Tuesday, May 26, 2009

Insanity

I feel like I'm stuck in a surreal place. Just about every economic indicator is screaming "batten down the hatches." And yet Victorians are snapping up real estate like it's life jackets on the Titanic. Fence-sitters have been seduced by hyper-low interest rates (can they possibly go lower?) and a coordinated communications campaign that speaks to emotions rather than intellect.

We have collectively lost our marbles. I expect to hear in the coming weeks that developers are ramping up work again at previously canceled projects--that's just how disconnected from economic reality our real estate market has become.

In 2009, the federal budget will set a record deficit never before seen in Canada. The provincial budget may follow, or worse, government lay-offs and budget cuts, and the subsequent economic shock wave they will create will work their way through BC's already strained economy.

Household debt in Canada, and I suspect the west coast leads the trend, has skyrocketed to a total of $1.3 trillion or roughly $36,000 for each of the 36 million or so breathing souls inhabiting our nation (I believe this number excludes mortgage debt). That number is more than double the national government debt load.

And to top it off, the BCREA revised their forecast for the rest of the year today to state that prices have fallen as far as they will.

I'm reminded of my days in grade school where the popular kid used to brag about how daddy used to buy him all the cool toys: he'd always bring one of them to school, but you'd never be allowed to come over to play with them all together. Eventually I started to see the bragging for what it was and stopped believing it. Needless to say that kid stayed popular. And I wasn't. Sometimes the world just doesn't make sense.

106 comments:

Nick said...

In order to try and stay sane, I like to read real estate articles from the States to remind me of what the stakes are. I came across this article today and found it somewhat apropos to what you've posted here...

That's so 2005: What were we thinking?

The first line is so true:"When you're living through them, some of the most bizarre fads can seem positively normal."

Lucky C said...

I don't know what you bear bloggers here or over at Prairie Boy's do for a living, but where I come from, 500 large is a $hiteload of money. Always was, always will be. Even if it is in gold. Or credit. Get a GRIP people. Believe what you've been telling yourself and the others for the past few years. The writing is there. Or else you wouldn't be here, would you?

Vic said...

I have never seen such a dysfunctional and hypocritcal MSM as I have seen tonight.

Tony Parsons on Global says "the market bottom time is nigh and we most likely missed it". Man,now the newscasters are professional crystal ball readers. Of course there was nary a mention of the unemployment and EI increases. Brutal.

Bob leftcoaster said...

...roughly $36,000 for each of the 36 million or so breathing souls inhabiting our nation (I believe this number excludes mortgage debt).Perhaps it includes mortgage debt. That means a family of four would be $144k. A suitable average that consists of everyone from 0/40 owners to the lucky folks who have no mortgage.

roger said...

HHV,

You and Garth are in sync today..

Greatest Fools

aston said...

I just watched the "$1.3 trillion in debt" story on CBC. That $36,000 per individual figure does indeed exclude mortgage debt. (Spoken as they pan over the Vancouver skyline and remark about the astronomical cost of housing.)

And speaking of 2005, check out this gem of an article from the CEO of RE/MAX back in 2005:

"We're all aware of the dramatic headlines proclaiming the inevitable 'housing bubble' that will reportedly cripple the real estate industry, and the entire U.S. economy, when it eventually bursts.
But you know better. And I hope your clients do too."

Vic said...

roger,

that was a classic Garth. Was just cruising through Fairfield tonite and it was similar thoughts. All these old houses with some paint jobs and cosmetics but all for $800,000 plus average for the decent looking ones. Many didn't even have any driveways and the street parking was brutal. Nice part of town for sure but it's a major gouge,much more to still correct here.

Dumb Canuck said...

Can someone save the headline to show in 6 months or a year when fundamentals take down the hype?

Hopefully this is a dead cat bounce, however some intelligent people I know are getting brought in with the zero down and 'bottom' story. If it is, so be it. If it isn't, then I feel really sad who will realize their mistake later on.

