Wednesday, August 6, 2008

A quiter revolution

I'm a political science grad. My interest lied mainly in Canadian politics. No single event did more to shape current politics than Quebec's quiet revolution during the 1960s. From a political economy perspective however, perhaps today's quieter revolution will end up shaping our political and economic landscape to a degree unforeseen by any political or economic scientists.

Who would have thunk it? It turns out, according to BMO, that Canadians are indeed, wait for it, uncomfortable with talking about money:

Canadians are more uncomfortable talking about money than religion, says a Bank of Montreal survey out Wednesday showing we are losing sleep over personal finances and our biggest fear is not having enough to retire.


I thought we had gotten over this Conservative dilemma. Apparently not:

"Families are very worried... they may be over-spending and they don't really understand how they can plan for the future," said Sherry Cooper, chief economist at BMO Financial Group.

Just under half (46%) of survey respondents said they were least comfortable talking about money, compared with 34% being least comfortable talking about religion. But the survey revealed that six in 10 Canadians will talk openly about their love life and more than three-quarters (78%) would say who they voted for in the last election. (I'm guessing they didn't vote Conservative, just a hunch though).

Around 35% of respondents with household incomes greater than $100,000 said they have lost sleep worrying about money matters.

90% of respondents knew how much their partner earned and 89% discussed personal purchases with each other. (I genuinely hope these people are renting)

"Most people are anxious but they're not taking action... they're being reactive and that's too late." said Cooper. "There is no one-size-fits-all solution . . .You have to plan in advance and financial planning is part of the whole process of lifestyle planning.

Can we extrapolate this out into the housing market? Sure. Because the same people have been buying houses, wondering how they can pay for them. When the house doesn't look to be as good a buy as it did in 2006 and 2007, what will these un-financially savvy homeowners do? Probably the same thing as they did when they bought.

What's that you ask? The exact same thing as the rest of the herd, er, I mean neighbourhood, does. My guess is sell. And like on the way up, price won't matter, fitting in at the dinner table will.

87 comments:

Anonymous said...

Not on topic I know but I just have to say a big thank you for your real estate blog and all the other real estate blogs out there that I peruse (Victoria Truth, Cheap Realty, Chipman, Mohican, The Pope, Vancouver UnRealEstate, etc.)

It is just so great when I'm feeling all crazed and frustrated with our ridiculous real estate market, the world economy and money in general to go on the blogs and read what others think and believe and have stats to back it up.

Part of my frustration today comes from all the money that is being spent by people on trips and cars and stuff. I think to myself where the hell do they get all this money and then I remember that it is credit (just smoke and mirrors money) and then I don't feel so frustrated.

Thanks for keeping me sane and on the right track everyone.

S2 (it won't let me sign in)

roger said...

HHV said:

When the house doesn't look to be as good a buy as it did in 2006 and 2007, what will these un-financially savvy homeowners do? Probably the same thing as they did when they bought.

One answer to your question:
Real estate market shifts into reverse

Today's real estate frenzy consists of property owners hustling to sell and get their money out of a declining market.

Industry experts say buyers are now in command and motivated sellers are having to cut their prices – and in some cases offer extra incentives – to sell.

The market downturn, coupled with the subprime mortgage meltdown in the U.S. and recession worries in eastern Canada, are scaring some owners, said Landcor Data Corp. president Rudy Nielsen.

"There's people that are panicking and some developers are panicking," he said.


But real estate experts say...

"It's only a temporary thing," he said.

Nielsen predicts the Lower Mainland real estate market will fall "a bit further" before leveling off sometime next year.

"Then we start climbing sometime next fall," he said.


And why is that?

This region will remain a highly attractive place to live, Nielsen said, and its physical constraints – bounded by ocean, mountains and the U.S. border – tend to support land prices.

beagle said...

The thing these local real estate experts usually miss is that real estate as an asset class is falling virtually everywhere which is different from past slow downs when a lot of times buyers could pour in from other places once prices came down a bit. This time around most other places are hurting also.

Check out this link from http://patrick.net/housing/crash.html. It's from Hawaii and sounds just like Victoria, read the comments to the story it's a total repeat of what you read here.

What in the hell are these idiots talking about? They speak about, "The sixth drop in seven months", and then in the next sentence they state, "If the trend continues, O'ahu's housing market will record its first single-family home median price decline since 1999. If this is not already a price decline, what is it.? Anyway, the so called "Soft Landing" is about to become a, "Full speed nose dive into the ocean". I just love the real estate liars in Hawaii. I remember them saying the exact same BS, shortly before the bottom fell out of the Hawaiian real estate market in the 90's.

beagle said...

