Monday, October 27, 2008

Steady hand on the tiller

With all the doom and gloom these days, what's a bear to do? Besides strap on the crash helmut (sorry can't leave that poor guy alone).

As much as I hate using the old washed up political cliche, I can't think of a more appropriate way to summarize what the HHV households are up to: steady as she goes.

Here's my top five must do and do not things in an economic environment like that which we find ourselves in today:
  1. Pay down debt. Let's be honest. Investments are not performing. GICs are not performing and interest rates on pretty much any debt eat the difference from anything remotely "safe" that you and I have access to. So the best thing to do is get rid of any and all debt. If you're out of debt, save up a minimum of 3 months worth of expenses, 6 months is ideal. Take confidence in knowing you can weather whatever waves get thrown your way in this storm.
  2. Don't spend any money on unnecessary things. That new Wii so you can play Rockband? Actually, you may want to get that, it could potentially keep you entertained for many a night with the whole family and prevent you from spending other money on unnecessary things. So, Rockband and Wii, cool. New big screen TV to watch yourself rock out, not cool right now. Patience, it will only get cheaper.
  3. Take advantage of every opportunity to learn something new. Instead of spending money going out, read all this great stuff we get for "free" online. We are looking at an unprecedented economic learning opportunity. Drink it in. Disect it. Discuss it. Learn from it. Learn how to make money from it. Learn how to see it coming in the future and protect yourself.
  4. Don't quit your job. I nearly did. I was set to start my own business 2 months ago. I'm delaying that for the near future. Job security is paramount in these times. Remember the pecking order in the downtimes: consultants go first, newly hired next, retirees are offered "early retirement" incentives, and then people plain old lose their jobs. Do everything in your power to be the best employee, contractor/consultant or whatever you are.
  5. Do not make a major purchase. Cars are about to get really cheap. Hyundai is already offering "don't pay till 2010" incentives. But most importantly, no matter how bad your current rental is, do not fall for the "same price as rent" and "time in the market is better than timing the market" advertising going on right now. Need to be convinced your safe not buying? Check out the chart from Roger below. It uses an assumed 5% loss YOY for the next two years. And unless things change, we'll be into double digit negative YOY declines next spring already.

The key number that convinced me here was in the Total Interest row. Saving $44K in interest payments alone using such a conservative correction as a baseline is worth it to me. The savings only get better when you consider the next jump up:

When I see work like this, I realize why I kept blogging everytime I felt fatigued. Thank you Roger, your contributions to my real estate education have been immense.

Friday, October 24, 2008

Grab yer Helmut, crash ahead

March 17, 2008:
B.C.’s unprecedented housing market expansion will continue into 2009, as economic fundamentals and market conditions remain conducive to high sales volumes and rising prices
October 23, 2008:
Housing prices will continue falling from their March 2008 high into next year, bringing the provincial median sales price down 13 per cent to $310,000 in 2009 and by a further five per cent in 2010.
Oh Helmut, it is hard being a dismal scientist. I wonder when the Sun plans to revise this piece for accuracy.

Friday, October 17, 2008

26 years ago

Consumer confidence was at the same level as it is today.

Interest rates were at 15%.

House prices dropped 18% YOY.

In 2008, if the trend continues, single family house prices may drop up to 18% from April 2008 average prices. Yep, the more things change, the more they stay the same.

Wednesday, October 8, 2008

Of course we're insulated on our island

Remember, we are nothing like the lower mainland here in Victoria.

Three all-too-common viewpoints, me thinks:

1. The “Phew, got out just in time” seller:

"We looked at it as a shame we hadn't been selling a year ago," Dinsdale said, "but we're happy we were selling now as opposed to six months from now."

2. The “We can’t believe how fast the tide did turn” sellers:

"It was amazing how fast everything around us came down," he added."Even swimming downstream is tough."

3. The “We’re trying to convince ourselves it was a good decision but still really scared it wasn’t” buyers:
"I think if I might have waited, I might have got a better deal," Ray Keyland said, referring to the three-bedroom, 1,779-square foot house they picked up for $399,000.However, Keyland added that he also worried they might run into higher interest rates. Now that they're in the house, "we're in it for the long haul."
For them, I hope that one per cent hike in interest rates isn’t the difference between “long haul” and “Oh, sh$t.”

Thursday, October 2, 2008

Two thoughts

One from someone with no financial interest in the market:

It appears that Canada has been caught up with home buying fever just as the United States and other countries around the world, said Shiller, co-founder of the S&P Case/Shiller Home Price Index.

Asked whether that meant Canada could face a similar bust, he said: "Yes, especially in places that went up a lot like Vancouver and Calgary..."

And another with an invested interest in keeping up the "morale":

Tony Joe, Victoria Real Estate Board president, responded by saying that there are pockets in the U.S. where the housing market is healthy.

If there is a bust in Canada, "There's going to be insulated places in the country and with all the attributes that Victoria has, of all the places in the country, we are probably best-insulated," Joe said yesterday.

Tony's right. There will be insulated places, just like in the US. These places didn't rise too far, too fast and create the conditions for a bubble in the first place. I'm thinking places like Charlottetown and Shediak fit. Does this sound like Victoria to you? Read more at the TC.