Tim Kiladze – The Globe and Mail

Ed Clark, Toronto-Dominion Bank’s outspoken chief executive officer, is playing the contrarian card one more time, publicly arguing that he and his fellow bank CEOs should be cautious about the country’s heated real estate market.

While he isn’t worried about a full-blown bust, Mr. Clark believes chief executives simply can’t ignore warning signs in the market – particularly the sudden run up in prices for real estate of all stripes. “If you run a bank, you should be worried about it,” he told the audience at a bank conference in Toronto.

His opinion contrasts with those of his peers, many of whom argued Tuesday that the data they look at simply does not give them reason to be overly worried.

Comment: So we are back to counting one opinion higher than those of the larger group. Right… He is also wrong about prices, they have been rising 5-6% per year since 1996 – that is in no way a “sudden run up”.

Brian Porter, Bank of Nova Scotia’s CEO, told the crowd that he studied his bank’s retail loan book this past weekend – much of which is tied up in retail mortgages – and he didn’t find much cause for concern. Until now the portfolio has been stable, with loan delinquencies at levels that are barely noticeable.

Comment: Same as it has been for decades. The mortgage default rate has hovered in the 0.33-0.35% range pretty much since World War II.

“I know you’re looking in the rear-view mirror when you do that,” he added, implying that past success doesn’t mean the future won’t be rocky, but he’s confident that the market won’t wreak havoc on the bank’s loan book.

Comment: But all you have in order to predict the future is the past. You look at past trends, such as a 60-year history of low mortgage default rates, and assume the future will stay the same. There is no reason to expect that trend to suddenly change. Same with prices, they have risen an average of 5-6% annually for some 17 years now, there is no reason to expect that to change to a sudden 20% drop this year. Mortgage rates have been in the 3-5% for about 7-8 years now, why would they suddenly spike to 10% next month? Past trends imply future results, and everything so far leads only to more of the same, with NO indication whatsoever for negative results.

Mr. Porter has also met with developers in Toronto and Vancouver to ask in-depth questions, and he’s studied the market dynamics enough to give him comfort. “We would view supply and demand relatively in check across the country,” he said.

Comment: Heck, supply does not even meet demand if you ask me. Even with 20,000 new condos completed this year, assuming them to be 70% of the new construction market, there are only going to be maybe 28,500 total new home completions in 2013. With 30,000-50,000 new households being created in the GTA every year, that does not even meet the minimum demand. There are a good 70,000-100,000 people moving to the GTA every year – where are they going to live?

National Bank of Canada CEO Louis Vachon echoed similar comments, noting that he reviews many of the same portfolio metrics, such as delinquencies. And being a Quebec-based bank, he studied the data on owners of Montreal condos – which are being built at a rapid clip – and found that the vast majority of those properties are owner-occupied, meaning there isn’t a lot of investor speculation in the market.

Comment: Investor-owned condos that are rented out are NOT speculator condos.

As for the rush of new condo supply, he remains unfazed. “Is there a massive disequilibrium in the real estate market in Montreal? I don’t think there is,” he said.

Comment: And Montreal has almost double the number of unsold condo inventory that Toronto has. With 1/5th the total new condo market. And they are not worried.

Mr. Clark’s comments Tuesday weren’t the first he’s made on the topic, but this time he went into more detail on how his bank is changing its behaviour.

“We’re saying ‘no’ lots of times” to potential real estate borrowers,” he said, some of whom are big, lucrative clients. Mr. Clark wouldn’t name names, but he noted that in one instance, Tim Hockey, the bank’s head of Canadian retail and commercial banking, was “virtually in tears” for having to turn the client down.

Comment: Right, he is talking about big clients, about developers wanting to borrow $100 million to build a 50-storey condo tower. He is NOT talking about the average little guy, us normal buyers.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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