Monday, March 9, 2009

The Warren Buffet way

I'm a huge fan of Buffet. I like Warren's way with stocks. I like Jimmy's way with good-times. And I especially enjoy the all-you-can-eat way; Oh yes, I did just bring that cheese to this post.

Warren's getting a lot of press today, like he does pretty much anytime he agrees to an interview. And he should.

This is what he said in October last year (and certainly it wasn't the first time we've heard it):
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.
He went on to sink personal money into US equities--mainly energy and water utilities, railroads and food companies--putting his money where his mouth is.

This is what Warren had to say yesterday:
Warren Buffett said yesterday that the US economy had “fallen off a cliff”, describing the current crisis as “an economic Pearl Harbor” as concern spread about the US Administration’s fitful attempts to halt the collapse of the American banking sector.
It's fallen off a cliff, and not only has the economy slowed down a lot, people have really changed their behavior like nothing I've ever seen.
And so it is. Warren's advice is right: Buck the trend; there is money to be made by doing the opposite of what everyone else is doing. Warren's advice doesn't stop there though. He also doesn't invest in companies or industries he doesn't understand, and he doesn't invest in companies with management he doesn't trust. There's actually a whole bunch of rules he has. Some of which I'm adapting below and hoping you'll add to in comments.

Let's face it bears, no matter how hard we might try (and I'd like to point out to you all that I really could care less whether anyone buys a home tomorrow or not), people are buying houses right now and there is nothing we can do about it. Nor should we. But in the spirit of giving, and in the off chance that a prospective Victoria first time buyer stumbles upon this little site, here's some adapted Buffet rules that I think will help you avoid the potential long-term pain that may await some of the more think-less-act-now kind of first time buyers out there:
  1. Buy real estate cheap: Be a value investor. Calculate fundamental value for a home--examine what similar homes rent for and don't bank on the market value of a home in the future. Look for a home priced as close to rent parity as possible (think $600-$650 per bedroom)--you won't find much, if any, and what you find won't last long in this market.
  2. Hold for life: If you must buy now, only buy a home you know you can live in for a long time. If you're considering a 1-bed downtown condo with your fiance and you're planning on having a child in the next two years and know you will want to have a house then, find a way to buy the house today. And no, a 2-bed condo is not the same thing. It takes a very special kind of a family to make a go if it in less than 1000 square feet of communal living next door to a retired couple who prefers silence after 7pm, below two students and their boyfriends who think Wednesday evening is the new Friday night, and above a night shift worker who needs daytime for sleeping.
  3. Be frugal: Instead of reaching financially to own a home, find a home that is appropriate for the long-term, that is priced below your means. I know this seems contradictory to the rule above, and it is, I still think renting is the best way to go right now, but if you "just have to buy" right now, risk as little money as possible, and make sure you can sock away a few extra dollars in a non-real estate savings vehicle each month.
  4. Don't depend on others to say you're right: This is perhaps the most important rule. Despite the downturn and uncertainty over the future, the dominant belief in Victoria is "You can't go wrong with owning your own home." This is especially true if you're talking to someone who: owns a home they are trying to sell; is selling a home on behalf of someone else; sells products and services that help people buy a home; or bought their current home back when the average price was less than half of what it is today (for the record, that was 2001). If you have even an inclining of doubt, listen to your gut, not the voice of anyone else.
The last post here debunked the buyer's market push marketing found in the MSM advertorials (see below). If you are a first time home buyer, and you're looking to buy a home (see point 2 above), you're likely competing, yes there really is competition, for any well-priced home in today's market that is "affordable" for the first timers. It's true there are "deals" out there; but mostly for boomers who have been in the market for decades and for those that believe April 2008 prices are soon to be upon us again.

The most recent upswing in the market lasted 10 years (prices rose, albeit slowly for the first 4 years, from 1998 to 2008 on a YOY basis). In the crash of the 1980s, it took 6 years for prices to rebound to their previous peak (built over 4 years and dropped over 4). In the correction of 1990s, prices dropped slowly for 6 years and in the 7th "recovered" to their 1994 peak (built over 6 years and dropped over 6, not adjusted for inflation of course).

Why is this time any different? Why will prices not fall further and not take longer than 5 years to rebound like in the previous cycles? Why will prices not keep falling over the same length of time as they rose (10 years) like they did in the two previous cycles? <-- click to see Roger's graph UPDATED.

The global economy has not seen an economic downturn like this one since the Great Depression. You can afford to wait. If you're a first timer thinking about buying today, you may be best served to ask "can I afford not to wait?"

135 comments:

Anonymous said...

Warren also just lost an assload of money after acquiring two irish banks that tanked this past year...

Anonymous said...

oh yeh, he also goofed on oil. yeh, he's a smart guy. he can afford to screw up once in a while. just sayin'.

roger said...

HHV,

I am going to post this graph again for those who might be dropping by the blog for the first time. Readers will note that even the BC Real Estate Association (BCREA) predicts a 10% drop in prices in 2009. This is pretty conservative IMHO.

House Prices 1978-2010

For more graphs and charts you can visit my Victoria Real Estate Stats Gallery

roger said...

In the last thread I asked the anons if they would please start using names so we could tell one from another. Otherwise most of us will assume you are a drive-by poster or just trying to poke the bears.

So anon's if you want to have a constructive dialogue just use a nickname. It is easy - just select Name/URL, enter your nickname and use a few spaces for the URL.

HHV and other readers. I suggest that we no longer respond to anon comments or taunts. This is one way to have a better exchange of ideas and dialogue. Let's not feed the trolls.

Anonymous said...

I'm pretty sure if HHV wanted to stop anon postings he could do so through tightening of the security restrictions (is that correct?) This has been discussed before.

That's a great graph Roger and shows the we can expect a flattening of prices (after the initial drop) through to perhaps 2014 where the cycle would start all over. So dropping to about say $500,000 average by the end of 2010, what will make that an affordable price in 6 years?

HouseHuntVictoria said...

Roger, you asked for suggested improvements to the graph previously: I'd like to see a clear message indicator of "this is where we are today at the top. I think if you're a first timer looking at the graph, you may not realize that the predicted lines haven't happened yet. Maybe it's just this first timer that is crying out for a big red YOU ARE HERE type marker.

And yes, please don't feed the trolls.

I don't want to do anything like censor or ask for log ins or passwords or anything that discourages participation in discussion.

I've only ever deleted one comment, because I felt it unfair to move a discussion from one forum to another without letting the participants in the other place know first. Other than that, I'd like to keep this a free speech zone.

The trolls discredit themselves. Sometimes I think much of what gets left here is tongue in cheek or sarcasm anyway. If we don't bite, the fishers will pull bait and move on.

roger said...

HHV,

Here is an updated graph as you requested.

House Prices 1978-2010

HouseHuntVictoria said...

Thank you Roger, now it is painfully obvious to this dimwit.

hhv said...

Browsing my PCS tonight, for the first time since I signed up in Jan 2007, three two bed condos listed for under $200K--high quadra, fairfield and west saanich. Some condo sellers are getting it.

Reid said...

HHV, great post. I think that it is critical that we try and educate people, especially our youth and FTB’s.

Unfortunately in a recession, house prices do not respond like the stock market; they take a lot longer to fall. I assume this is because the majority of the sellers and buyers are far less sophisticated than equity investors. Today home sellers live in denial, but I sense many buyers are simply too impatient. So many people today want everything now before they have earned it. This has become engrained in our culture especially when the system allows you to but a house with 5% down (0% last year) and financing is so easily available.

The key driver of the problem has been the lax credit which has allowed people to have whatever they want before they have really earned it. This may help drive our economy but it is a problem when it comes to personal finance. Unlike in the US, Canada DOES NOT have a credit problem today. Most buyers can still get a pre-approved mortgage for an insane amount of money. This has to be tempting for the impatient FTB who wishes to fulfill their dream of owning a home. Now it is up to that FTB to have to discipline not the buy which is going to be tough call as it is counter to the very culture we have developed especially with our youth.

This recession is very serious. I am working day and night trying to keep our company moving forward; it is tough and gets worse literally on a week by week basis. I have never seen anything like this and it will be very ugly. We will all see people we know get hurt and hurt bad. But given what I have seen in this city we are going to literally have to see the blood in the streets before people take this thing seriously. So many people think this recession will blow over soon and we will be back to normal next year; they are wrong.

