Wednesday, April 11, 2007

Nope, no bubble, keep moving, nothing to see here

According to TD Bank Economist, Beata Caranci, the decline in housing starts in Canada shows that our bubble isn't a bubble because it won't pop, like the US bubble did. Nope, I guess when the air starts coming out slowly, you didn't have a bubble to begin with.
"Here in Canada, you know it's not a bubble because it's not burst," Caranci said. "The air is being let out of it slowly, whereas in the U.S., you actually heard the pop.
Let's compare some numbers: apparently a one fifth or 20% decline is an audible bursting of a bubble. But in Canada, where housing starts are down anywhere between 10% - 16%, this is called a slow bleeding of air, and good for the long-term health of the housing market.
Actual single starts in urban areas were 16.3 per cent lower than a year earlier, while actual urban multiple starts were down 5.3 per cent.
So what will all those high earning trades people go on to do if the number of projects is down? Will layoffs signal an emotional reaction in our markets? Will there even be layoffs?

Another expert, Carl Gomez, an economist with TD Economics in Toronto had this to say in May 2005:
"Canada's red-hot housing market is on a solid foundation because there is very little evidence of speculative activity,"
Haven't seen much speculating going in in Victoria, nope, not here, everyone wants to live here, it's a great place to invest because everyone from out east will pay a premium to be here.

Funny how Carl changed his tune, just two short months later:
TD Bank Financial Group says Vancouver and Victoria are the two Canadian cities at greatest risk of a potential housing bubble. The report by TD economist Carol Gomez says speculative buyers and investors are driving up prices in beyond justifiable levels in the two B.C. cities.

And that was 2005. Did it get better between then and now?

30 comments:

VictoriaREBear said...

"Here in Canada, you know it's not a bubble because it's not burst"

This is fallacious logic, and no economist who values his or her reputation should be using it as a bull argument. Sadly, most of them do; even Greenspan was saying a couple of years ago that you can't recognize a bubble until after it's burst. However, he stopped short at saying that because no "pop" has happened, no bubble exists. What a shame to journalism that the media keep quoting these doofuses. Still, thus far the doofuses have appeared correct while the bears have been wrong over and over, so guess who gets the air time?

Vicguy said...

The longer this goes,the more denial and complacency is built into the market til one day they wake up and the buyers finally say "screw you,I aint paying".
It will be interest rate raises and inflation numbers that will be the catalyst. You think David Dodge is gonna worry about raising rates cause some fool in BC or Alberta can't make his overvalued mortgage payment ? Not when the majority of Canada lives in central Canada where average prices are way more inline and a couple of points won't hurt someone near as much as the west where it is specualation and greed driving the market.

I see like another 50 plus new listings on the hot sheet the past day and I believe the same the day before,maybe someone who follows it closer can comment.

VictoriaREBear said...

Yes, I've noticed a steady 50-plus increase in the daily hot sheets, too. My bearish knee-jerk reaction is to think, "Gee, with that much new inventory plus a .25% increase in mortgage rates, SURELY April's sales will be down and the prices at least flat". However, the mania seems to be frothing away unchecked with the aid of funky financing BC style, so I'm not even going to attempt to guess what the Vic Real Estate Board will present us with on May 1st.

Vicguy said...

Here's an inkling of what we might see soon.


Prepare for lower real estate prices


http://www.canada.com/nationalpost/columnists/story.html?id=43288840-1071-4a0d-a9ad-4a5f7e7188e7

Anonymous said...

I love it, how nice to hear something like that news article you posted in the mainstream media at last.

There's a site in Victoria called "Kids in Victoria", bunch of stay at home mom's for the most part (me included) and there is a cat fight thread going on about house prices. The sheeps are baying and the bears are using numbers, economic news to back their arguments. It's just a good example of how deluded people are when they are saying that 5 yrs ago they bought at X and it's completely normal that their home would appreciate 50% in 5 yrs and will NEVER go down in value. Drunk on greed. So if any one of you want to jump in there and set a few of them straight, I'd love to see it.

(trying to sway psychology, one post at a time)

hhv said...

Our realtor emailed today to say this was a great time to buy, with inventory good, prices stable and interest rates going up: now's the perfect time to lock in that pre-approved 5% for 5 years... yah right.

Vicguy said...

"I love it, how nice to hear something like that news article you posted in the mainstream media at last. "

I agree, it was great to see some reality creeping into the MSM,especially the National Post.
I hope you copied that article to your other forum and maybe a few will begin to see the light that was happened here is not normal.
Maybe ask those sheep if they got a 50% wage increase the last 5 years. :)

Anonymous said...

No I'm talking to the brick wall over there, well an almost hysterical brick wall to be honest. I posted the article and the bears applauded - thank you to Vicguy. The sheep have been quiet.

Here's a good one, Guy lists lovely home in desirable neighborhood for 824900 on Mar 18th. Already has dropped his ask by 25K once. Today he relists under a new mls at 739888. That's an 85K drop in 20 days. Ok that made me smile.