Housing activity set to wilt: Merrill

"Canada's housing market is entering a “sustained downturn” amid excess supply and as higher prices deter new buyers, an economic report said Thursday.

As a result, house price appreciation will stall, with Western markets “most vulnerable to outright declines,” according to Merrill Lynch economist David Wolf. He expects home builders to pull back “substantially” in response."


"In B.C., Vancouver's and Victoria's housing markets are now up to 35 per cent overvalued, he estimates."

hhv said...

35% is very close to the range of 30-40% declines I'm seeking before reevaluating my purchase decisions.

Sounds about right in terms of rent to price valuations as well. I'd be surprised if in four years time we don't hit 35-40% real decline, simply because in every other market cycle prices have dipped below the price to rent valuation trend line.

vancouveritis said...

Don't worry, don't panic. You can still get a 40-year mortgage!

Did anyone hear Gregor Craigie on CBC this morning? He had a quick interview with a mortgage broker from Whistler. She's happily promoting 40-year mortgages on Craigslist:

$0 down & 40 Year Amortizations still available

She's got connections.

What's next after October 15th? How will these mortgage brokers continue the spending spree? I predict brokers will soon be promoting loan sharks and the Italian mafia.

Anonymous said...

With lots of homes priced 10-20% over the inflated bc assessments, where does your prediction of a 35-40% price drop fit in???

Just a question - the range is so broad. Not sure how prices have gone in the states with regards to assessments

thanks

Anonymous said...

Why are people so hung up on assessment values.

Assessment values are for tax purposes only.

S2 (still not letting me in)

Anonymous said...

The great Canadian housing myth
David Berman, today at 2:23 PM EDT


It wasn't that long ago that economists and observers put a brave face on the health of the Canadian housing market, arguing that tighter credit conditions, relatively moderate prices and a healthy economy would keep things humming, even as the U.S. market slid into oblivion.

Now, there are cracks in this theory: The number of sales is declining even as the number of For Sale signs creeps higher. Are outright price declines next?

Meanwhile, what looked like a reasonably priced market now seems pricey. The ratio of house prices to rents is now 25 per cent above the average. The ratio of house prices to incomes is also a troubling statistic: It is now about 4:1, meaning that the average house price is four-times the average household's annual income. During the previous cyclical peak, in 1989, the ratio topped out at 3.2:1. Even more troubling, the U.S. market topped out at 3.9:1 in 2006, just before doom set in.


Does this imply a nasty drop in the months ahead? His best guess is that house prices will flat-line nationally, which implies that some regions of the country will suffer. Regina and Saskatoon, in particular, appear to be 50 per cent overvalued (hint-hint); Vancouver and Victoria are 30 to 35 per cent overvalued.

“As the U.S. experience has shown, it can take several quarters for changes in housing wealth to show up in reduced spending growth,” Mr. Wolf said. “But the direction of the effect is clear. Strong house price appreciation in recent years has no doubt made Canadians feel wealthier and more willing to spend; that will likely be less true ahead.”

Anonymous said...

Vancouver and Victoria are 30 to 35 per cent overvalued.

Nick said...

The ratio of house prices to incomes is also a troubling statistic: It is now about 4:1, meaning that the average house price is four-times the average household's annual income. During the previous cyclical peak, in 1989, the ratio topped out at 3.2:1. Even more troubling, the U.S. market topped out at 3.9:1 in 2006, just before doom set in.

Hah, well, Victoria's price to income ratio is 7.3:1 according to the recent Demographia International Housing Affordability Survey, so what does that say about the future for the Victoria market?

Ryan said...

It says that things are different here!


They are much, much worse.

Anonymous said...

In the last 30 days, roughly 18 people bought condominiums in Langford and Colwood. Which is about the same number as this time last year. However, condominium prices went up from a median 273K to 298K. Interesting is that 17 of the 18 people were from Victoria and they all bought at full list price!


Currently, there are some 356 condominium listings in Langford and Colwood. Which would mean that there is almost a 20 month supply of air boxes for sale.


Where are these people buying their crack cocaine? Are they blind? Last month 18 people walked up to an agent and basically said:

"I have too much money, please help me"

This market can only end badly. There can not just be a flatenning of prices. The herd has to be culled and there are now 18 new names on the list.


just jack

Nick said...

just jack said Interesting is that 17 of the 18 people were from Victoria and they all bought at full list price!