FTB’s, sit tight and wait this thing out; it will be the best decision you ever made. Unfortunately this is going to take time and you need to be patient as it will take at least a year and quite possibly a lot longer until buyers and sellers fully accept reality.

patriotz said...

Unfortunately in a recession, house prices do not respond like the stock market; they take a lot longer to fall. I assume this is because the majority of the sellers and buyers are far less sophisticated than equity investors.

The other reasons are a lack of liquidity, and a very small flow compared to stock (by "stock" I mean total number of houses, not "stock" as in stock market).

Lack of liquidity - every house is different, long time to sell, there is no bid/ask market, you can't short houses, very large transaction costs, very high granularity (i.e. houses are very very expensive compared to shares).

Stock versus flow - almost all shares in the stock market are available to be sold all the time, but the great majority of house owners have no intention of selling at any given time. That is also true on the upside, anyone can buy shares at any time, but only a small number of people are willing and able to buy a house at any given time.

That's why the stock market can turn overnight but RE markets take months or years. That's also why it's really easy to buy near the bottom of RE cycles. All it takes is patience and a little common sense.

Anonymous said...

Housing won't turn around until it's affordable, and that's a long way off.

Joe Dirt said...

OK Roger, I'll use a nickname. Long time anon poster, but late for work. Have a great day.

roger said...

Here is a link for readers to browse while they drink their morning coffee....

Mortgage Bytes - General News & Trends

olives said...

Roger,

Re the graph, it is my understanding that historically real estate prices have tracked inflation (the red line on the graph) and it was only in the late 1970's/early 1980's, when the "credit binge" began that prices became started to increase beyond the inflation rate.

With the credit bubble bursting, does it not now make sense that prices will once again track inflation? And given the deflation is occurring (even though it seems extreme) should prices now not dip below the red inflation line for a spell?

I know this line of reasoning seems crazy to many people, but on that same note if someone were to suggest in 1960 that prices would be where they are now - and so far beyond inflationary norms, that probably would have seemed ludicrous also.

Does anyone else agree with this possibility?

roger said...

Olives,

Prior to 1978 we had an economic model that reinforced saving, making a significant downpayment, single wage earner families and living within your means. That has all changed in the last 30 years.

Unless we have a severe depression I do not think we will return to the inflation adjusted price levels. Rather we will somewhat overshoot the inflation + 2.7% line. But who knows? The economic uncertainty right now is something that has not been seen since the 30's.

On a different note. Readers might want to drop by Victoria Vision and read Bernard's latest real estate post. Quite informative.

patriotz said...

it was only in the late 1970's/early 1980's, when the "credit binge" began that prices became started to increase beyond the inflation rate.

There was no credit binge in the 70's and early 80's. Savings rates were quite high.

The reasons that house prices started to outpace inflation were that (1) the participation of women in the workforce was rising rapidly, so household incomes were rising much faster than inflation, (2) the first boomers were reaching house buying age, and (3) people were willing to pay more than rent equivalence (they weren't before) because they saw owning a house as a hedge against inflation.

olives said...

"There was no credit binge in the 70's and early 80's..."


I understand this is when things changed - credit began loosening substantially, disinflation, kondratieff spring, etc., whatever you want to call this portion of the credit cycle - it began around that period of time. I think you know what I mean patriotz. The boomer population and other social aspects perhaps just added to extremeness of the binge.

olives said...

"That has all changed in the last 30 years."

This is exactly what my father says. And unless "this time it's different", we should probably revert back to how it is at the beginning of every credit cycle - which seems to be tracking inflation ???

The Victoria Vision site is interesting.

hhv said...

Interesting threads today at the KIV Cafe:

Forclosure...bankruptcy...losing your house

and

Is the economic downturn personally affecting you?

Ryan said...

Does the benchmark price take into account quality and size? I know that the median doesn't, which is why it's fairly unreliable.

The Case-Shiller index shows real estate tracking inflation, however that tracks actual sales of the same property. Unless the benchmark similarly accounts for the massive increase in size of the median house, I don't see it dipping down to '78 + inflation level. If you want a house for $200,000 you're going to have to get one of those little WWII shacks in Esquimalt, just like you would've in 1978.

thinker said...

There has been a lot of conversation around inflation on this post as well as this blog in general. I think there are really two different types of inflation that need to be identified: 1) CPI - our current measure of inflation based on a basket of 'common' goods and services and their relative change in price over time and 2)Asset or Investment based inflation - the relative change in investment values (including real estate) over time. CPI related inflation can be easily controlled by prudent fiscal policy (the governement sets the interest rate). There have been no dramatic shifts in CPI since the early 80s. Unfortunately, the same cannot be said for Assset or Investment based inflation, hence one of the reasons why the markets (securty and real estate) experienced the unprecedented gains they have in the past five or six years. Once the markets stabalize (and that make take os into 2011) the only way to prevent this type of appreciation insanity again is to implement fiscal policy that has the ability to exert some pressure in times of inexplicable market gains or losses. For example, rather than extending amortizations and decreasing down payment requirements when real estate prices appreciate rapidly, financial institutions should tighter lending policies which would slow down this type of inflation. The bottom line is that inflation related to investments (including real estate) is a completely different animal than CPI inflation and therfore there is no such thing as an inflation adjusted price bubble IMHO.

Joe Dirt said...

"Interesting threads today at the KIV Cafe:"

Those threads are certainly telling of what's happening out there at a particular income level. I don't want to get into commenting on particulars from those threads as it wouldn't be fair to the posters, but suffice it to say there are a lot of people out there that are being offered way more money than they can afford. Shame on the banks for driving this insanity.

omc said...

The most reasonable answer to the housing boom/bust cycle that the government put us through every few years is to monitor asset inflation as well as the consumer durables as they now do. Who cares if that DVD player from walmart has 2% inflation per year? It has very little effect on the economy as the sky rocketing housing. Think about it, we could have a steady working skilled construction work force.

Dumb Canuck said...

I have a lot of sympathy for the commenters over on KIV - they are going through tough times - let's all remember to reach out to those in need.

phil said...

"Shame on the banks for driving this insanity."

What do they care, they've got the CMHC (taxpayer) to bail them out. It's our government that's been asleep at the wheel for decades.

patriotz said...

"There was no credit binge in the 70's and early 80's..."

I understand this is when things changed - credit began loosening substantially,


Credit loosening? Ever hear of Paul Volcker? That was when we had the highest interest rates ever. I remember buying a 6 month GIC in 1981 for 18.5% ! People didn't live on credit then because they couldn't afford to.

The credit economy started in the LATE 1980's after the recovery from the early 1980's recession and lowering of interest rates under, yes you guessed it, Alan Greenspan.

BearMuncher said...

I think those of us who are still working and likely will continue to work through this should probably start donating to the food bank. Most people think the government will take care of them when times get tough, when they get sick etc.

It's not true. The government only takes your money to distribute to people who don't deserve it. A lot of people are about to figure this out.

So help out your neighbors, help out people at your church, other parents at the school, whatever you can. One day you might be the one waiting in line for the help from your community.

The only thing that is going to end this recession is the person staring you in the face every morning in that mirror. Think about it.

Anonymous said...

Muncher, please explain how a situation created by a-holes misappropriating trillions of dollars and creating trillions of dollars of junk investments out of thin air and politicians desperately bailing them out by firing up the printing presses, was directly your own personal "man in the mirror" fault and how you think, for a single second, you can fix an economic disaster you had absolutely nothing to do with creating in the first place.

The only thing that's going to end this Depression is several decades of disaster, world wars, and damn interminably hard times, just like the last one.

Not a smiley face. Can we make the best of horrific times? Certainly. Can we fix any of it for a single second?

Of course not. People with billions of dollars of net worth and trillions of dollars of taxpayers' money can't fix it.

Some things aren't fixable. They never get "fixed", they just gradually over decades get better.

This is one of those times.

patriotz said...

I have a lot of sympathy for the commenters over on KIV - they are going through tough times

Isn't that the same forum where a year ago people who had bought houses, no matter how overpriced, were patting themselves on the back at how they were set for life and sneering at renters?

beagle said...

"Isn't that the same forum where a year ago people who had bought houses, no matter how overpriced, were patting themselves on the back at how they were set for life and sneering at renters?"

No, it's a forum full of all sorts of people. Don't label it.

dub said...

