Monday, February 9, 2009

Good people are hurting

Consider this a selfish cleansing post if you will.

I have very close ties to the home building/renovation industry in town. People are hurting. It has only just begun. I've heard anecdotal stories of small-scale businesses closing their shops on Friday afternoon and suggesting their employees "not wait for the call-back."

I know of larger scale operations that have work that are running five crews on a job where six months ago they'd have one. No one there is getting laid off. Yet. The work will get done five times as fast and then all five crews will be laid off together, unless the contractors secure more work, which is doubtful.

I've heard stories of frustrated estimators walking away from job bidding processes proclaiming that the winner "will lose money. They have to buy the same materials as we do and there is no way they are even covering their material costs adequately." And that's if they actually get invited to bid. Many are not. In a town of who you know, the who and the know just got exponentially smaller.

Government sent out a memo to all employees this past week to let them know that further announcements were coming. They attempted to dispel the "myth" that there is a hiring freeze right now, which is the first confirmation that there basically is a de facto hiring freeze. There won't be replacements for positions lost to attrition. Twenty percent of deputy ministers and assistant deputy ministers will lose their jobs. Most ministries have ended contractor relationships and frozen any further contracting out. After the budget on February 17th, more details about what the Public Service Agency is going to do will surface (read cut-backs to budgets and auxillary employees contracts terminated).

Real estate bubble bloggers have been targeted with all kinds of rediculous slander over the years: personally I've been called a bitter renter, an angry arguer, a negative nelly... and those are just the nice things. Lately I've seen comments suggesting that we bears who choose to sit and watch from the sidelines are heartless cheerleaders of destruction.

I'm feeling the fear and the frustration of the people I know and trust who are hurting right now. These are good people. They did their jobs: building people's new homes and helping people fix-up their old ones. They were honest and charged fair value for good work. And now the work is drying up fast.

It was reported today that housing starts dropped 47 per cent. That means there is 47 per cent less work for everyone in the construction industry in Victoria. Today. Trades-related employment grew so fast over the past three years, with so many young people entering into the field instead of going to university, that the long-time people I know were astonished. They'd seen it all before. The cycles. The downturns. But the kids haven't. Until now.

Some of them will leave the industry and go to university. Some of them will chase work elsewhere (but with the oil & gas industry basically shutdown in BC and Alberta and housing starts down a whopping 66 per cent in Calgary, there won't be much work to be had).

The people I know are family people. They are long-term Victorians who own properties here. They have bills to pay and mouths to feed. Sure they could sell their houses if it came to that. Most of them will be OK for the short-term. But if this dramatic drop speeds up and falls as far as some of us think it will, I shudder to think of the consequences. And most of the people I know in the construction business are telling me this is nothing like what they saw in the 80s and 90s.

During the party on the way up, we bears were called all kinds of nasty things for having the foresight to be concerned about the events we are starting to see today. Now as the economy shrinks and the wave-effects crash into our little worlds, we bears are smeared with similarly negative statements for having the "gall" to observe the local real estate economy with a healthy dose of analytical education and truth-based commentary, glass half-empty opinions or not.

When I hear about the good people hurting, I feel like I've been punched in the stomach.

If you or anyone you know is in need of some construction related tradespeople, please send me an e-mail and let me know how to put good local people back to work.

60 comments:

Anonymous said...

I'm on the other side in a way.

I know homeowners who bought investment properties who are starting to panic and hurt.

I know, I know but when you personally know people that it is starting to hurt it is hard and sad.

All this will eventually affect me and my family in some way too I'm sure.

S2

Anonymous said...

HHV, I gotta say or sad to say there is lots of good people out of work right now and many more to come going forward, and being in the construction industry for many years in this city, I've seen this happen a few times really bad in '82, of course. Is it going to get as bad as '82?, only time will tell.

Co-workers of mine are asking me, "do we have enough work?", "are we going to be OK?", and I know the people who are asking these questions are going to lose their jobs and it will be a long long time before they get it back. This is just starting folks!!!

Let's hope for the best.

womp said...

I have family friends who bought a presale at The Falls. They are going to lose their shirts when payments come due, and they're freaking out.

All through the last year I've tried to gently head off as many buyers as I could, but I failed in two cases. It pains me to see them now. But I balance it with the knowledge that my time and effort has saved several people from making horrible mistakes. HHV, your reach has been longer and broader, and you should be proud of what you've accomplished.