Off to pose a few questions to the sheep. (evil grin)

hhv said...

remind those sheep that it wasn't a 50% jump in prices; for many it was closer to 100% in 5 years... that's a lot more room for it to correct [said with a tear in my eye :)]

JMK said...

remind those sheep that it wasn't a 50% jump in prices; for many it was closer to 100% in 5 years... that's a lot more room for it to correct

Sure, but you'll want to quantify how much was it undervalued in 2000 before you say how much it needs to correct...

hhv said...

jmk,

2000 was market value. I believe the current run-up started in 2001. So technically if prices continue to rise, we're entering into the sixth year. You can't say that 2000 was under value. It was market value.

Today it's market value too. But if you do the fundamentals, which you have, and calculated it to be 13% above normal growth here in town, you can say a possible correction would be 13%. I'd say the market is irrational and the market value will fall below that due to a wide variety of circumstantial factors. But at any given point in time you can say that we're at market value.

How would you calculate the 2000 prices? I wouldn't even venture a guess as to where 'true value' would have been then in relation to market value. Same as I wouldn't venture a guess as to where 'true value' is today. Do you use times earnings? or times rent? or?

I won't predict anything, but I'm guessing that we'll see 2004 prices again in the next 4-6 years. If it goes under that I'll be very surprised.

Anonymous said...

I was over on the KIV site House Prices too.

I had been watching one house that someone had posted about on KIV that they had up for sale.

It was listed at 424,900 then went down to 414,900 then disappeared off of the real estate site and then came back with a different realtor and was listed at 409,900. They were then saying how it had sold in one day but didn't mention all the other stuff.

House Prices got a little boring though because it ended up that the bulls dropped out (they couldn't come up with any good arguments) and then the bears were just talking amongst themselves (not that that is a bad thing). I love hearing the other side and what their arguments are. Pretty much boils down to 'prices always go up and everyone is moving to Victoria'. I think they dropped out because they are starting to see the writing on the wall and it is making them nervous.

S2

Anonymous said...

S2 - who are you on KIV. Stormy here. Feel safer giving any email details on here rather than KIV.

Vicguy said...

"Sure, but you'll want to quantify how much was it undervalued in 2000 before you say how much it needs to correct... "

Man you are so desperate to justify you buying its now getting to the point of being totally lame.
So I guess the next time someone says they saw a price reduction of 10% it's only cause the agent overpriced it right ? Some people want it both ways,guess that last article hit a nerve.

Anonymous said...

But, but, Bob Rennie says if we don't buy now we'll "be priced out forever!" See page 1 of the Vancouver Sun "At Home" Section. Begs the question...if the market is so good, why isn't this in the business section? Oh wait, then the Sun would have to do "analysis."

Seriously, the "no bubble here" article has every thing: celebrity real estate agents (Sarah Daniels and Rennie), the benefits of "home staging", pricing in $500,000 increments, realtor boasting, (man I hope Stonehouse gets nailed), and of course, "even the crack shacks are going for a million dollars."

It's a buyers' feeding frenzy

By John Mackie
http://tinyurl.com/2u57mz

Anonymous said...

stormy, on KIV I'm Harmony. On here I'm S2 because my husband (who is busy with work but will hopefully be able to post some numbers soonish) is S.

By the way, thanks for wading into the fray that was KIV the other day. My husband and I have been posting stuff about the housing market going down for a while on KIV and we have been the only bear on a bull site so it was really nice to see some other bears and some back up. Thanks again.

greg said...

anonymous,

thanks for the link to the Mackie article, he used to write some not bad music reviews at the Sun, oh well.

Seems that the activities they are describing are very similar to the activities taking place in California in the summer of 2005 - spring 2006.

Even Rennie said things are not sustainable, with mad increases as they are. There will be people who paid 10-20% more this year who are going to get burned badly.

IMHO.

Vicguy said...

Here'a couple of quotes off of CBS marketwatch real estate section today on the US market which will in effect be the same story here in the end that you can take back to the girls at the Cafe.


"Should people be surprised by what's going on in the market?
MarketWatch's chief economist thinks they shouldn't. Dr. Irwin Kellner wrote in a commentary this week that the weakening housing market and the number of loans in default "should have been as plain as the noses on their faces."

"Home prices began rising faster than incomes, he points out, and in
response to declining affordability, policymakers and lenders worked on ways to make borrowing easier. The Federal Reserve began cutting
interest rates. People were borrowing at low, adjustable rates, thinking
they'd stay low. The party couldn't last.



"A boom wouldn't be a boom if it happened all the time. A party can't last forever.
But even if the market is returning to normal, as some real-estate professionals say, it sure is a tough process for home buyers and sellers to watch."

Vicguy said...

Here's the link to that last post.

http://www.marketwatch.com/News/Story/Story.aspx?column=Real+Estate+Weekly&dist=nwtreal&siteid=mktw

Vicguy said...