Is it just me, or is getting a mortgage approval at these current interest rates going to have similar effects as ARMs? When people have to renew, there's a pretty fair chance that their new interest rate will be much higher?

Do banks approve how much they'll lend you based on current interest rates?

Also, I'm guessing that every time you renew, you don't need to again go through the whole 'approval' process at that new interest rate (despite that the rate might be twice as high as when they gave you the original mortgage)?

greg said...

Dub -

your point on mortgage renewals is should be very obvious, but for some reason it isn't getting much consideration in the MSM. Even at these low rates, there are people still getting variables. And even if you get 5 years locked in at 4.19%, if you can barely afford the payment, what happens if rates have gone back up to around 6% in 5 years? I agree, the potential for a second wave of trouble, much like with the ARMS, is definitely there. At such low rates, even a 1% increase can make a big difference to payments and/or amortizations.

Yet another reason not to buy the most house you can afford...

hhv said...

"Is it just me, or is getting a mortgage approval at these current interest rates going to have similar effects as ARMs? When people have to renew, there's a pretty fair chance that their new interest rate will be much higher?"

Good chance of this being the case. It all comes down to term length. 5 years is very different than 2, so people with 5 year terms *typically* don't find themselves underwater down the road. That doesn't mean their payments won't increase, it just means they *shouldn't* have trouble refinancing or selling if they have to.

"Do banks approve how much they'll lend you based on current interest rates?"

Yes. As far as I know there isn't any secondary calculation using a higher interest rate. It's a topic of conversation though during disclosure.

"Also, I'm guessing that every time you renew, you don't need to again go through the whole 'approval' process at that new interest rate (despite that the rate might be twice as high as when they gave you the original mortgage)?"

It would seem to me that whenever you get a mortgage, be it new or renew, you'd have to demonstrate an ability to pay it. Of course, having had one already, you have demonstrated your ability, so it should be easier to renew. Granted, if you had a pulse and a job, you could get a mortgage over the last 3 years.

patriotz said...

Do banks approve how much they'll lend you based on current interest rates?

Yes, because CMHC lets them, and CMHC is holding the bag.

Isn't free enterprise great?

roger said...

I don't think this will turn out well...

First-time buyers driving force in Canada's residential real estate markets, says RE/MAX

A report released today by RE/MAX confirms that entry-level purchasers are now the engine driving home-buying activity in almost every major centre in Canada.

The 2009 RE/MAX First-Time Buyers Report, highlighting first-time buying activity in 32 residential housing markets across Canada, found that improved affordability is prompting many first-time buyers to get off the fence, out of the rental, and into the market. While a sense of caution still prevails, more and more first-timers are finding it hard to pass up the chance to become homeowners in today's buyer-centric real estate climate. Increased inventory and longer days on market coupled with the lowest lending rates ever are presenting opportunities that have not been seen in almost a decade.


Do people ever consider why rates are low or what will happen to their mortgage payment when they renew? Do they understand how closed, variable rate mortgages work? Is their job really secure?

Fellow bears. I think we are wasting our time producing stats, posting articles and advising caution in these uncertain times. Those that recognize the dangers are already sitting on the sidelines. The others don't want to wait or listen. If the bank will loan them the money they will just jump into the pool telling everyone around them that the water is fine.

Time to move on...

Anonymous said...

Yeah I'm even starting to get bored of taunting you guys by pretending to be bullish on RE.

Nick said...

Don't be so sure Roger, I was ready to bite the bullet and look for a place to buy a year ago, but stumbled across this site looking for Victoria realtor information. The postings here opened my eyes to information that real estate professionals would never share.

The RE industry is spinning this time as the greatest opportunity to buy in years, I'd hate for curious FTBers to lose your voice of reason.

Anonymous said...

Dead cat bounce?

As a very intelligent person said to me once look at the source.

I'm sure you are all helping others. I know for sure you are helping me.

S2

greg said...

Roger I understand the weariness and sameness of producing spreadsheets and stats.Its boring old vanilla, hardly the chocolate cake of real estate.

On the other hand, if it wasn't for pressure from the margins and reasonable people like you, the TC and VREB and other similar outfits would have carte blanche to run wild with unverifiable claims about the health of the market.

As Nick said, these discussions have already saved hundreds if not thousands of local future buyers money.

Even a capitulating bear like me is looking at big savings from the summer of 2007, and more importantly (to me), I have some sense of the value of what I am buying, as opposed to specuvestors paying anything for anything, just to be in the game.

I think sites like this one, Womp's, Prairie Boys, mine and other "influential" local sites like Paul B's and Condohype have had a big impact in the local marketplace.

A big part of not getting sucked into the real estate hype vortex is knowing you are not alone in contrarian views. These sites have played a valuable role in that process.

I realize there will come a time where you'll get bored of doing the stats and move on to other stuff, but in the meanwhile, don't doubt the positive impact of what you have been doing up to now.

And any first time buyers Re/Max ropes in at this point either a) can afford property at any price anyway, or b) are prepared to lose equity in the short term (ie - they are not specuvestors). In that sense, I think there is some truth to what Re/Max is saying - people buying now are buying with plans to hold medium to long term. It may not be the smartest decision - but I don't see it supporting prices much or contributing to volatility - so in that sense, I see it as part of the move back to a normal market.

And in all normal markets, it is the first time buyers who support the pyramid.

Just Jack said...

ooooohhhh!

This Re/Max tripe makes me so mad. The one good thing about it is that if a first time buyer goes out to find a property based on this information, they are only going to find a half dozen that would be reflective of this trash study.

While the data is acurate, the information has been deliberately manipulated to mislead prospective buyers.

Shame on RE/MAX and shame on any agent that re-iterates this garbage to a couple starting out in life. If you are an agent reading this blog - look no farther, this "study" is the reason why most people consider agents below used car salesman.

omc said...

I don't see how that report is any different than all of the other spins put out by industry. No real stats, proof and certainly not balanced. I have a sneeking suspicion that their thunder of the little report will be stole by
this
.

vg said...

Is this the next wave of bailouts ?


Toxic Chinese drywall accused for health problems in Canada, U.S.


Canwest News ServiceBe the first

The U.S. Consumer Product Safety Commission is investigating complaints about the Chinese-made drywall. All houses affected have shown a common symptom — blackened, scorched wiring behind switch plates and wall plugs — and, coupled with homeowner health symptoms, that's allowed research to proceed.



VANCOUVER — Homeowners from several communities in B.C.'s Lower Mainland have joined the flood of callers to a U.S. consumer group investigating Chinese drywall that has allegedly begun to sicken North Americans.


Thomas Martin, president of America's Watchdog, says that in the past two weeks about a dozen Lower Mainland callers have all reported experiencing the same nose bleeds, breathing problems and allergy-type symptoms that have affected homeowners across the U.S.


Continued exposure could result in severe health problems, the group says.


"This type of drywall was produced with materials that emit toxic hydrogen sulphide gas and other sulphide gases," says a copy of one home inspection report obtained Canwest News Service on an affected Florida home where Chinese drywall was installed. "These sulphide gases are also alleged to cause serious health conditions and illnesses, such as shortness of breath, dizziness, headaches, fatigue, insomnia, eye irritations and respiratory difficulties."


"It's scary, it's a nightmare. We think we are looking at the worst case of sick houses in U.S. history," Martin said.

HouseHuntVictoria said...

I agree Greg. We need sales to drive prices down. Buyer's today aren't going out thinking they're going to pay asking. They're looking for a deal. I say bring it on. Sell away industry.

There is so much inventory and so much pent-up inventory that I think the spring sales rush is going to help bring us down faster. Until we start seeing shrinking inventory trends, I'm not feeling any concern that prices are on the rebound.

What Roger's graphs have done, and what other bear sites have done, have exposed and unlocked the non-transparent grip on market related information that the real estate boards have created for themselves. That is it. We don't have any impact on the market whatsoever, we simply don't have an audience.

This site gets roughly 400 or so unique visitors everyday. Only 17% of those visitors are first timers. Most people who visit this site either come here directly, which means they frequent HHV. The bounce rate is very high at 66%, which tells me people are coming here for discussion, rather than just to read my content; the one's who stay, more often than not, read the comments left by you fine folks.

You may have noticed a change in voice here lately. I'd been attempting to keep the regulars around by giving you more of what i thought you wanted: tongue in cheek jabbing at market commentary and data.