On the upside for me, I will be hosting a pizza & beer "real estate round table" night with a bunch co-workers at the end of the month, many of whom are ready to buy. I hope to get a message across!

HouseHuntVictoria said...

Womp,

Cheers. I had a very close friend buy a house last week. I hope they can keep paying for it.

This blog was never about influencing others. It was, and remains so, selfish education for my and my wife... at times it turns into selfish ranting.

The part that really makes me sick is hearing from people who employ others on the days they tell them the work is done. I don't envy anyone who pays someone else's bills... I know someone who hasn't slept in a week, not because he can't pay his mortgage, but because he feels he's failed the people he hired who then bought trucks and homes and had kids over the past 5 years or so... it's tough not to personalize these things that are beyond any one's control.

Nick said...

Well said HHV. I too feel bad for people caught in the crossfire. I think most of the people on this blog have probably done their best to advise their friends and family to keep their heads up, live within their means and prepare for an uncertain future.

I have to shake my head at the arrogance displayed by many in this town though. I think of the young kids fresh out of high school making big money at low-skill trades because of the labour shortage. 20 year old kids driving around in brand new trucks and buying condos thinking that prosperity would last forever. I think of the crowd who says that Victoria is the greatest city in the world and insulated from events elsewhere because of our secure jobs. As recent events have shown, even government work isn't necessarily secure. I don't wish ill on people, but I have to admit some schadenfreude seeing these folks taken down a peg.

It's hard to express negativity amidst a bubble like we just went through, everyone wants to hear only the positives. However, I again want to thank you, Roger, Prarie Boy, womp and all the other regulars in the Victoria RE bear blogging scene. You guys were called losers and bitter renters by people "making their fortune" in real estate, but stuck to your principles. You may not have intended this to be educational, but you certainly provided me with a wealth of information, and I know I won't be one of those unfortunates. Intuitively, I knew that something was wrong with the Victoria RE market, but the media and the real estate industry certainly wasn't going to tell me anything about that. Blogs like this one and Garth Turner's "Greater Fool" were an immense weight off my shoulders, having some confirmation that buying a house at this moment was a bad idea.

Without a huge mortgage and my down payment savings intact, I know that my bills will be paid and my family will be fed for the foreseeable future. For that, I owe you all my gratitude.

Anonymous said...

I have family living on the Island who are in their 50's. Instead of gearing down for retirement, they are desperately searching for work, with 3 months of money left.
Compare this with 2 years ago where they had prospects, investment properties rented out fully (in Alberta) and things were looking promising.

I frequently read comments left on real estate blogs which sound, frankly, gloating. Their biggest criticism seems to be aimed at those who invested money in real estate, citing them as "greedy." Excuse me? Who in the world doesn't want to make money? I can only assume that the people who make those comments are younger and haven't yet grasped the idea that when they become older they will want some financial security. The ways of making that happen shrink as one ages. Sometimes speculating on the real estate market is the only option open to do this.

Even I speculated, buying a waterfront apartment in 2002 as a retirement nest egg. I am looking ahead. It comes down to this: how long can I afford to live?

So my family members who are looking for work---one of them is hard-wired into the Victoria community and he cannot even get interviews. Jobs are for younger people, it seems. Hard times for everyone but some can recover because they have years to recover from all of this. I almost lost it all in the 80's, went into negative equity in the 90's, and found some prosperity in the 2000's.

But when the years have ticked away and the world doesn't want you so much, then it's awfully hard to gloat about what's happening all around.

Sorry! Didn't mean to rant. I do appreciate all the well-reasoned posts from intelligent people. Education and information prevent foolishness in the future. But I guess what I'm saying is that people who have made ill-timed decisions don't deserve to be beaten down now, it's neither right nor productive.

patriotz said...

Their biggest criticism seems to be aimed at those who invested money in real estate, citing them as "greedy."

There are only two ways to make money in investing.

One is to carefully evaluate the value of the investment, i.e. its earnings compared to what you pay, so that the investment makes money for you as long as you own it.

Nobody on this board is knocking people who invested in RE in 2001. We would be more than happy to pay such prices ourselves.

The other is to disregard value, and just assume someone (the greater fool) is going to come around and pay you an even higher price for it.

People who expect a greater fool to make them money on an investment are GREEDY. They are expecting something for nothing. GREEDY, GREEDY, GREEDY.

Anonymous said...