Out of curiosity, how do you know that 17 of 18 are from Victoria? Is that a stat that the VREB keeps?

Anonymous said...

There are several sources that you can get this data. Tony Joe has said in the past the VREB has this information, so you should be able to ask your agent for this information. You can also get it from the land registry, and various other government agencies.

In BC, you have to show proof of identity to purchase property which includes your place of residence. However, the privacy act does limit the depth of information you can get and what you can write.


just jack

Nick said...

That's interesting, I didn't know that stat would be kept. Can't blame everything on out-of-towners I guess... :)

Anonymous said...

The board records that information but your agent should not be divulging it. That's an improper use of the board's data.

boomer said...

re:"The board records that information but your agent should not be divulging it. That's an improper use of the board's data."

why? sounds like part of full disclosure to me.
problem?

Anonymous said...

One should never improperly use the boards information. This should only be left to the professionals.

hhv said...

"One should never improperly use the boards information. This should only be left to the professionals."

LOL.

JJ,

I know one of the 18. Their "parents" who gave them the down said to me: "they'll only get it once, and they may learn the hard way. But it ended a 10 month discussion we were tired of having."

They, 22 and 23, apparently believe their pre-sale is different than all the unsold completions, because it has a spanish name...

Anonymous said...

hhv -

you may have answered a a question that I had earlier - the presales are counted at the time of presale, not possession?

just jack, or someone else, can you confirm? It impacts how the statistics will trend.

Dumb Canuck

Anonymous said...

Just jack you're completely wrong. You said they walked up to an agent and said : "I have too much money, please help me". More than likely they said :

"We have no money at all, in fact we have 5k in debt can you help me get rich in real estate?"

roger said...

This Globe & Mail story is coming to a town near you.

Vancouver's housing hangover

But the rocket-ship housing market in the Lower Mainland is sputtering, in a bad enough way that even Mr. Watt, president of the Real Estate Board of Greater Vancouver, has a tough time putting a happy face on it. Gone is the brave talk of a “balanced market.” Nope, now is the time to be a buyer – you can have your pick of worried-bordering-on-desperate, price-slashing sellers.

And that is where the ugly comes in. Homeowners are still adjusting to the dramatic shift in the market, and the current price declines are only the beginning.

The likely result? A small price drop in the short term combined with a steep drop in sales volume, followed by a second wave of a bigger decline in prices as sellers finally capitulate. The Lower Mainland's housing market looks to have been hit by the first, and headed for the second.

womp said...

jack, re: condos in langford:

I've been tracking listings in my old building where I sold my condo in April.

There is now an identical unit one floor up from mine that is asking less than I closed for in April. This unit was previously asking $30k more than my price, then $10k more, and now $10k less.

With all the negativity in the MSM I can only see it picking up speed on the way down... and I think Langford will be hit hardest. Hope Stu Young is planning for falling tax revenue. Any word on the status of Reflections lately?

roger said...

There has been considerable discussion in the national and mainland press about the percentage that prices have fallen in recent months. VREB and the TC do not publish this data so I prepared this chart showing average and median SFH prices as a percentage of the April 2008 peak. In July the median was down 5% and the average was down 8% from the peak.

This graph has been added it to the VREB Stats Analysis slideshow in the Victoria Stats Gallery

mln said...

Any word on the status of Reflections lately?

The wing (wood portion) is getting pretty close, but the tower has a long way to go. From what I understand they are going to split occupancy dates.

Anonymous said...

The employment report – marking the biggest job loss in 17 years – “really caught people off guard,” Ms. Croft said in an interview. The dollar had closed at 94.97 cents on Thursday.

“Canada has been considered a bastion of economic stability, unlike the U.S., the U.K., Europe, Japan, which are already in recession or heading that way. Canada, until recently, has held up quite well, but this jobs report is a sign that it's our turn now,” she said.

boomer said...

01/02/08

"The good news is that Canada is well positioned to weather the (US) storm. The domestic economy remains solid and the risks in the real estate market remain limited."

Craig Alexander, deputy chief economist at TD Financial Group

Anonymous said...

The good new for myself: I am well positioned that I didn’t bought a house, I got the cash, now my sought is even more “solid” on a 40% drop for the RE

Anonymous said...

Loonie crash... here come those American buyers...

Hmm. Not this time.

Hmmm. Not for a very, very, very long time.

roger said...

