay-off staff, and cut costs… and it all becomes a vicious cycle.
Canada is not going to be protected from the economic downturn.
Vancouver real estate prices are already inflated in relation to Vancouverites’ average salaries and rents. On a long term basis, real estate prices are driven by the economic circumstances that prevail in the local market. High rents = high prices… and low rents = low prices. Well incomes and rents will be under pressure as the Canadian economy fails… and real estate will fall with the economy.
The weight of gravity on the Vancouver real estate bubble is growing.
Monday, January 19, 2009
Consumer credit
Tuesday, January 13, 2009
Real estate buying strategy
If I was a predator I would know that the ‘ blood trail’ is the place to look for an easy feed. The best deals are not going to be found in the ‘mom and pop’ market who will tend to pull thier listings off the market when they don’t ‘get thier price’.
I would go after the specuvestor multi unit holders and especially the small builders. As a real estate school grad mentioned correctly in an earlier string ‘the builders profit is tied up in the last 25% of the project’ although this number isn’t carved in stone it is on the right track. This isn’t just 25% it is actually ALL THIER CASH .
You want to find someone who “HAS” to sell not someone who’ll only sell ‘IF’. i would pay attention to large projects who may suddenly ‘ blow up’ into recievership.
Single family home builders are particularily vulnerable at this point in the cycle. They simply cannot afford to hold on, the COC loan gets pulled every thirty days after the construction phase is completed, this type of builder has the most to lose. This is where the knives are going cut the deepest. I don’t think we’re at that stage yet. I would look for a small project.
Bottomline, as a hunter you must be very patient, the game is still afoot. I would look at every project and start to inventory, without any offers tendered. Research is power.
Last time I bought an investment property I waited for everything to be in my favour. I walked away from dozens and dozens of ‘deals’. I waited to find a true forced sale which turned out to be a marital breakdown and the occupier being transferred suddenly out of Province and they needed to sell immediatly ( that week). I offered all cash, no subjects and quick ( same week ) completion. I got a HUGE discount. I paid far less than other offers because I could make it happen , no subjects.
I waited for that deal to come along for at least four months and that was in a good market. I made money the day I signed that deal, thats the way it should be. I would have waited six months I don’t care about time.
The low ball offer is not an art it is a tool. If you don’t get the deal so what, walk away and keep looking, theres a deal a minute in real estate.
Baron Rothschild said ” Only buy when theres blood in the streets”, we are not quite at that stage yet, but it’s like a big wave coming into view. For now, sit back on your cash and good credit and wait until desperate sellers are begging you to buy. Be predatory, stay alert and don’t fall for some of the slick spin the developers and governments are puking up. They are desperate , you are not.