I've been trying to tone it down, and be a bit less preachy to the choir, and encourage those first timers to stay long enough to read the site and become engaged with the subject enough to join the discussion. I have no idea if this has been successful or not.

Roger's analysis is by far the best real estate related resource available to Victoria residents, regardless of whether or not they want to buy, have already bought, aren't planning to buy or are trying to sell, have already sold. I'd love to see him hit the "big times" by having a reporter cover his charts in a story related to real estate. That may one day happen. Until then... I encourage his continued participation, despite the discouraging headlines we're reading daily.

It's like the old saying goes: "you can lead horses to water, but you can't teach them to drink." And so it is with the FTBers who are still too short-sighted to see what is really happening out there. Of course, my predictions could be well wrong too. Maybe the buyers right now are right? Only time will tell.

Just Janice said...

If only Roger was writing the real estate section of the TC instead of Carla there might actually be some balance and investigation into this area of Victoria...

Maybe Monday magazine would allow him a monthly column on RE in Victoria...they seem to have better reporting anyways...

patriotz said...

A report released today by RE/MAX confirms that entry-level purchasers are now the engine driving home-buying activity in almost every major centre in Canada.

Entry-level purchasers ALWAYS drive the market. Without them move-up buyers would have nobody to sell to.

And when entry-level level buyers can't afford to buy any more, you get a bust. Like right now.

dub said...

Regarding mortgage approval vs. interest rates - I punched a few numbers into a mortgage calc and did some napkin calculations:

If a family making $80K/year bought the most house they could with the current variable interest rate, they'd qualify for ~$500K mortgage with a 5% down, 35year.

Their mortgage payments would be around ~$1950 (not to mention taxes, repairs etc...).

After 5 years, they'd have paid around $8500 against principle.

When they renew with say, a 5% interest rate (which, IMO, isn't being conservative enough)- in five years, their new monthly payment would be around $2600. Or around a 30% increase in monthly mortgage payments.

I'd like to think that people think this scenario through. For some reason, I'm not sure many do when it comes to the emotional aspect of buying a new home...

Wenna said...

Roger - I just wanted to put in my two cents as well to say that the stats you provide, the forum provided by HHV and the great insight made by posters has definitely shaped my outlook. I was prepared to buy a home when I moved here in July, instead, I rented and am still waiting. I would have made another choice if I hadn't had the info everyone on here provides!

Bobsnotmyuncle said...

I just wanted to thank Roger and the rest of the regulars that post here and the other blogs. I was set on buying a condo in the summer last year, but after finding this blog and the ones it links to, I decided to wait a bit, and boy has it been worth it. If I had bought then, I would likely have lost over $20,000 and be upside down by now.

Now I am renting, saving a bigger down payment, and hoping for the bottom to come so I can grab either a condo, or possibly soem land, in the future.

As a FTB though, it is difficult to get away from the emotional reasons for buying, and focus on the financial benefits of saving.

Metaldwarf said...

I am getting frustrated... I need to vent.

begin rant
I live in a nice character conversion apartment in an old mansion in Rockland. I have been here almost a year now. It's nice but slightly run down like an old house can be, especially if it is a rental. There are a lot of quirks to an old house like this. For one the walls are thin, and noise from other tenants is an ever present companion. The caretaker left me a note the other day, informing me of complains about noise coming from my suite. I was listening to music at 5pm on Sunday for about an hour, other than that I am usually very quiet. The music was not blasting, but at a decent volume, loud enough to be enjoyable but not ridiculous.

I now sit here, listening to the caretaker play guitar directly above my head, an event that happens every single day. I never complain. I can hear the toddler in the next suite over screaming at the top of her lungs on a regular basis, I never complain. I can hear the couple living above my bedroom doing the nasty while I try to sleep. I never complain. The lady across the hall is a chain smoker in a non-smoking building, every time I open my front door, cigarette smoke fills my nostrils, I never complain. The caretaker lives directly above me, he smokes reefer constantly, it blows in my windows, I never complain.

I understand these things come with living in a communal environment like an apartment. I accept they are what they are and go on with my life. Why must I change my lifestyle when other tenants do things that drive me crazy, and yet I give them a free pass...

I never complain. Except too Anonymous. end rant

I need to buy a house and soon.

Anonymous said...

And when you buy that house, remember, you're still going to have noisy neighbors. Granted, not on the other side of thin walls, but they will disturb you and you will disturb them nonetheless.

No matter where you go, there you are.

Hopefully that can give you the strength you need to hold out until market bottom, at least.

Metaldwarf said...

Anonymous 6:19 said
"remember, you're still going to have noisy neighbors."

MLS®: 255351

4.3 acres of privacy... now if only it was $150,000 cheaper.

Anonymous said...

MD you need to put in some time and effort and you will be rewarded. Victoria is a fairly large city, you can find some amazing rental places that are reasonably priced. Buying right now would be like suicide. The easy way out, but done forever. Good luck.

Joe Dirt said...

6 months ago I predicted that 1/2 of the bears on here would be homeowners within a year. The mood is shifting just as quickly as I thought, although now I'm thinking it may be more like 75% of you. This is OK. There's more to homeownership than price.

The next 6 months is going to see continued price reductions and coupled with the all time low interest rates it is about as good as it will get (prices may drop further over a 5 year period, but interest rates will rise effectively eliminating any further gains. Charts and stats are great, but just watch what's going on around us.

Don't get discouraged Roger you really have saved a lot of people a lot of money

hhv said...

"The next 6 months is going to see continued price reductions and coupled with the all time low interest rates it is about as good as it will get (prices may drop further over a 5 year period, but interest rates will rise effectively eliminating any further gains. Charts and stats are great, but just watch what's going on around us."

We have an affordability issue. Right now, condos are the only "affordable" product in the market. In order to create a new layer at the bottom of the pyramid one of two things needs to happen: 1)prices have to drop or 2) condo equity has to go up. Right now, condo equity is falling, and so are prices.

When interest rates rise, this won't fix the affordability issue. It will actually work against affordability. Which will further drive prices down and erode equity. High prices + uber-low interest rates are an extremely dangerous mix in RE markets: just look to the US market place in 2006 to see the effect they can have.

Nick said...

Metaldwarf: I hear you about annoying neighbours, although having a house is no guarantee. In my parents' house, we had a series of annoying neighbours who stand out. There was the guy from Newfoundland who liked to hang out in his front yard in his tighty-whiteys. The hillbilly who lived next door to us and revved his 70s Dodge Charger for hours on end as he tuned it. The couple with four dogs who used to bark and howl. The guy who killed weeds in the back yard by pouring gas everywhere and lighting it on fire. Good times!

Owning a home is certainly no panacea for crazy neighbours... :)

patriotz said...

prices may drop further over a 5 year period, but interest rates will rise effectively eliminating any further gains.

Not when you've got cash.

When nobody can buy except you, you name your own price.

Oh by the way, people who buy today will be paying those higher interest rates in 5 years, too. On today's price.

Anonymous said...

Metaldwarf... I grew up on a 5.5 acre ranch.

We STILL heard the neighbors. Unless the land is heavily forested, sound travels just fine across open fields. And people who live on ranches love to get the kids motorbikes. Gets them out of the house.

Joe Dirt said...

That's nice for you Patriotz.

Let's suppose you do have $400,000 sitting around in the knitting bag. Given an expectation of increasing interest rates over the next 5 years, do you pile it into a home and have no mortgage, or do you invest it someplace and take a mortgage instead.

What happens to that mortgage with increasing inflation (inflation is one driving factor for rising interest rates, by definitian.) The Gov and US have just printed well in excess of trillions of dollars and that will in turn multiply ten-fold through the banks. What happens to your mountain of cash in 5 years? GICs are paying 1.5%,.. maybe?


There is no magical formula.

Nick said...

GICDirect.com lists 1 year GICs at 2.25% and 5 year GICs at 4.1%.

victorianna said...

"The next 6 months is going to see continued price reductions and coupled with the all time low interest rates it is about as good as it will get (prices may drop further over a 5 year period, but interest rates will rise effectively eliminating any further gains. Charts and stats are great, but just watch what's going on around us."

Actually, charts and stats are everything when you are making a decision that should be based on MATH! And when you make the biggest purchasing decision of your life it really should be based on the math.

How on earth can someone predict that rising interest rates will wipe out the benefit of further price reductions, when our prices haven't even really begun to drop yet? I will be surprised if 25 percent of the people who read this blog buy this year, even the ones talking about capitulating.