I'm going to have to agree with Patriotz here. I felt, as a bear that a lot of the so called smart investors(read lucky) looked down on me for not buying when the time was right, like it was my fault I missed out. Never mind the fact that I had just had a child and was still in school during the affordable time. Once I had myself established affordability was out the door. It doesn't make me happy that people aren't doing well and are having trouble making ends meet, but it is hard not to feel a little vindicated when the people that looked down on you as second class and stupid for doubting real estate are now wondering how they are going to float their home and 'investment' condo now that there is a shortage of greater fools to buy it at 20% premium.

greg said...

I don't know if I feel any satisfaction or schadenfreud. What I do feel is some relief that prices are going lower, so that when I buy I won't be taking on a crushing debt for my family, and also for that same reason that first time buyers can start to get back into the market again, and for the right reasons.

There is a positive to the negative pointed out by HHV. Unfortunately in Victoria, a lot of the local economy has been tied to the construction industry during this real estate boom, so a retrenchment of the housing prices has a disproportionate negative mpact on local tradespeople. Even so, if the local economy was more diversified, this would not be such a big deal.

I still think its better in the long run for housing to get cheaper again.

When I was younger, the benefit of real estate was considered to be those years (usually in retirement) where the house is paid off and the cost of living is reduced for the retiree. Maybe we are getting back toward that point of view, instead of relying on capital gains to make real estate make sense.

Anyway, sorry to hear about tough times for your family HHV. Like you said, maybe some of them will go on to other careers or education. I'm sure in the medium term everything will work out okay.

hhv said...

more news that our western boom was built on those "sound fundamentals" known as debt and speculation.

Anonymous said...

As someone who was looking to have some minor work done on my house a year ago, I ahve a bit of a different take on the construction industry and the current situation.

I called 6 different companies, and of those who returned my call (two), I was rudely told by one that they didn't touch a job under $10K, and the other said their estimator would be out -- and he never showed up. I called them back, and they basically told me to stop wasting thier time, no one would do a small job, and I could forget about since things were just going to keep growing.

I went with an independent contractor who was honest with me about his time commitments, but agreed to fit the job in. I didn't mind waiting a few months for the job to be done -- I understood that things were booming.

He did great work, he was polite, and he was reliable. Guess what? He is still working, and has solid jobs for the foreseeable future.

The arrogant guys? They aren't getting work now. And when we go to put on an addition (a very high dollar contract), we won't be calling them for bids. They have lost our business permanently.

phil said...

Patriotz - I found your quote from the condohype blog summed this whole thing up perfectly...

"The cause of the current economic crisis is the global RE bubble. The global RE bubble was caused by people paying excessive prices for RE. The people who paid excessive prices for RE are not only directly responsible for their own problems, but for the general economic problems which will have an impact on just about everyone else."

Bravo. Tulip-mania indeed.

Anonymous said...

I just thought I'd put out the other point of view.

There are more than enough people out there right now who perceive they were looked-down upon for not buying property when the game was at its most popular. It is frustrating to hold off due to lack of money when it seems everyone else is going to hit it big. Then when the market falls there is relief, yes, but also a sense of satisfaction---"I was the smarter one after all" (the greater fool must have its collarary)
However.
We all have heard the stories: "I could have bought such and such when it was so cheap!" (relative to today) Hell my grandfather could have bought West Vancouver! The whole damn thing! But he didn't. Sometimes I wish he had taken the risk and done it.
Vancouver's full of stories like that. If he had gone ahead, would people call him greedy? Or prescient?
There are two groups, the greedy speculators and the poor schmucks like me who are just trying to get ahead somehow. As I said in the above post, I've been an underwater homeowner and it's hard to describe the feeling. Kind of sickening, but when I got used to the fact that my equity was going backwards I just resigned myself to the situation. What do rich people do in that situation? Do they offload an asset at a loss, or hold on for as long as they want?
One of the benefits of being rich is TIME. There is time to hold on.

Oh well, I enjoy seeing genuinely greedy people fail as much as the next guy. And the prices in Victoria are insane. I don't use that word lightly either. It's tough to see young people who have grown up here unable to buy a house in their own hometown. That's just not fair.

Anonymous said...

HHV, as sad as this is...

"I know someone who hasn't slept in a week, not because he can't pay his mortgage, but because he feels he's failed the people he hired"

It's actually nice to hear people care about their employees and what happens to them. Even if it is sad, I think it's good to hear. With all the corporate layoffs taking place, you get the feeling we are nothing but expenses in spreadsheets. It's nice to know not everyone feels that way.