The rapid drop in the loonie is going to have an effect on inflation:
- price of gas and heating oil may start to rise again as these products are sold in USD. The drop in the price of oil will be countered by the falling loonie.
- imported food, clothing and household articles will also increase.
- fuel surcharges on transportation (air, ferries, trucking) will remain
- some automobiles and trucks will lose those USD "price matching" discounts

The BOC was already predicting a jump in overall CPI and this fall in the loonie will result in the core CPI rising as well. I suspect interest rates will be rising before the end of the year and this will be more drag on the housing sector.

porteño said...

I only wish that the current resident idiot running the BOC WOULD raise interest rates, but I wouldn't count on it. After all he cut his teeth working for those fraudsters at Goldman Sachs, just one of many firms responsible for the world wide credit crisis. Mark Carney is just a poodle of Ben Bernanke. If he ever has an original thought, it will be his first.

Anonymous said...

Raising interest rates will not I repeat will not reduce the CPI. It will only destroy our already crappy economy. Holding rates steady is pretty much the only choice we have. Oil is crashing along with our dollar and so prices will fall once again.

beagle said...

Oil seems like it crashing but it is still really high it only went over 100 early this year before that everyone was calling for big inflation at that level. Remember inflation had a lag to it, we haven't even seen the impact of the super high oil of the last 6 months yet on most goods. But I agree with you the BOC is in a hard place and will probably do nothing.

roger said...

Tony Joe and Sotheby's are in the UK papers.

Green, manicured and chilled out

“Prices have really taken off in recent years,” says Robert Milloy of estate agency Sotheby’s International Realty, who has sold some of the most desirable properties in the city during 22 years in the business.

“Demand remains remarkably strong and prices continue to rise but at a more moderate pace than in recent years,” says Tony Joe of the Victoria Real Estate Board. “Barring unforeseen circumstances, all the indications point to continued strength and stability during the year.”

If anything, recent sales figures for the Victoria area remain buoyant despite the gloom that has gripped the US property market. Sales in June might have dipped slightly but overall prices remain reasonably steady – and in recent months, there have been a number of sales in the greater Victoria area of more than C$1m, including two sales in Oak Bay of more than C$2m.

porteño said...

Raising interest rates will not I repeat will not reduce the CPI. It will only destroy our already crappy economy. Holding rates steady is pretty much the only choice we have. Oil is crashing along with our dollar and so will fall once again.

The reason the economy is crappy is because of excessive liquidity (low interest rates)for too long resulting in spending that ought to have been done over the course of several years were compacted into just a couple. That kind of thing can't go on forever - and now it has stopped. The economy is just suffering a hangover from excessive liquidity (low interest rates).

The solution to the problem is to reduce liquidity. This can either be done slowly, or quickly as was done in the early '80s but it must be done. Of course it will be painful.

As for the CPI, don't get me started on the way that statistic is manipulated in order to understate inflation. It borders on fraud.

Anonymous said...

They should have been here 15 years ago, when that story was actually true.

Imagine, the same waterfront condo in London being twice the price of one in Sidney.

London - Sidney, I can see the similarities. Wait till the expats see the price of waterfront in Bella Coola and Prince Rupert, they will be over there by the lorrie load.

If we can compare Sidney to Victoria, then why not Bella Coola to London.

just jack

boomer said...

RE:"Tony Joe and Sotheby's are in the UK papers"

isnt that interesting.

Wonder if Sothebys (mostly known as one of the worlds premier auction houses-as well as having its realty operation)is doing a little groundwork for an upcoming Victoria condo auction or two?

Anonymous said...

I'm actually feeling a little brighter about the Victoria RE market. As it will turn out, I do not believe that the BOC will raise rates. In fact, with oil prices moderating and unemployment rising, the next move in the US and Canada is DOWN!! Also, the huge increase to the bureaucrats in Victoria will give a shot in the arm for the million+ market.

holgs said...

So, what is this quiet revolution, and how can I participate?

boomer said...

"Also, the huge increase to the bureaucrats in Victoria will give a shot in the arm for the million+ market."

why-are they not very bright?

Nick said...
This comment has been removed by the author.
Anonymous said...

We live in interesting times.

'Leasing Is History'

http://www.financialpost.com/story.html?id=710719

'Loonie suffers worst weekly slump since 1971'

http://www.financialpost.com/story.html?id=709938

'Beijing games may trigger economic downturn'

http://www.financialpost.com/story.html?id=710426

'Job losses raise likelihood of recession'

http://www.canada.com/victoriatimescolonist/news/business/story.html?id=6f8fff3b-017e-4521-86a4-ea8fae212658

S2

Anonymous said...