That Vancouver article if it is a true measure of the market there goes to show how much "stupid money" is still out there. I bet it is not the norm and comes across as a total pump job.
I guess Sarah Daniels is so darn busy she still has time to get up at 4 AM to come back for encore performances on the morning news.More like she's fishing for her old job back cause she knows the end is near.
Overall it sounds like a pump job article to keep the sheep buying before they hit the cliff.

Anonymous said...

I dont want to hijack this thread just a quick meeting place away from hysterical bull/sheep. Olives/Harmony you can email me wildpacific@yahoo.ca and maybe we can continue that way.
Stormy

olives said...

HHV - Why would you think prices here will only drop back to 2004 levels? That would seem strange considering that in parts of the U.S. they are ALREADY at 2004 levels and things are just starting to get really rolling...

hhv said...

I really was just guessing. I don't see the same volatility up here as you see in some parts of the US. This could be for a wide variety of reasons, but I do think that our stricter lending regulations and CMHC insurance protect from the extremes. I'm doing some further looking into it... I'll post my 'discoveries'. If we can state anything in this market with certainty, it's that it's unpredictable.

When you get that finance club going let us know... my fiance is a financial advisor (no commissions) and a woman to boot... she may be keen to join you as a strictly personal endeavour.

Anonymous said...

Ooooo, HHV she's a financial advisor. That helps explain the blog a bit to me. It would be great for her to join our women's finance group that hopefully Olives and stormy and I get going.

S2 (H)

loopy said...

I saw Sarah Daniels back on the morning news too...(Wednesday or Thursday?)My first reaction was WTF? - you have to supplement your income with the TV gig? To see her quoted in the Mackie fluff ball confirmed to me that all isn't right in the Vancouver Real Estate market...especially for newbie realtors like Daniels.

Anonymous said...

One has to remember that Victoria's prices were virtually flat for 6-7 years (1994 to 2001). The average SFH price hovered around a flat line during this time. Some people made money, some lost money when they sold in this period. So any price increase since 2001 has to be counterbalanced with a long plateau in selling prices.
(see www.vreb.org/history/GRAA2006.pdf )

From a compound growth point of view, if one takes the average $250,000 price in 1994 and the average 2006 price of about $525,000 from the chart above, now has a compound growth of about 6% year after year of growth (over 13 years). Not a bad investment considering it is tax free so it is like making 8-10% before tax.

So the last 5 years of large increases IS part of the correction after a flat plateau. The landing might simply be sort of flat like it was last time.

hhv said...

"So the last 5 years of large increases IS part of the correction after a flat plateau. The landing might simply be sort of flat like it was last time."

And at one point in time, the great thinkers of the world believed the earth was flat too.

That 6% compounded return was actually closer to 5.3% over the past 25 years or so going back. So if you think that taking that flat period from 1994 and extending it through to 2007 is a piece of market history enough to determine future trends, I don't know what to say.

But if you go back and do the math, at minimum, as a recent buyer (JMK) has calculated here, we're actually only 13% above where he felt we 'should' have been. Don't look at the market, look at the fundamentals. The market is hugely distorted.

Would you buy a stock at 37 times earnings and expect growth?

Considering that the average house ($520K) takes earnings of $134K/year with 25% down to service, ask yourself if this can keep up. We're on the verge of making what we consider to be really good, well above average money, we're also looking at getting out of dodge so we can own within the fundamentals.

If the belief is true that it's retirees snapping up these places, then this town will take a long term economic hit because young spending professionals like us will get out. Back in the 90's we left for work. Maybe the story of the next decade will be how we left for homes?

Anonymous said...

"That 6% compounded return was actually closer to 5.3% over the past 25 years or so going back. So if you think that taking that flat period from 1994 and extending it through to 2007 is a piece of market history enough to determine future trends, I don't know what to say."

I'm not using it to predict the future, just trying to show the flip side of the coin to the people who keep saying "prices will crash 20-30-40%". I'm not saying this wont happen!, but I look at it as a matter of probabilities. It's a 10% chance in my head, but there's a 70% chance it'll plateau or have a small drop and a 20% it will keep steadily increasing.
I also look at housing starts. We are not at the peaks of 1981 and 1994 in terms of housing starts either! (dont have that link handy) but the CMHC stats show steady housing starts, in large numbers but not even as much as 1981.
So I do not see a glut of units YET. But the all the announced and planned (The Bay, Dockside, Westhills, bear mountain stuff, etc...) there's going to be a market saturation of condos and houses in the coming near term (1-2 years) but by the time we notice it, it will be too late.
I'm not worried about me, my house is paid cash from flipping leaky condos a few years back.

Anonymous said...

Darn, my husband talked about getting into leaky condos a few years back and we didn't. Sob.

S2

Anonymous said...

No worries, I left a lot of money on the table as I sold some too soon.. two years ago I thought this market too high!