As the economic news worsens (and it does every day), intelligent people are going to realize that we are very likely going into a multiyear depression, and many will decide to hold off on that big purchase. I know I was thinking of looking later this year, but now, highly unlikely.

If prices drop 50 percent, and watching California, there is every reason to believe the same thing will happen up here, then of course it makes sense to wait, and not grab these "great bargains" that are going to be coming up here this year. That is, of course, unless the Royal Bank is right, and our whole drop happens this year.

B2B said...

Joe Dirt: staying out of debt and having assets and cash is as close to a magical formula as you need. You don't lose cash savings just because GIC rates are low. And if inflation returns with a vengeance, rates on that cash will go way up.


I understand these things come with living in a communal environment like an apartment. I accept they are what they are and go on with my life. Why must I change my lifestyle when other tenants do things that drive me crazy, and yet I give them a free pass...

I never complain. Except too Anonymous. end rant

I need to buy a house and soon.


MetalDwarf, sounds like you want to live in a detached house. Why aren't you renting a house? There is no sane reason to leap from not wanting to share walls with neighbours to buying a house. I rent a detached house and it's the best of all worlds - no cost of repairs (the agency gets right on any necessary fixes), total flexibility, no taxes, etc etc.

beagle said...

I can't see them raising interest rates up very much for a long time. Japan never saw any interest rate hikes after it's big bubble. Interest rates could only go way up if we had wage inflation and the way unemployment is going I don't see that happening any time soon. They are printing tons of money but I don't think it is getting into the real economy as fast as the economy is shrinking. Most of it is being used to shore up the trillions that have just gone poof.

olives said...

If interest rates rise, house prices will just have to drop all that much more to become affordable.

I rent a detached house too - it's definitely the way to go.

greg said...

HHV -

thanks for the link over at KIV, tone of the discussions there has sure changed since last spring. I guess a new batch of readers is coming to a bear blog nearby soon...

Metaldwarf said...

I have been thinking of going the detached rental way.

It comes down to a decision of paying more rent now for better quality of life. Or keeping rent low so I can continue to build up a down payment.

victorianna said...

Oh-my-gosh. My husband gave me some anecdotal evidence today that defies comprehension. His client recently sold one of the houses he has for sale (yes, he has more than one for sale), and said that though they got 50K less then they think they would have last year, they had people lined up to buy it. They are seeing lots of traffic for the second property as well.

I am also seeing lots of sold signs suddenly. Could this be the dead cat we have all been waiting for someone to drop? What fascinates me is that, on one hand, we have the disastrous worldwide economic news, and many people in Victoria beginning to feel it here and now (hence the KIV threads).

But now, lured by what? Interest rates? We have yet another batch of lunatics prepared to leap into the abyss and pay ridiculous sums for crappy old Victoria houses with 50s wiring? Really? Because, two months of low sales, and a teensy drop in the median price means that Victoria is now a bargain? Oh please, stop the lunacy, someone, anyone....

Honestly, it makes me ill to see young people who are prepared to impoverish themselves for the rest of their lives because they can't wait a few months/couple of years to "own their own home." So, you're going to have one child instead of two, never take a vacation, and spend your life with the bank owning you because, hey, they aren't making any more land.

vg said...

Metaldwarf,

Been there,bottom line is you have to move, not buy. I assume Rockland is a tad pricey so any normal apartment in the same general area won't be much different.

I'm not saying all my neighbors were enjoyable the last 7 years of renting but in a good building they will weed out the crappy ones if you stay long enough. I have had the best neighbors in a decade right now.

I recall several houses I have owned where the neighbor liked to run a skill saw from spring til December with the project that goes on forever,or the ahole with the dog who barks all day and night etc etc. I think you need to pack the bags,not blow the bundle but just my opinion, even if it coasts a couple more bucks a month.

vg said...

Joe Dirt,

where are all the bears turning bull and buying ? I read Greg was thinking about it but none of the other regulars I see have changed their minds. Anonymous's hardly count for anything.

vg said...

"I am also seeing lots of sold signs suddenly. Could this be the dead cat we have all been waiting for someone to drop? "


Nope, just a spring fling,in a few months they will all be jilted lovers hanging their heads.

greg said...

Still thinking about it VG, I'm gonna ninkname myself the capitulating bear.

Of course, for me to capitulate, asking has to already be discounted at least 10% from last year, and I'm going lower than that. And the only reason I'll do that is if I get a great place I like where I like it.

If realtors are relying on buyers like me to prop up the market, they're in for a rude shock.

And like I think I already said, even if I do this for a single family home, I will still be watching for the bottom to by a rental property.

greg said...

oops

ninkname = nickname

Just Janice said...

As I sit here in my waterfront 4 bedroom single family home which I rent for about what a $400,000 mortgage would be, I wonder why in the world would I want to own my neighbours' house at $850,000 only to also have to pay taxes and upkeep?

Renting in Victoria is tough, vacancy is low and you may have to look for several months before finding something suitable. And, heaven forbid you may have to drop a grand or two to make the place liveable (a can of paint is not such a hardship). However, renting is much easier than dropping $20,000 to $40,000 grand on a down payment and calling your bank your landlord at twice what the rent would be.

Just be patient, even demographics are one the bears side - Boomers didn't have many kids and those they did have are challenged by staggering student debt, bleakening job prospects, and insane child care costs. It's hard to downsize when the young family to buy your home, just can't afford to.

Reid said...

Victorianna:

I have to assume these buyers are simply financially illiterate which unfortunately most Canadians are. If you believe that interest rates are going to stay low for a long time and consequently you can justify paying an insane price for a house because your financing costs are so low, you need to rethink your retirement savings program. I have to assume most of these buyers have not given that too much consideration.

With low interest rates your retirement funds will grow a lot slower and guess what you will need significantly more capital once you retire as your income will be far less. Consequently if you believe we are in a long term low interest rate environment you need to be putting a lot more money aside each year to support your retirement. A 30 year couple should be investing at least $2,000 per month if they will want to have enough capital at 65. Given income levels and living costs in Victoria, I doubt the average couple buying an overpriced house has much hope in doing this. So they will pay dearly when they are older. I guess they will just sell their house to some new financially illiterate FTB’s and live off the proceeds.

Anonymous said...

The pre-sale owners over at Reflections might think the developer sold them down the river with the upcoming "auction". But the discounts aren't really that deep.

Over on Bare Mountain they know how to hold a real sale. Check this out!!

Finlayson Reach

St. Andrews Walk

Now if only the TC had a reporter that was capable of doing a little digging and could get to the bottom of this story.

Lucky said...

I'm a blog reader not a writer but I'm posting to give encouragement to the renters (MD etc) who are becoming discouraged. I have been renting my current place on the peninsula since 2002. It is 3bd 2 bath + den for 1585 util incld. Its tired, needs new windows and some major landscaping. We were notified Feb 10 that the rent is going up to 1645 as of June 1. So my wife and I decided to look around to see what else was available in that price range. Tomorrow we get the keys for 2 bd 2bath waterfront 1/3 acre nicer, bigger, brighter, better for... 1500 + util. There is a slight drawback in that it is listed for sale..... for $919,000. I'm pretty sure it will be a while before they get an offer. In the meantime I'll keep it warm for them. The information on this and other blogs has helped give me the knowlegde to weigh the risk of the property being sold while I'm renting it. I am also able to deterimine that I can rent this place for $400 more per year than the INTEREST on a mortgage for the same property. Excluding property tax. And maintenance. And any "gain" in equity. Now I just have to convince my friends to help me move.

omc said...

Wow, things are really different in different parts of the market. MLS # 257991 has an assesment of over $1mill and just sold for $820k. This property is almost a 1 of a kind with its location. We are being aproached to see if we are interested in buying homes in our neighbourhood before they go on the market by our neighbours.

I was told today that the realtors are going door to door trying to find buyers at the military family housing.


I don't know if anyone got a chance to read the IMF report on Canada, it wasn't what the government went out and spun around. It said western canada was going to suffer big time with large job losses, and there was no indication that we will rebound early as the government says.


Hold on, just a few more months and we will see the big change. Employment #s are due tommorrow.

Joe Dirt said...

B2B said: "staying out of debt and having assets and cash is as close to a magical formula as you need. You don't lose cash savings just because GIC rates are low. And if inflation returns with a vengeance, rates on that cash will go way up."