HouseHuntVictoria said...

I don't read Garth on a regular basis. I hadn't today before you linked Roger. Perhaps Garth reads HHV? ;-)

NanHousing said...

Vic,

When RE/MAX is a major sponsor of Global News, what else can you expect them to say about the real estate market. In fact, RE/MAX probably pays the station big bucks to have them broadcast what they want the public to hear.

Imagine if HHV were to accept banning advertising from RE/MAX on this site. "Victoria only place on planet that is insulated from any downtown despite massive layoffs, rising EI/Welfare Claims, and massive provincial and federal deficits"

jesse said...

"he BCREA revised their forecast for the rest of the year today to state that prices have fallen as far as they will.".

They must have been listening to Helmut Pastrick, who woefully declared his prediction of price drops in 2009 to be wrong. No mention of how he whiffed on his 2008 prediction of price increases.

It's funny how muted the real estate boards' press releases are. No major hype, just subtle hints the market has bottomed. When stoking a fire that went out you don't blow too hard, after all...

patriotz said...
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patriotz said...

I just watched the "$1.3 trillion in debt" story on CBC. That $36,000 per individual figure does indeed exclude mortgage debt...

No, it includes mortgage debt. There is no way that per capita average debt, excluding mortgages, could be 36K. A lot of people have no non-mortgage debt, and the rest simply could not borrow enough to come to an average of 36K.

"Household debt in this country grew by an estimated $300 million last year, putting the debt load faced by Canadians at a staggering $1.3 trillion, the highest household debt has ever been, according to the report issued Tuesday in Vancouver...

Nationally, mortgage debt makes up an estimated $900 million, or about two-thirds of the household debt."

CBC story...

That means a family of four would be $144k. A suitable average that consists of everyone from 0/40 owners to the lucky folks who have no mortgage...

Do keep in mind that there are plenty of places in Canada where you can buy a house for 144K.

May 27, 2009 1:33 AM

PainInThe said...

This chart of a Vegas condo was posted over on Garth's. It shows two distinct substantial dead cat bounces.

What is telling is what followed.

ChartPeople buying now are going to kick themselves.

aston said...

Thanks for the link patriotz -- I stand corrected. I could've sworn the CBC story on TV said that it didn't include mortgage debt, but the numbers don't make sense otherwise.

Vic said...

"The day I posted, it was crashing.

So it went up Tuesday because of greater fools like you."


paininyerazz,

just to clarify the previous thread,you posted "it's crashing" on a Saturday,and the article on Monday morning when only the TSX was trading and it wasn't crashing.

Please spare us the armegeddon talk,the markets will correct when the brokers decide to go for holidays. But we will be rangebound after that til more data is known.

If you are so sure of this massive crash then why aren't you selling your "house" you claim to own that you will lose hundreds of thousands on ? Cause you own jack but a few gold rubles.

mln said...

Drop in Victoria house prices skids to a stop .

Second paragraph starts with: "The real estate association has sharply revised its forecast for B.C. prices, saying they will fall just eight per cent this year instead of the 13-per-cent plunge it predicted earlier."

Are you kidding me? A revised forecast from -13% to -8% means that price drops have skidded to a stop? No wonder the T-C is going out of business.

Vic said...

"Are you kidding me? A revised forecast from -13% to -8% means that price drops have skidded to a stop? No wonder the T-C is going out of business."




They are desperate for business,they keep calling me almost every day,two weeks at a time, to get me to re-subscribe. They don't seem to understand the word "no" the first two attempts to lure me back to that rag. They have turned into the Globe and Mail telemarketers.

Metaldwarf said...
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Vic said...

Funny how the Sun can print reality but the TC can't.




Vancouver house prices show ninth consecutive month of decline

Vancouver Sun May 27, 2009

VANCOUVER - Metro Vancouver house prices at the end of March showed their ninth consecutive month of decline on the Teranet—National Bank National Composite House Price Index, National Bank Financial said Wednesday.