-Village

omc said...

I too feel bad for people in trouble because it happened to me in the 90s crash. Both by real estate losses (though relatively mild) and being a trades person. I took my lumps had to move away and had to work smarter. This eventually led to me going to university as an adult.

The trades have always been like this, this generation just hadn't seen it yet. I guess there will be quite a few big black 4x4s with shiny checkerboard toolboxes up for sale soon.

On the other hand, we didn't cause this. The realtors' lies and greedy investors did. I am sorry to sound harsh, bit when things were spiralling upwards no one shed a tear for my family.

patriotz said...

Vancouver's full of stories like that. If he had gone ahead, would people call him greedy? Or prescient?

Let me recap what I have already said:

People who look for and buy bargains, in RE or anything else, are not being "greedy". They are being smart.

People who buy something at an inflated price, and expect someone to buy it from them for an even more inflated price so they can make a profit, are both greedy and stupid.

I don't think I can make this any clearer.

hhv said...

OMC,

We are all interconnected. The people who agreed to overpay for a home, regardless of reasons, are just as much to blame as the people who sold it, built it, bought it to rent etc...

No one held a gun to anyone's head. This downturn is the result of a large segment of society overspending period. Didn't matter what they were buying. They were borrowing from tomorrow to do it. It got out of hand and now it's time to pay.

Those of us who sat the boom out and took care of the little things really aren't "winners." Our tax dollars will be spent to bail out the drunken sailors...

That realization is like another kick to the gut.

Anonymous said...

During the run up, IE last year. Many people were touting the 'if I can't sell at my price, I'll rent' mantra. I wonder if that's causing what (to me anyway) lower inventory levels then I expected.

I wonder how long they can hold out for and whether they will get their asking price. Is $2k for a house reasonable rent? From my point of view, at that price I might as well buy since the mortgage/rent is too close. The only way I see them being rented is to 4 or 5 roomates who share the load.

Are my views so far out of whack of reality that these places are being rented?

-Village

Anonymous said...

I walk by the falls everyday and I'm sick and tired of this project. They have guys who hoot and holler all day everyday so loud that everyone within a block can hear. They've closed the sidewalks around the site forcing pedestrians to jay walk when they have traffic directors sitting around smoking. You see the workers getting stoned on breaks. It's just plain annoying. I hope it finishes and the last 8 homes that remain never sell.

boomer said...

Last summer we tried to hire a small company to clear and top some trees on a property we own up island. They wouldn't come out for an estimate but said they could show up in a "week or so" and start working at 150 bucks an hour (2 men and a machine) and we could pay them as much as it cost when finished-- or when we decided that we had reached our budget for the project. They're now running "work wanted" ads in the local rag.
Me gloat? Nobody wants an economic catastrophe BUT -in this case, damn straight!
BTW. For a different perspective about Canada from NEWSWEEK here's a link:

http://tinyurl.com/cvqzo5

patriotz said...

What really saved the banks' asses in Canada was the lack of securitization of mortgage lending. Because all high ratio mortgages are CMHC (or other insurers which are government backed) insured, the whole toxic risk structure south of the border was avoided. You are not going to have mortgage defaults causing a chain reaction in the banking system.

Now this really amounts to an advance bailout of the banks and I'm not saying it was necessarily the best thing to do - I think CMHC should have been far more restrictive - but it does preserve confidence in the banking system. Note that the major banks have had no problems selling even share issues recently.

boomer said...

link text

hey I think i did it! (a clickable link)
sorry for the experimentation.

boomer said...

hurray -i did it-i'm so happy. well, on to more productive activities...............

olives said...

Patriotz - what about commercial loans and credit cards though, that don't have this CMHC protection? I have no idea, but I would guess they are at least (or more) as big a share of the banking pie as CMHC-insured mortgages

roger said...

Olives,

Check this out:

Bankruptcies Mount In Canada

Personal bankruptcy filings in Canada rose 50.6% in December to 8,163 compared to the year-ago period, data released on Monday showed

A separate report issued last week by consulting firm Deloitte & Touche revealed that Canadians now carry more debt as a percentage of their disposable income than Americans.

The ratio of debt to disposable income in Canada hit 130.0%, the Deloitte report says, citing Bank of Canada figures. That may be a troubling sign for Canadian banks, which have seen their customers' outstanding credit card balances increase by 40.0% since 2004.