I think the credit crunch has blown away any and all of the excess liquitity. Raising the rates will probably just lead to further meltdown of the global financial system. Even without that back drop if you raise the rates oil prices will be unaffected and prices will remain unchanged.


Unemployment is on the rise. Productivity is down. Consumer confidence is low. Wages are probably either going to be stagnant or will decline. Raise rates and you'll kill any hope of recovery.

vg said...

" In fact, with oil prices moderating and unemployment rising, the next move in the US and Canada is DOWN!! "


maybe for the prime rate but mortgage rates are tied to the credit market which is still going to be a complete mess for a long time to come. Wait til we hear about another 30 or more banks to go under is the US.

I think you are in La La land that the Victoria market is going to bounce back like some spring board. The word is out, Victoria and Vancouver are OVERPRICED by 35%, the psychological shift has lots of downside left.

vg said...

anon 1:52,
I guess you missed the news the other day, SP has missed the boat as well :


"As Canada's housing market shows fresh signs it has exited the boom phase, Merrill Lynch economists are cautioning homeowners to expect a “SUSTAINED DOWNTURN” in prices."

"Nearly every major city in the West makes the list of most vulnerable markets, in addition to Montreal and Sudbury, according to a pair of Toronto-based economists at the bank."

Anonymous said...

Don't raise rates, and CPI inflation will escalate. The lower oil price we'll see in winter is nullified somewhat by the lower loonie brought about by lower oil price. Lower loonie = imports cost more or about the same as during summer oil peak, meaning we'll be not much better off, except for export industry.

The US is in a similar situation, only their real inflation (not CPI) is already through the roof.

If rates are held steady and we try to print our way out of this mess, eventually somebody will notice and our loonie will take a nose dive. Either that or remain unofficially pegged against the falling US, who's printing presses must be working over time.

The problem this time around as we spoke about months ago on these blogs is that a minimal increase in interest rates has a huge affect on the much larger mortgages than in the 1980's where interest rates hit some 18 to 20%.

I think either way we're screwed.

1) Don't raise interest rates and watch inflation skyrocket and the loonie further deflate as the printing presses try to make up for the massive losses & bail outs, and middle class deteriorate under higher and higher import costs, while simultaneously experiencing asset deflation (houses/stock market).

2) Raise interest rates and watch the housing sector take a *major* nose dive within 3 years or less as mortgages reset to higher interest rates. Many young canadians would lose their homes in a style not unlike the USA.

These are unprecidented economic times. It seems that most central banks are taking the direction of printing money and not raising interest rates.

In Europe the situation is even more confusing and complicated because they are made up of a wide range of economically productive and sustainable countries. On the low end they have Greece, Italy and Portugal (and now Spain), and on the high end UK & Germany. What might be considered a good move for some, could be considered very bad for the others.

Anonymous said...

Inflation is not skyrocketing that's the point. Wages are stable or declining and the commodity bubble is popping. Raise rates and you will kill this economy. Long term bonds are not going crazy which means that the entire world has confidence in the inflation numbers.

vg said...

"The problem this time around as we spoke about months ago on these blogs is that a minimal increase in interest rates has a huge affect on the much larger mortgages than in the 1980's where interest rates hit some 18 to 20%."


Bang on, larger piles of cash are at stake here and wages have not gone up any where near in proportion. We don't need 1980's interest rate numbers that even Muir keeps babbling is the comparison for a similar style crash.

So many more things are intertwined this time around. How about those whose mortgages are now coming due from 3 and 5 years ago at lower rates and you still have that same job you barely qualified for back then but don't want to sell ? From 3% range to 6% has to hurt.

beagle said...

anon August 10, 2008 9:18 AM:

Good post. Clearly lays out the predicament.

roger said...

anon 9:27 said:

Inflation is not skyrocketing that's the point.

My point when I raised this subject was that the falling loonie is going to raise the price of imported goods. The result will be that the core CPI will rise from the present level, which is presently within the target band of the BOC. If inflation rises above 3% the BOC will raise interest rates because that is the prime mandate of the Bank of Canada. Of course this is not good for the economy. The only other monetary policy lever is to reduce the money supply which also places a drag on the economy.

This is one of the problems with losing most of your manufacturing to offshore countries like China and having very few domestically made consumer products. Foreign goods are priced in US dollars and with a strong loonie the prices of imported goods went down and this resulted in a lower cost of living. Now that the loonie is falling the reverse will happen.