In a period of rising inflation your dollar is worth less and less everyday - ie it buys less today than it did yesterday. Cash is not King.

You are not going to get reasonable rates on GICs unless you lock in to some reasonable period - this is a risk premium. In the case of rising inflation and you're locked in to a GIC you are losing more money every month - the bank may initially pay a premium on your rate but they are gambling on rates going up in the future.

Look at TD lately - they are offering TFSA rate risers starting at 1.5% rising to (I think) 8% over a 5 year term. While I recognize that it is purely marketing, it also reflects their attitude towards future rates, and is also risk premium based.

With rising inflation the only ones that will win short term (directly as a result of inflation) are those in debt. It's pure math. If I borrow $100,000 from you today at 3% and rates rise as a result of inflation in two years to 5% and carry through for another 3 years rising to 7% I will be paying you less than inflation for the mortgage. I will actually be profiting from you. That is currently the only direction rates can go. And although RE prices may drop somewhat, your rents will compensate.

Why have the banks suddenly abandoned P - variables? Credit crunch? I don't think so. I could go and borrow another $500,000 right now in about a half a day. The only credit crunch is that they suddenly realize that they are at risk of getting themselves underwater with future rates. Do you think the BOC has this all figured out? They couldn't screw this up more if it was intentional. IMO

Do I suggest you go out and contract yourself to a $500,000 mortgage that you cannot afford? Absolutely not. Buy within your means, and if that's a small townhouse in Langford then that's what it is, for now. My sights are set on financial security (pay down debt to a manageable level so that it cannot upset my apple cart,) future investment in this stock market - it is very nearly a serious buy situation, and cash in on some of the unfortunates that cannot carry the decisions they have made - Ford trucks are pretty cheap right now, and I saw a 2002 Porsche the other day for $21,000.

The problem with a Bear Blog such as this is that it ignores and abuses an entire side of reality and appears to exist purely to frighten people. There actually is opportunity around you and there are people making out like bandits even today.

Why do I think the mood is shifting to a buy RE on this blog? Ask Roger.

hhv said...

"The problem with a Bear Blog such as this is that it ignores and abuses an entire side of reality and appears to exist purely to frighten people. There actually is opportunity around you and there are people making out like bandits even today."

Joe, show me don't tell me. Where have I, or commentors (aside from the anons calling for extreme crashes) abused reality?

This blog doesn't serve to frighten anyone. What a load of crap. This blog serves to show a different side of real estate, that of the financially literate FTBer.

Has anyone here ever called home ownership a bad choice? There's been plenty of calling out that mortgaging yourself to the hilt right now is stupid, but I think every regular here understands the long term benefit of home ownership: as a hedge against inflation.

The asset classes you choose to compare aren't even in the same category... no wonder why real estate always comes out ahead in your comparisons.

Can you demonstrate how a first time buyer can a) own a home b) save for retirement and c) not be house poor?

hhv said...

Joe: I'd like to see examples of someone making out like a bandit in today's market too.

Joe Dirt said...

Try discussing the specific points of my post rather than attempting to discredit it through further blanket statements.

What do you think about the fact that increasing inflation erodes the true cost of a mortgage? Start there.

Joe Dirt said...

"The asset classes you choose to compare aren't even in the same category... no wonder why real estate always comes out ahead in your comparisons."

Foregive me, but what Asset Classes are you referring to? The Ford or the Porsche? Those aren't assets, they're opportunities to buy something that I might want and couldn't otherwise "truly" afford.

patriotz said...

What happens to your mountain of cash in 5 years? GICs are paying 1.5%,.. maybe?

Look Einstein, if I'm saving money to buy a house all I care about is which way house prices are going, not general inflation.

As the other posters have pointed out, if inflation picks up, interest rates will go up big time, which means house prices will have to come down even more.

Got that?

Joe Dirt said...

Also, where are my "comparisons always leaving RE out coming out ahead?" I just started using this nick-name in the last day or two, or was it used before?

I think RE is a good long term hedge against inflation and a chance to not pay rent for the rest of our lives, nothing more generally speaking.

Anonymous said...

It appears that Roger has moved on. Bears need to have good stats to see what is happening. This guy seems to have some pretty good graphs of the Victoria market.

victoriarealestatenow.com

Condo graphs

Single Family Graphs

Joe Dirt said...

Patriotz: An open dialogue free of name calling is preferred. Otherwise it's difficult to have a full discussion.

Fooder said...

The talk of inflation is good in my opinion. I've been worried about it for a while. In all the reading I've done it appears that we are safe for the next year or two.

I think Joe is off on what he's saying now, but there will be a time in the next few years when it will make sense to buy at a reasonable price in the early stages of an inflationary cycle. I have to agree with Mish for the time being that we are in a deflationary time.

Sadly economic summer has ended and winter is edging a little closer each week. Be frugal and build up a safety net. When we can see the other side then make long term plans.

hhv said...

Joe: GICs vs real estate. Is that not what you were talking about?

Perhaps I read a little into what you are writing, but I'm only critical of what you've written in this set of comments, not anywhere else.

I think we both agree that inflation is not an issue right now, but likely will be a year or two down the road.

Until then, buying today, at today's prices makes little sense when you can clearly see that due to supply/demand ratios, prices have more to fall.

Look, as a FTBer, my product options are limited to entry level houses and luxury condos (thanks to the bubble those are getting "cheap"). There has been very little in the way of price reductions on the lower end of the SFH market, simply because it's pretty much the only product selling in town.

You said there are deals out there. You said people are making out like bandits. I ask you to show me where.

I didn't discredit you. I'm sorry if you think something I wrote had that effect. I disagree with the comparison of a GIC to real estate over time, not because of ROI, but because as a FTBer, I'm a long ways away from having a "diversified" portfolio of guaranteed investments.

I agree with the hedge against inflation and chance to not pay rent. However, a FTBer laying out $400K-$500K on a home, when they earn $80K/year leaves little to "not pay rent with" down the road.

The house as a "retirement planning tool" dies when you can't afford to save for retirement outside the house and you're counting on downsizing in the future.

Never before has owning housing eaten such a large part of the average income. Something has to change. Incomes have to increase, which they won't in this environment, or prices have to fall. I'm willing to wait until prices look like they've fallen far enough for purchasing to make sense to me.

Until that happens, I'll continue to pay 50 cents on rent for every dollar a homeowner is spending and save the difference. When I do pull the trigger, I'll have less debt, paid less for my home, be able to save outside my home for retirement and then will completely forget about real estate economics.

I fail to see how that message is scary.

Joe Dirt said...

Fooder:
I agree we are in an era of clear uncertainty. I'm also not suggesting that we are currently in a period of significant inflation; however, I am looking forward through the next 5-7 years and suggesting that whatever is happening today will not be tomorrow.

With the absurd amounts of $$ being printed by the Govs in the recent past and near future we are almost certainly going to see significant inflation. I will be locked in at 4% for the next 5 years, and I will be saving up to prepare for that 5 year moment.

greg said...

Joe needs more commissions, that's what's scary...

patriotz said...

I think RE is a good long term hedge against inflation

Not at historically high prices and historically low interest rates, they're not.

A rise in inflation would be highly negative for house prices, firstly because there would be a steep rise in interest rates, two because wages wouldn't keep up.

Now, if you want an open dialog, would you care to address those points?

greg said...

Joe Dirt,

Stop referring to the "absurd printing of money". Do you realize that wihout the Fed, the government et al exchanging toxic (worthless) asset backed paper for this new money, there would already have been an extreme collapse of the financial system and massive deflation?

This "money" entering the system is barely keeping the gears turning - that's why its called a credit crunch.

Ask yourself a simple question, how much "money" was vaporized with the collapse of the worth of mortgage backed securities, and all the hedges that went spinning out of control when that happened?

Now I agree, whoever is holding those assets (the Fed, the Government, whoever) will have a chance to sell someday and reinject some of that liquidity back into the system.

But until then, these trillions are just covering the financial bets that were already lost. The inflation you are calling for just isn't going to happen anytime soon. Watch and learn.

hhv said...

Greg, I agree with you in the sense that the injection of cash is shoring up, but don't you think in the overzealous attempts to fire up the economic engines The One may over stimulate?

I don't see 1980s inflation in our future, but I can see a 4%-5% rate hitting us when things turn around. That will require a return to 6%-7% interest rates at minimum right?

patriotz said...