Executives at credit card issuers interviewed for the Deloitte report said that starting in October and November, delinquencies jumped 5% to 10%. Banks could be on the hook for more than C$800 million ($656 million) in bad credit card debt in 2009, the report says.

olives said...

That's what I thought Roger.

So we're number one! (for both debt and unemployment growth. Yah us!

I'm surprised about the 40 percent increase in credit card balance since 2004 though - weren't people withdrawing equity from their homes to buy their toys? Or were they using BOTH options?

People in my circle of friends who did use home equity for various reasons would not, I believe, fall under the CMHC-insured category in any event, and while they would not currently be underwater on their mortgages, their new debt levels are causing them stress, even at this point.

Anonymous said...

I got stopped short today passing by today's Globe and Mail at a newsstand.

Front page, above the fold was this:

"Western Canada hit hardest by decline

B.C. and Alberta see swifter, sharper downturn than other provinces as housing slumps and bankruptcies soar"

http://mirabilis.ca/2009/02/07/canadas-banking-system/

I'm sure my link won't work but I'm putting it in anyway.

S2

Anonymous said...

Sorry. Wrong link posted before.
Here is the right one.

http://www.theglobeandmail.com/servlet/story/RTGAM.20090210.reconomy10/BNStory/crashandrecovery/home

S2

Anonymous said...

Ah, I see I was beaten to it.

S2

roger said...

S2,

Here is how you make links in your posts.

How to make links

B2B said...

I'm surprised about the 40 percent increase in credit card balance since 2004 though - weren't people withdrawing equity from their homes to buy their toys? Or were they using BOTH options?

I'm guessing that people used both options, using the credit cards to nearly the exact extent that Canadian lenders were less willing to lend them huge amounts on their HELOCs. Thus, Canadians have managed to rack up more debt (as % of disposable income) than Americans, even while our banks are supposedly more risk-averse.

Put another way, are Canadian bankers smarter than US bankers, as many Canadians would have us believe? I don't believe that for a second.

talus said...

Rents are falling...

3 Bed Mt Tolmie was asking $1950/mo
now$1800/mo. That is an annual savings of $1400 or a whack load of Starbucks triple latte's.


As for the topic of this post. Do I feel vindicated by current events?? - F'-in YES!

Could I have bought a house when we moved here in '05. Hell ya.

Was it a smart idea to buy?? --- I sure didn't think so. And thankfully I wasn't alone in my thought process. All of you who keep this blog moving along -- thank you, thank you, thank you.

Am I treated as a second class citizen for being a renter?? -- sure feels like it sometimes.

It was never about rubbing people's faces in it. It was about all about being educated.

About not being dumb sheeple and following the rest of the lemmings (mixing my metaphor's).

Were there, *like*, a million people telling me to buy or forever be priced out?? Yup.

Were there people who question why I would "waste" money on rent?? Damn right.

Do I feel like rubbing some peoples faces in it now? You bet. Especially the GREEDY dumb ones.

You GREEDY ones know who you are. Your trying to figure out where and how you went wrong. Why that 20 minute seminar on property flipping isn't working out. Your here blogging how us "bears" are ruining the economy by not participating.

If I hear one more person say "It wouldn't be so bad if you stopped saying it was bad", I swear I'm gonna snap. Loose it! Like the champ.

-----

BTW - I asked my landlord for a freeze on my rent. They told me to go pound salt. Guess we'll see how much they enjoy a vacant property.

I'm off to find myself a better rental for less money... or more money --- because it's all about VALUE people!

B2B said...


I wonder how long they can hold out for and whether they will get their asking price. Is $2k for a house reasonable rent? From my point of view, at that price I might as well buy since the mortgage/rent is too close.


$2k rent for a nice house in a nice location is indeed reasonable. But these houses (e.g. a decent small house in Oak Bay or Fairfield) would not sell for anything like a price that would give you a $2k mortgage payment. So you're not comparing the same houses when you compare mortgage/rent above.

By way of example, the house I currently rent, as I've mentioned before, is appraised now at $900k and rents for $1900. This does NOT mean that "I might as well buy, given I pay $1900 in rent".

patriotz said...

People in my circle of friends who did use home equity for various reasons would not, I believe, fall under the CMHC-insured category in any event

All lending against the title of a house by banks is subject to CMHC insurance requirements, whether it's used to purchase the house or borrow against an existing house. In fact I think home equity lending has stricter requirements for insurance.

Anonymous said...
This comment has been removed by a blog administrator.
greg said...