There won't be much relief from falling oil prices either because they are priced in $US. Heating costs will be a major issue this winter especially in Eastern Canada where there is not as much access to natural gas. Furthermore, the high price of oil and associated products still has not fully rippled through the economy.

Put all this together and core CPI will start rising before long. When it reaches the BOC threshold for pain short-term rates will rise. Variable rate mortgages will go up and this will have a detrimental effect on the housing market.

Anonymous said...

Raising rates will not affect our currency at all. Raising rates will not affect the price of oil either. The central bank is not in control of this at all. There's nothing that can be done. The only really clear thing is that raising rates is bad all around for everybody including the government and so they will be kept where they are or will be lowered. It's a good time to buy bonds and US equities. Once it's clear rates are heading down dump the bonds and buy the TSX. You heard it here first.

roger said...

I added several updates to the Victoria RE Stats Gallery today. Here is a quick summary.

July continues to be another down month for the condo market. Sales and prices are both down from last month.

The average and median prices spiked in Central Victoria during July but the trend in the rolling average is still down.

Sales in Oak Bay are down from previous years but 6 month rolling average prices remain flat.

roger said...

anon said:

Raising rates will not affect our currency at all. Raising rates will not affect the price of oil either. The central bank is not in control of this at all. There's nothing that can be done.

Raising rates will affect our currency. It will rise against the USD which is the benchmark currency in the world.

Raising rates will affect the price of oil in Canada in Canadian dollars. Oil prices are set by the market in $US. The equivalent price in $Cdn will be affected by any change in exchange rate with USD. If the BOC increases interest rates the loonie will go up against the USD and improve things for Cdn. consumers consumers. It is interesting to note that gasoline and heating oil are traded throughout North American in USD as well.

The only really clear thing is that raising rates is bad all around for everybody including the government and so they will be kept where they are or will be lowered.

Increasing rates is good for those on fixed incomes (pensioners) and bears saving their money. It is not good for government debt, folks with loans and industry in general. The BOC makes decisions based on long-term monetary policy mandates and is independent from the elected government which is responsible for fiscal policy. The BOC is chiefly concerned with inflation as dictated by its current mandate. As I said earlier if inflation starts to rear its ugly head the BOC will raise rates even if the economy slows down as a result.

Anonymous said...

You should really do some reading on the subject because honestly you have no idea what you're talking about and you can take that to the bank. There are very few bears that are putting their money in the bank BTW that's a money losing proposition. You are guaranteed to lose money by putting it into the bank. I can't stress this enough.

You said it yourself raising rates is "not good for government debt, folks with loans and industry in general". Apparently it's good for old, broke people and people who know nothing about investments. Yeah that's who we should focus on when setting monetary policy. Broke people and people who are good at losing money by putting it in the bank. I wish you were in charge man.

roger said...

anon 2:19 and 12:14 said:

"It's a good time to buy bonds and US equities."

"The only really clear thing is that raising rates is bad all around for everybody"

"Yeah that's who we should focus on when setting monetary policy. Broke people and people who are good at losing money by putting it in the bank."


You raised the subject of interest bearing investments - not me. I just responded that rising rates was good for savers and those on fixed income. I never said anything about bank deposits or setting monetary policy based on the needs of "broke people" or bank depositors. That was your rant.

anon 2:19 and 12:14 said:

"You should really do some reading on the subject because honestly you have no idea what you're talking about "

I gave you my take on the BOC and their monetary policy mandate and inflation target objectives. Since you claim to know so much about it please feel free to explain it for the benefit of myself and the other blog readers.

Anonymous said...

Latest new bear blog from our neighbor to the east...

http://seattleflippers.blogspot.com/

Anonymous said...

Latest new bear blog from our neighbor to the east...

http://seattleflippers.blogspot.com/

Anonymous said...

I've thought about buying in Seattle with low interest rates, high loonie poised to drop, and now much lower home prices. With everything going in favor of such a move, why is this not discussed?

Too far out of average comfort zone perhaps? It appears to be a great time to buy at least some US real estate. Surely there's a silver lining in this cloud. Any thoughts?

Anonymous said...

You may have missed the last two comments in the last blog that, right or wrong, are very relevant to this discussion.

Anonymous said...

"But it's not simply a matter of selling today and buying back in in 4 years. None of us have any real idea where prices may be in 4 years. You may get there and decide for personal reasons that you need to wait another 4 years or you may decide to never buy (maybe you inherit a property?)