I don't see 1980s inflation in our future, but I can see a 4%-5% rate hitting us when things turn around.

CPI Inflation was in fact running around 4-5% in the late (not early) 1980's. At the same time rates for 5 year mortgages were around 12%.

If we see that level of inflation return I bet you we also see those interest rates return.

Can you imagine what that would do to house prices? Remember wages won't keep up.

When you have inflation, rates rise out of proportion because the markets are afraid of even more inflation.

Bank of Canada inflation calculator

Anonymous said...

The US dollar is in a HUMONGOUS bubble right now. And the Loonie is tied to it, like it or not, via exports.

When the POS, uh, the US Dollar crashes (and every economist NOT on the take has been predicting this for years now even BEFORE Lord O and Helicopter Ben starting printing up trillions of worthless paper to bail out Wall Street) ALL paper, not just cash, is going to be worthless. People holding cash, and all investment paper, are going to be wiped out.

Annihilated. You think the markets have crashed; the party's not even gotten started yet.

One either gets it or they don't; they either believe and heed the warnings, or they lose everything.

Your call.

phil said...

I'm not so sure the US dollar will crash any time soon. As bad as it seems, it looks like the rest of the world may be worse off. Just look at Iceland, Greece, Ireland etc. They are more than happy to trade their currencies for US $'s.

patriotz said...

Anon 11:32:

You use money to buy stuff. One of two things can happen:

1. Stuff gets cheaper, in which case you win holding money.

2. Stuff get more expensive, in which case you win holding stuff.

Holding money and holding stuff cannot both be bad strategies. One of them has to be right.

For the purposes of this board, "stuff" means houses, which we have shown will become cheaper whether we see inflation or deflation. Therefore, if you are planning to buy a house, it's a good strategy to hold money.

Just look at Iceland, Greece, Ireland etc. They are more than happy to trade their currencies for US $'s.

Nit pick: Greece and Ireland use the Euro, which has been holding up fine against the USD. Actually the Greeks and Irish would rather it didn't, as that would reduce the scope of their problems. Note I said reduce not eliminate.

B2B said...

Hi folks,

As an aside, an article on the UK housing market: worse to come for property on both sides of the pond

hhv said...

If you haven't seen the Daily Show clip where Jon Stewart shreds Jim Cramer, watch it.

Think about how nice it would be to see this kind of shredding of the real estate hypers. Industry first, then the echo chamber.

Anonymous said...

hhv said: "I don't see 1980s inflation in our future, but I can see a 4%-5% rate hitting us when things turn around. That will require a return to 6%-7% interest rates at minimum right?"

At the rate things are going, when inflation eventually kick in, it will RIVAL & exceed 1980's. The problem we had in the 1980's is now by comparison a drop in the ocean to the problems we are dealing with now. So it only makes sense that inflation will be higher, at the very least nominally speaking (inflation adjusted), but possibly even literally.

That said, they will try to print and bail out till the cows come home, but when they finally come home... oh baby! You ain't never seen anything like what's coming.

Anonymous said...

hhv said: "
Think about how nice it would be to see this kind of shredding of the real estate hypers. Industry first, then the echo chamber."


Wow, I was thinking exactly the same thing last night when I watched that. In fact, I was about to search for that same clip to post here and make that same comment! :-)

hhv said...

Anon, please read greg's comments above. Give yourself a nickname (roger explains how to do it near the top) and add something credible to the discussion. Tell me why; I really do want to learn from you.

Simply stating that now vs 1980s is extreme doesn't tell me why we're going to see hyper inflation.

Anonymous said...

hhv,
a) I'm a different anon than the one writting to Greg.

b)
20% interest rates/year != hyperinflation
50%+ interest rates /month = hyperinflation, and yes we won't see anything close to that in Canada or even the US

c) Why monster inflation will come is quite simply because our entire world wide financial system depends on inflation in order for it to function. Watch "money as debt" on google video or youtube, if you've never seen it. The entire Keyneasian financial system absolutely depends on inflation. Otherwise, why would anyone be worried about deflation?

If you think about it, deflation is the best thing that could happen for consumers with savings. Everything gets cheaper! Heck, we're all cheering for real estate deflation on this blog. I'm also cheering for auto sector deflation, and energy deflation (though I won't get my wish there anytime soon).

The MSM has everyone brainwashed into thinking inflation is a good thing, but it really only favours the usery money lenders or the rich whose assets appreciate in value without them lifting a finger. Technology in the past 50 year, the Internet, these have been awesome deflationary tools and you have to admit they have benefited consumers.

But I digress... inflation is coming because, deflation/money destruction is catastrophic to the entire banking system model, specifically the central banks.

You want to know why deflation is coming? Go read Bernanke's 2002 play book rules. Nothing he's done so far is surprising because the guy is simply following exactly what he said he would do should circumstances like we have today come about. His rule book goes on to detail how bringing about massive inflation is a must and the right tool to fight deflation.

The central banks of the world answer to no government. Look at the USA... they print trillions and don't tell nor are liable for not telling the Congress who represent the people as to where all money went to.

Look at the bubble that Al Greenspan blew just by keeping interest rates at 1% for a couple of years. Now look at the present situation. We have basically 0% interest rates - AROUND THE ENTIRE FREGGIN WORLD, or we will by end of 2009, and we have governments all around the world printing money like its going out of style.

Yes it may take another a couple of years, before they admit that 0% interest rates and trillions in bailouts didn't work and that the only tool left is to inflate our way out of debt but man, people are going to be in one hell of a shock when it finally comes about.

beagle said...

Exports plunge by 9%

Canada's trade deficit widened to a record $993-million in January as Canadian exporters were hammered by the collapse in global demand.

Both exports and imports fell, led by a sharp decline in automotive products trade, Statistics Canada reported Friday.

Overall exports fell 9 per cent to $31.7-billion while imports fell 7.9 per cent $32.7-billion.

Prior to December, Canada had not run a trade deficit since March of 1976.


Wow, remember when we were decoupled!

Canada and B.C. rely heavily on exports. This is going to show up on the government balance sheets and then these so safe government sector jobs are not going to look so safe. We have already blown the wad on stimulus so the public isn't going to be into more deficit spending to keep the government workers fully employed too. I think after the Liberals get back in power in May and if they get a majority we are looking at some big cuts in that sector. The real estate pump machine can enjoy this little dead cat bounce but this downturn has a lot more steam in it.

BearMuncher said...

The liberals aren't coming back but you're right that the cuts are on their way.

Anonymous said...

Interesting. Some of the posters over on KIV are having financial difficulties and are in dire straits. Hopefully they will be OK. Others are concerned about the recession and are wisely cutting back on spending.

On the flip side someone wants to buy a condo so bad they are being encouraged to commit mortgage fraud in order to circumvent the 5% down requirement. Talk about shooting yourself in the foot.

patriotz said...

The entire Keyneasian financial system absolutely depends on inflation. Otherwise, why would anyone be worried about deflation?

The two deflationary depressions of the industrial era - the Long Depression of the late 19th century, and the Great Depression of the 1930's, occurred before Keynes had even come out with his General Theory (which of course was a response to the GD). If the financial system of those times did not depend on inflation as you claim, why did deflation cause so much financial damage?

If you do a little research you will find that there was a LOT of worrying about deflation during the Long Depression, and during the Great Depression. And for very good reason.

The fact of course is that the pre-Keynesian financial system (if you want to call it that) was just as dependent on inflation, or at least the absence of deflation, as today's system.

Anonymous said...

Let's put it simple, if Buffet is here, will he buy RE now in Victoria?

My guess is not.

olives said...

Anon 9:45 - you refer to the Money as Debt video, and then you also referring to printing money. Aren't these two different things? If money is entering the system as credit (as explained in the video), even if the Fed prints bills and gives them to bank to lend, they cannot force them to do so, nor can they force anyone to borrow. Isn't this kind of the stage we are at now - being deflation - contraction of credit (money-creation) because of refusal to lend and borrow?

omc said...

But this is only the rest of the province, not
Victoria
right?

I can't beieve they actually put this in the TC and Wilson didn't get out the sugar coating.

hhv said...

This may shed some light considering the discussion of late: money system explained.

Just Janice said...

To assess the potential impact on Victoria, examine the components of the Victoria economy and examine the relative risk of contraction in each of those components.

Construction - how big of a contributor? How many further jobs are created by those working in construction? What is likely to happen? (My guess about 8% of employment in Victoria is construction or construction related, I would anticipate a 50-75% hit).