All lending against the title of a house by banks is subject to CMHC insurance requirements, whether it's used to purchase the house or borrow against an existing house.

Is this true in the case of purchasers putting down more than 25% a few years ago or 20% now? In those cases, there is no CMHC surcharge to the buyer or insurance on the loan for the lender, as far as I know.

HouseHuntVictoria said...

Anon @ 4:24.

Please don't cut and paste comments from other websites, namely chat forums, and insert absentee comments into this blog.

I've removed the comment, not because it is offensive, but because the subject of the comment was clearly named and has no way of knowing that his writing would end up being discussed here. Defend the absent and all that.

Please feel free to link to other websites in comments. People should discuss what he had to say in the thread at the other site.

Now back to our regularly scheduled programming: offend away ;-)

Anonymous said...

HHV, you cut and paste all the time.(newspapers, VREB)I am sure other posters would like to hear the opinion of some realtors.

HouseHuntVictoria said...

I'm sure they would too... feel free to link to that post so that the realtor in question can participate directly.

By just cutting and pasting his comments here, he has no way of no way of backing up his opinions. I don't think that's fair to do to anyone.

Mr.4AM said...

Thanks HHV, for keeping up this blog. I've learned a lot from numerous people here about real estate and sites like this helped me keep my sanity while I saw all my friends my age buy houses they'll be paying for the next 35-40 years, assuming they don't eventually foreclose or go bankrupt.

I've been warning my circle of friends with letters stating that a severe downturn was on the horizon as prices were out of alignment with fundamentals for the past year and a half. But they didn't listen and while some are starting to pay attention (it's hard to avoid the negative news these days), I think most of them will be too slow (and too late) to act. I think many are still in denial. Fortunately, none have lost their jobs yet as many work in government.

People in my work place are still following their financial planner's advice of "hold for the long term" and "it's not a loss until you sell" and "look at this chart, the markets eventually recover" and and and... and basically, my co-workers are losing their shirts and some (the older ones closer to retirement) are starting to really worry.

Overall though, I think this is sadly just the beginning for Victoria. If our unemployment rate is really only 4%, as far as I'm concerned, we're still living in paradise - for now. Sadly, I think 2009 will be as bad or worse than 2008 in terms of severity of decline in both the real estate and stock markets. Look at what happened today in the US... They announce the biggest bail out plan in world history and the stock markets dive nearly 5%.

I listened to Obama speak for 30 minutes yesterday, and I believe the guy is sincere in his heart and really wants America to succeed in a recovery. For a few seconds, perhaps a couple of minutes when I listened with my heart, I actually felt like he had a chance and that perhaps he might succeed... but logic and basic economics tell me he (specifically his financial head honchos) will fail severely and the consequences of such a failure are massive.

Even though overall I feel financially sound and my buying power increases every other week, I still can't help but to wonder and fear of what's yet to come, because as somebody else above said, we're all interconnected, and it's only a question of time before we're all impacted one way or another.

patriotz said...

Is this true in the case of purchasers putting down more than 25% a few years ago or 20% now?

What I meant is that requirements for mortgage insurance apply both to purchase loans and equity loans. Of course if the ratio is low enough insurance is not required.

BTW I have heard that some banks are now requiring CMHC insurance for < 80% lending although they are not legally required to do so. Three guesses why.

Dumb Canuck said...

Excellent post HHV.

Let us remember that there is an element of luck in every decision, including job choices and investments, that it is very hard not to be swept up by the crowd (as many were), and that those who don't have luck on their side when jobs are lost (or houses have trouble selling), are no different than ourselves or anyone else.

I may be risk adverse and study purchases and investments before I make them, but this is simply a character trait. A person who takes risks, who lives on belief and trust is needed as well (hell, this sounds like my significant other), or there won't be balance and appropriate movement.

The failure in the current market is one where there was insufficient downside to excess risk. So people, by nature, became greedy and wanted more - banks, investment companies, politicians, construction workers, people buying houses. Then the house of cards came down (think Yertle the Turtle) because one card (sub-prime in the states) started to fall first. Then the other cards (which could have fallen first as well) fell down.

The failure was that the neo-conservative view that financial markets worked better without much regulation was, in fact, false. Markets need sufficient, but not excessive, regulation, or, like a biological system without a predator, they spin out of control.

Yin and yang. Balance of risk and risk-adversion, regulation and free market, profit and loss. It all makes sense.

The unfortunate part is that a lot of really good, well-meaning people have gotten hurt a lot, and many more well.