In the meantime your funds are losing real buying power and you have missed other opportunities - the opportunity cost of waiting to buy is built in in the form of inflation. I consider this relevant."

This is directly relevant to Bear Savers who have sold and are awaiting a repurchase. Your true net income (loss) from this decision must include an inflation factor, and may easily reflect a loss depending on your personal circumstances and the ACTUAL changes in the market.

olives said...

The bears' savings will become more valuable with deflation.

Anonymous said...

The only prevalent deflation is in your sighs. The BOC's issue is inflation and housing prices will be irrelevant to first time home buyers if interest rates go to 10% +.

Anonymous said...

"The BOC's issue is inflation and housing prices will be irrelevant to first time home buyers if interest rates go to 10% +."

Yes but the loss through inflation will be very relevant to people waiting in the sidelines for prices to come down (with low rate GICs) who eventually never buy.

roger said...

Olives said:

The bears' savings will become more valuable with deflation.

The Canadian Housing Price Charts Blog had this to say about deflation:

The Dream Fades

Buyers of Canadian Real Estate who purchased this spring are waking up. They are now feeling the chill of deflation as their hopes for personal wealth creation from the dreamy notion of endless and effortless inflation vanishes. This is not simply a reversal of fortune because if the late come buyer is leveraged, if they have borrowed money, their indebtedness does not shrink as their equity evaporates. Their debt actually grows in relative terms. Sleepless nights are on the rise.

beagle said...

Inflation is relevant to everyone.

Anonymous said...

If you buy bonds today and the rates go down the bonds will be worth more. It's a good way to make loot on bonds. It's a bad way to make a lot of money long term.

olives said...

"The only prevalent deflation is in your sighs."

*sigh*

Anonymous said...

Odds are dead against interest rates going down and bonds are not a good option.

Anonymous said...

"Inflation is relevant to everyone."
Correct, but it will not mean the same thing to everyone depending on what they are attempting to accomplish or where they are with their home purchase -waiting 4 years or bought 4 years ago - some lose, some win.

roger said...

Think the credit crunch is over? Well that Asset Backed Commercial Paper (ABCP) mess from last summer may be back. If the deal doesn't get approved watch short term corporate rates jump up again.

Don't fret about ABCP delay

The Ontario Court of Appeal's failure to rule promptly on a proposed restructuring for $32-billion of frozen asset-backed commercial paper should not be viewed as a sign the judges are troubled by the controversial plan, says the brokerage firm that sold much of the financial product.

After two days of hearings in late June, the court was widely expected to issue a thumbs-up by mid-July. But now, more than a week into August, the court has yet to make a ruling, sparking concern especially among retail holders.

Analysts warn of major ramifications if the restructuring fails, with losses spilling over into other markets as about $250-billion of credit default swaps held by the trusts that issued the stalled notes get unwound, potentially worsening the global credit crisis.

Anonymous said...

Buying in Seattle? Isn't Boeing over there on China's "nuke first" list if killer tsunami doesn't do the job?

Mr.4AM said...

"In the meantime your funds are losing real buying power and you have missed other opportunities - the opportunity cost of waiting to buy is built in in the form of inflation. I consider this relevant."

Who says we're all invested in losing funds? Even if we were 100% cash and losing buying power due to day to day items being inflated, housing will deflate significantly - NOT by a small margin. So my $200,000 on the sideline in 2008 will buy way more house with the same $200,000 in 2012 - and that is if we stop saving for the next 4 years and have 0% growth, which is highly unlikely.

Many of the bears here are renters with high incomes, significant savings, and increasing monthly savings. You can bet in 4 years, we'll be able to afford some pretty nice houses.

Anonymous said...

"Many of the bears here are renters with high incomes, significant savings, and increasing monthly savings. You can bet in 4 years, we'll be able to afford some pretty nice houses."

It sounds like you could afford a pretty nice house now, I don't know where prices will be in 4 years but I wouldn't put money on a significant drop.

All of you may decide to not buy a home in 4 years and in the meantime your cash is sitting there losing money - to go to anything past GICs is too risky short term and not in keeping with your purchase plans.

Mr.4AM said...

Anon 6:04,
Have you actually been paying attention to the massive downtrend in the global markets? Do you not realize that Canada is only one of some 27 countries in the world in real estate bubble. Many of those countries have already had significant declines. If you think Canada will somehow be different perhaps you should take a few minutes to look at what happened to all the other bubbles in history.