Tourism - how big of a contributor? My guess would be that the contribution is similar or larger than construction. Seeing as the rest of the world is being hit at the same time as us, I would anticipate a 35% to 50% hit here.

Education - an area that might actually gain at the post-secondary level in a downturn as those who end up unemployed seek retraining. But the spin-off jobs probably aren't as big as in other areas - students tend to be pretty thrifty.

Government - a big component in Victoria, especially when considering all the spin off jobs it creates. This is a big maybe - it depends whether or not Mr. Campbell sees himself more as a conservative at all costs (minimizing deficits as much as possible) or as a Keynesion (step up to the plate by replacing private sector demand for public sector demand). My gut tells me that NDP will be good for the government sector, Liberal will mean a government sector contraction. Probably on a scale of 10-15%. My gut is that we aren't about to switch governing parties at this time. This is going to hurt Victoria, big time in many ways...

Healthcare - probably a growth industry given Victoria's demographics.

Legal - again probably relatively immune...

Retirees- their investments have been decimated, they might find themselves being a lot more thrifty than they have been historically.

Overall - I think Victoria unemployment will hit 8% before the year is done.

I think the predicted contraction is a little on the low side, given the larger economic picture. I would anticipate a BC economy contraction of about 5-6% in 2009...

omc said...

The actual #s have been released before. In construction we have 10% of the work force alone and from living a recession in construction it will be much higher than 50% for losses. This isn't including the many spin off jobs. Projections are for 10% reported unemployment (only IE eligable) this year, but people leave here when unemployed and don't come here looking for work so how the #s will look here is unknown. I believe this is why we were singled out to do really badly by the IMF.

There sure aren't any oak bay crazed retirees looking at houses this year.

Dumb Canuck said...

Just Janice,

The unemployment trend in Victoria is as follows (table 5.1 of the Stats. Canada labour force survey):
December 3.7%
January: 4.0%
February: 4.7%

As the February estimate is a 3 month rolling average, the real February unemployment here is around 5.5%, a huge increase over January (Table 8 of the survey gives a separate estimate).

Month over month, there is probably a 15-20% increase in unemployment here.

Now that we are one month after the survey date, we are probably above 6% unemployment in Victoria. This is, of course, getting hidden by the media who are reporting 4.7%(and saying that things are still fine).

Joe Dirt said...

Don't forget this economy has been over-performing for 5 years. At 4.5%, unemployment does not even begin to address the over-employment problem that we have.

Healthy structural and cyclical unemployment, allowing for people moving, those between jobs etc, is about 6% (from memory.) The contracting economy will overshoot itself just as the expansion did, so we could very well see 10% within a year or two. This does not spell disaster, and is actually required to correct to a healthy economy. Increasing unemployment is actually good for our long-term economic health.

These times will see companies that are performing well succeed as they ride past their poorly performing competion. We may actually see more "Made in Canada" in our future.

Anonymous said...

Canada - Yea we're different.

Canada's dirty subprime secret

Anonymous said...

From that article: "the 46-year-old fisherman has landed in a foreclosure proceeding"

You really don't have to read any further, he's a commercial fisherman.

vg said...

"You said there are deals out there. You said people are making out like bandits. I ask you to show me where. "


I'd like to see these deals too. A Porche for $21,000 ? wow,impress me. Maybe it's a POS thats been patched up from an ICBC claim or a drug dealers repossesion. Deals aren't always what they seem.

The real estate sales are still over inflated above average affordability levels and the below assessment sales would not be "below" if they didn't freeze them. Show me the real deals not some hot car that may have had the piss driven out of it.

Anonymous said...

Carla does some investigative journalism.

Region jobless rate hits 4.7%

Jobseekers come up empty-handed as construction work vanishes

Anonymous said...

From the times Colonist Business Section

MLS sales down 47%

vg said...

"I'm not so sure the US dollar will crash any time soon. As bad as it seems, it looks like the rest of the world may be worse off. Just look at Iceland, Greece, Ireland etc. They are more than happy to trade their currencies for US $'s."



Agreed, the US buck will be the only source of safety as they were the first to deal with the problem. Europe is going to be a mess as they drag their ass trying to agree on what to do. Germany may pull out of the Euro and Italy is bankrupt. All these people calling for the demise of paper currency need a shrink.

vg said...

"From that article: "the 46-year-old fisherman has landed in a foreclosure proceeding"

You really don't have to read any further, he's a commercial fisherman."


I would not write this article off in the slightest. Simple bull spin.
I know 2 people in the exact same situation except they are professionals and can keep paying the bill as long as their jobs hold out and one of them is on shaky ground.

Imagine buying a place in the 80's and you have a mortgage 4 times what you paid 25 years earlier with not even any decent toys to show for it either. It's not as uncommon as you think.

patriotz said...

Germany may pull out of the Euro

That's backward, the Euro is essentially the German mark made generic. Germany would pull out of the Euro only if the ECB abandoned its mandated goal of controlling inflation.

Also no way will the French leave. What is far more likely is one of the weak sisters- Club Med or Ireland - leaving.

vg said...

I said:

"Germany may pull out of the Euro."


you said:

"That's backward, the Euro is essentially the German mark made generic. Germany would pull out of the Euro only if the ECB abandoned its mandated goal of controlling inflation."


How the hell is that backward if you are agreeing with me ? lol.

I am not debating the currency originization as I am no expert on that like yourself,just commenting on what seems to be a common theme in the UK press the last month.

Anonymous said...

Nice one VG. You guys are too funny, you need the anonomous posts just to keep yourselves from eating each yourselves starting from the tail end. LOL Just kiddin,eh.

BearMuncher said...

I was just at Costco today and the recession is now over. I haven't seen it that busy since Christmas time. Everyone was buying BBQs and other stuff. Amex was down too so everyone was paying cash or LOC. The good times are here again!

patriotz said...

How the hell is that backward if you are agreeing with me ?

I'm not agreeing with you.

There can be no Euro without Germany participating. Germany cannot "pull out" of the Euro. Nor will France because the Euro was their idea.

Club Med is not big enough to dictate Euro policy. The northern members will do that. If the Club Med countries decide to go it alone, that's their problem.

Anonymous said...

Anyone who bets on the US dollar and equities won't need a shrink, they'll need a streetsweeper when they jump out of the nearest high story window.

Anything that can be printed in such ludicrous quantities without any oversight whatsoever won't be worth the paper it's printed on. Just a matter of time now.

And you can take that down to the empty mall suite that used to be the bank.

I'm telling you now because you won't be able to hear me when you're roadkill.

dub said...

Reflections had their so-called auction today. Of the 40 available units, they only sold 15 of them.

I find it suprising that there were actually 15 people around that thought they were getting a good deal...

Anonymous said...

dub said "I find it suprising that there were actually 15 people around that thought they were getting a good deal"

They won't think they got a good deal in a few months after the final liquidation sale or unreserved auction. They gotta unload those last 25 units somehow.

Even Bare Mountain is unloading now with 40% discounts on their web site.

womp said...

CTV covered the Reflections auction with a pump piece on Friday night. They interviewed Peter Gaby, who described the discounts, and then you could hear the reporter say "That's an incredible deal!" with 100% sincerity.

I wouldn't doubt if the reporter bought one of the condos, with the way he was fawning over the hype.

Anonymous said...

People are stupid and/or ignorant; what else can you say?

vg said...

"Germany may pull out of the Euro."
---------------------------------

"Germany would pull out of the Euro only if the ECB abandoned its mandated goal of controlling inflation."

"I'm not agreeing with you."


"Germany cannot "pull out" of the Euro. "



Flip flop all you want patriotz. You used the same words as me but your always right anyhow.

According to all my research the Euro would not collapse,it would just devalue by 50% so there would still be a Euro like there would still is a Peso and all those other third world currencies. But then again I'm not an economist like yourself so what do I know.

Anonymous said...

"Anything that can be printed in such ludicrous quantities"

They are printing but it's only going to the big boys. Not one cent is winding up in Joe Public's hands. What they are experiencing is deflation, NOT inflation - with some state sponsored welfare for the banks.

Anonymous said...

Money doesn't have to end up in Joe Public's hands to be devalued. The devaluation occurs by the mere printing.

The only reason inflation isn't showing up is they don't count energy and food. Factor that in, and there's never been any deflation whatsoever.