My prayers go out to them.

roger said...

HHV,

Your post was very sombre and I have been thinking about it for the last day. I have enough liquid savings to ride out this storm but I am very concerned for my fellow citizens. Many people can't or won't accept that the current storm clouds are going to get much worse.

About 75-80% of our exports are to the US and their economy is deteriorating quickly. In BC about 65% of GDP is consumer related. BC was in the top tier of the provinces with significant job losses last month. Finally, our BC government has caught on and they are now suspending the budget deficit law in BC, this week, in preparation for the upcoming budget.

Canadian job losses last month were horrible with 129K seasonally adjusted jobs lost. The actual numbers were much higher with estimates of 340-400K!

Earlier I posted this chart by the Democrat Speaker in the US.

The folks over at Big Picture created this one: US Job Losses in Recessions.

If this doesn't get people's attention I don't know what will.

patriotz said...

Lately I've seen comments suggesting that we bears who choose to sit and watch from the sidelines are heartless cheerleaders of destruction.

In other words, blame the victim,

The cause of the RE bust/economic crisis was the RE bubble. The cause of the RE bubble was people who were willing to pay too much for housing.

If people were not willing to pay ridiculous prices for RE, we would not see the boom/bust behaviour in the RE market. The RE construction/renovation industry would have a steady flow of jobs, skilled people would be able to work consistently, and there would be no need to bring in unqualified people in times of labour shortage. Wouldn't that be something.

It does not surprise me that people are now lashing out at the bears. They will blame anyone except themselves.

Anonymous said...

I think what we're seeing is a bottoming out of the recession in the US. The recovery will take place before the bailout money even gets wasted. America will lead the way out of the recession. Canada will be in better shape once we're out of the recession since we've committed very little for this mythical "stimulus" that won't do anything but drive up inflation. I think by 2011 we'll start to see Canadian wages climb for the first time since the 1980s. Inflation will be a paltry 2-3% while the US inflation rate will be closer to 10%.

Anonymous said...

Anon 8:16 said "I think what we're seeing is a bottoming out of the recession in the US."

I agree. That is, if we are standing on the cliff and looking down at the bottom. There's a long way down from where we are standing. As I've said repeatedly,7500 Dow wasn't the bottom.

The new US Treasury had months to prepare a plan and yet delivered nothing but fluff and scary words along with 1.5 Trillion of freshly printed money. As a result the markets dropped nearly 5% in a matter of an hour or less.

This year we're going to see the race to the bottom in currencies.

Don't kid yourself, the markets have much further to fall, and inflation when it comes, will be staggering not a mere 2 or 3% in Canada.

Mr.4AM said...

That last post was mine.(Mr.4AM), clicked the button too quickly.

Mr.4AM said...

"The cause of the RE bust/economic crisis was the RE bubble. The cause of the RE bubble was people who were willing to pay too much for housing."

No, the RE bubble was the symptom. The cause was the Federal Reserve manipulating interest rates to all time lows and keeping them there due to a) .COM bubble burst and b) 9/11, so as to "stimulate the economy", which then resulted in easy to borrow money, along with eased lending rules, which happened to create an asset bubble in housing.

Right now, they are doing it all over again, only this time it's even cheaper to borrow - heck, they are even giving away free money - hundreds of billions of it.

Will this create another asset bubble? Possibly, in the short term it may be treasury bills (1 year or less?), in the mid term it may be alternative energy and infrastructure (in 1 to 2 years), but in the longer term (~2 or 3 years) it will end up crushing the US currency the USA as a result.

Meanwhile, real estate will continue on a downward spiral as nobody wants to buy toxic paper debt to put a floor on price.

I think Obama is in for a nightmare of gargatuous porportions when he opens up the bank books to find out who has how much debt as part of his plan to instil trust between banks, so they can lend again, to put a floor on the real estate market. I'm betting he isn't going to make those bank numbers transparent though, as it would scare the bejeezus out of the markets.

Anonymous said...

Obama IS a nightmare of gigantic proportions.

And I'm a Democrat.

roger said...

anon 8:16 said:

I think what we're seeing is a bottoming out of the recession in the US.

I think you better take another look at this graph.

US Job Losses

The bottom is a long way down and you can't see it because it is dark outside.

patriotz said...

No, the RE bubble was the symptom.

You cannot have a bubble in RE or any other asset unless people are willing to pay too much for it. No matter how much credit is available.

Isn't that obvious?