Further to this, there's now dozens of Canadian media headlines (print and video) that agree that our real estate is going to deflate in price. So with all this knowledge who it their right mind would step up and buy something that is about to be much cheaper even just a year from now?

In the stock market, do you buy stock when it's high and everyone knows it's about to go down?

Telling people to buy at the beggining of a major downturn, is horrible advice, and if I were you I'd be careful of what friends you give that advice to or you may find yourself with a few less friends a few years from now.

Mr.4AM said...

Here's the bubbles in history video link again, it wasn't working above for some reason.

vg said...

"I don't know where prices will be in 4 years but I wouldn't put money on a significant drop."


A Merril Lynch economist begs to differ, I know who I am putting my money behind. Sounds like someone late to the game.

B2B said...


It sounds like you could afford a pretty nice house now, I don't know where prices will be in 4 years but I wouldn't put money on a significant drop.


You've got plenty of company - just ask any idiot on the street. Nobody's asking you to put money on a drop though. Many people on here are expecting a big drop, and that's our perogative. Indeed we'll see who's right in a few years.

Nobody ever got hugely successful just parroting the majority opinion. That is your stance. These blogs are filled with contrarians, whose opinions are now being (belatedly) echoed by the mainstream media and Merrill Lynch economists. Go figure!

roger said...

Looks like we are starting off the week with more news for the bears.

StatsCan Housing Price Index

New housing prices increased at their slowest pace in over six years in June, continuing a slowdown that started in September 2006. This was a result of a softening housing market in Western Canada.

In British Columbia, year-over-year prices in Vancouver were up 1.8%, while those in Victoria declined by 0.4%.


Canada's housing market cools further

The Canadian housing market cooled further in the summer, with reports on Monday showing fewer than expected housing starts in July and the smallest year-over-year new-home price increases in six years in June.

Canadian housing starts fell 14.8 percent in July to a seasonally adjusted annualized 186,500 units from 215,900 units in June, Canada Mortgage and Housing Corp. said

Anonymous said...

Odds are dead against interest rates going down and bonds are not a good option.

Says all the bank analysts who said Canada was different and the housing market would only go up and up. Rates are going down.

roger said...

anon 6:04 said:

It sounds like you could afford a pretty nice house now, I don't know where prices will be in 4 years but I wouldn't put money on a significant drop.

I guess you must be a long-term investor searching the 'net for information.

Mr.4AM said...

You mean a "long, long, loooong, long, long" term investor.

Anonymous said...

The market remains hot. Here's a perfect example of that : http://www.usedvictoria.com/classified-ad/6398469. Probably rich Albertans.

Anonymous said...

Yes, I'm entirely convinced that the market is super hot because *1* "desperate" greater fool outweighs the collective downward trend evidenced by Roger's & VREBs multiple charts.

If any real estate agent ever used the word "desperate" on my behalf as a buyer, I'd fire their *ss*s in 2 seconds!

roger said...

I thought it might be interesting to see condo and single family home (SFH) average and median prices on the same chart. There can be considerable month-to-month variation so the 3 month rolling average has also been graphed. Since prices are now dropping dashed lines have been added which show when prices were last at that level.

Condo & SFH Stats History

olives said...

that usedvic ad can't possibly be legitimate. Sounds more like a hunt for bizness.

Anonymous said...

Just to reiterate: "It sounds like you could afford a pretty nice house now (simply an observation, not a recommendation), I don't know where prices will be in 4 years but I wouldn't put money on a significant drop (read: I wouldn't have my money in GICs betting on price drops for 4 years - that may be a costly decision.)

All of you may decide to not buy a home in 4 years and in the meantime your cash is sitting there losing money - to go to anything past GICs is too risky short term and not in keeping with your purchase plans."

Rather than take this post out of context, maybe reply to what's actually been posted. I would not put my money on the sidelines waiting for a price drop in 4 years - you will likely not be buying in 4 years. Rather, put your money elsewhere where it will actually make money. Waiting to buy simply costs you money and prices are not going to change enough in 4 years to make a difference for you. (I didn't mention buying a house today, which would obviously be questionable at best.)

The fact is we couldn't afford them when they were $250,000 (although some of us chose to), we can't afford them now at $600,000, and 4 years from now maybe it will be $450,000 maybe $700,000 - who knows? Not you and not me. They will still not be affordable.

I'm not buying or selling or recommending any such decision to my friends. Those that own a house do so primarily for personal not financial reasons.

Actually the ones that stand to lose the most (ie making the riskiest decisions) are people recently buying and people recently selling. The rest of us, renters and owners, get to watch.