I agree that the RE bubble was in a sense a symptom of too much credit availability, but that in no way negates the simple truth that the direct cause of any asset bubble is people paying too much.

patriotz said...

Obama IS a nightmare of gigantic proportions.

I'll take Obama over Grandpa Simpson and Sassy Sue any day, thanks.

vg said...

anonymous 7:18,

I also was not able to buy in early 2000 due to a "life situation". I think many people were. How many were on shaky employment ground ? or having a kid or two ? or just out of a divorce or life crisis where owning a home wasn't the smartest decision or the "right time" for that individual ? Many Victorians probably were and got priced out...temporarily.

I don't wish ill will on anyone owning a home to make money,same as buying a stock etc, good for you. But don't rub it in my face or make me out to be some loser who when I mention the affordability factor which was so obvious. Nor not be concerned that 40 year mortgages are "just the way it is now" and "no one pays off their mortgage in a lifetime anymore" and all these other idiotic excuses for overvalued everything.

Common sense did not prevail,plain and simple and now those who overpaid are now answering the bell. Such is life,been there many times in my life and this era of time will be like the past recessions but with much more seriousness.

I also blame the MSM for breeding this perception that it will go on forever and the TC still is pumping this shit out on a daily basis re: CW. How many times has the A Channel and CHEK said "we're different", "you are locked out of the market FOREVER" ? I lost track. What a gut wrenching feeling to have that slapped in my face as things finally start to happen for me but now I am out FOREVER as my local anchor man tells me on a nightly basis.

And finally we have the "relying on the construction business for employment" scenario. Yes they are hurting for sure,but they did in 1980 and the 90's,it is no secret being in the construction business is feast or famine, always has been in this town.

Sorry for those who are hurting but there will be many lessons to be learned and will hopefully create a dramatic shift on how we all borrow and spend on future assets.

omc said...

What Mr4am is saying is actually a fairly well accepted argument. The devaluation of currencies that will result is really not a pretty thing. What it will mean to housing prices in a few years isn't clear. Interest rates will have to go up as the ecomomies inflate away debt, but hard assets will be far more attractive as the currency devalues. this is still a few years away though.

roger said...

HHV,

Victoria is fortunate, so far, because our unemployment rate is 4% but it is going up at about .3% per month. We have some advance warning here of recessionary conditions and more time to prepare than our fellow citizens in Ontario.

Therefore, I would like to suggest a new topic for you when this one has run its course. The subject would be how to protect yourself and your family in this downturn. Many of us have been through one or more recessions in the past and we could contribute some positive suggestions on what folks can do to weather the storm. Hopefully, this might help some of the readers, many of whom never post but visit the site on a regular basis.

What do you or the other readers think of this suggestion?

HouseHuntVictoria said...

roger,

great idea, i just finished writing a new post tongue in cheek style, and will run your suggestion next.

Anonymous said...

I think that's a great idea Roger, I'm curious about the insights that people might have about these economic times in a context broader than just the housing market.

B2B said...


Will this create another asset bubble? Possibly, in the short term it may be treasury bills (1 year or less?), in the mid term it may be alternative energy and infrastructure (in 1 to 2 years), but in the longer term (~2 or 3 years) it will end up crushing the US currency the USA as a result.


The important thing to remember, though, is that markets ever since they were invented have been characterized by periodic manias, bubbles, etc. These define the market - they're not, as many believe, totally anomalous events that could be eliminated if only better regulation was in place. They're a byproduct of the way humans work.

Benoit Mandelbrot has some convincing research and evidence compiled to support this - but also, the fact that history is filled with bubbles in markets is undeniable.

Anonymous said...

patriotz wrotes: "People who look for and buy bargains, in RE or anything else, are not being "greedy". They are being smart.
People who buy something at an inflated price, and expect someone to buy it from them for an even more inflated price so they can make a profit, are both greedy and stupid. I don't think I can make this any clearer.


What's clear, patriotz, is that you're a self-satisfied, sanctimonious a-hole.

Who decides what's a fair price? The only fair price is what the seller and buyer agree to. Not what you deem to be fair. Jeebus, you're such an arrogant d!llweed with no concept of how the free market works. I wish a thousand misfortunes on you, I really do.

Anonymous said...

"What's clear, patriotz, is that you're a self-satisfied, sanctimonious a-hole."

Given the continuous tone of his posts, Patriotz is anything but self-satisfied. He or she clearly has serious self-esteem issues to be able to denegrate others as freely as we see.