The index for Vancouver, which tracks housing values based on repeat sales of existing homes, declined 1.7 per cent in March from February, and was down 6.4 per cent from the start of the year.


The Teranet—National Bank index pegs Vancouver's market peak at June of 2008, from which it has declined almost 12 per cent.

Metaldwarf said...
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roger said...

The US and Canadian stock markets dropped today. One of the reasons is that Fed quantitative easing has not worked. Bond rates from 2 to 30 years are increasing quickly

Five Year Treasury..

10 Year Treasury..

Canadian Rates..

Canadian fixed rates are determined by the bond market NOT the Bank of Canada rate. I suspect rates will go up next week as we enter June.

As mortgage rates go up the punters will rush into the RE market but this is just "door dancing" as the party ends.

Metaldwarf said...

Could the other shoe be about to drop?

 

EI-recipient numbers soar in West 

Blackmont Capital downgraded Bank of Montreal to "sell" from "buy"  

GM Chapter 11, almost certain at this point 

The glut of unsold homes, fed by a new wave of foreclosures, could drag housing prices lower in the month ahead  

Opposition demands PM fire Flaherty over ballooning deficit  

a lot of doom and gloom today.
(doh stupid blogger eating my html whitespace...)

Rhino said...

If you ask me the next shoe to drop is governments not being able to sell their bonds at reasonable cost. US Treasury is doing a big sale this week and its not going well today. If this continues it will push up fixed rate mortgages pretty quick.

http://www.globeinvestor.com/servlet/story/RTGAM.20090527.wwallstreet0527/GIStory/

Metaldwarf said...

Roger, correct me if I am wrong but I don't think BoC has started quantitative easing. If bond spreads continue to increase they have said they will, but it hasn't happened yet.

roger said...

The banks and RE industry are really pushing the closed five year variable mortgages. You can easily get prime + .6 and you can even do better with second tier lenders. This is a real FTB bait and switch and a surefire way for the banks to make more money.

The hook is that the initial payments are low but go up fast after you switch. Here are the tradeoffs between a 3.72% 5 year fixed and a closed variable with a switch.

Fixed vs. Variable Tradeoff..

I originally thought we might see some folks in real trouble when these low fixed mortgages mature in five years. Now I think in 12-18 months some owners will be strapped when the variable starts increasing and the fixed mortgages increase to 4.5% or more. Payments will increase by $200-$300 per month.

Metaldwarf said...

Rhino, probably true, fixed rates are set to climb, hence the talk of quantitative easing. Why get investors to buy your debt when you can just get the taxpayer to do it for you. Government starts buying its own debt, pushes up bond price, and yield down, fixed rates fall. The problem is that it takes about a billion dollars to equal a one base point decrease in fixed rates. So if BoC wants to effect a 0.25% decrease to fixed rates they need to burn $25 Billion. Our deficit is already going to be $50 Billion this year, god help us if it goes to $75 or $100 Billion.

Love em or hate em, I am glad that the Conservatives were re-elected, at least they are holding relatively steady on their policy. The opposition is demanding Flaherty be fired due to the deficit, all at the same time they are screaming for another bailout package.... um what?

roger said...

Metaldwarf,

You are correct. Only the Fed has tried quantitative easing. It only got the market to pause while they were buying. Once they stopped rates kept climbing. The market is just too big to manipulate, even if you are the FED

Vic said...

So whose telling the truth of the BC deficit ? Gordo says $495 million and everyone else says 3-4 times that. I see some massive job cuts coming with wage hikes frozen under some sort of emergency act.




B.C. deficit could reach $2 billion

Vancouver Sun


VANCOUVER — The 2009 B.C. deficit could be up to four times larger than the government has stated, some economic forecasters are predicting. But Finance Minister Colin Hansen said the government is still eyeing the same target.

The province tabled a budget with a $495-million deficit in February. It was a commitment Premier Gordon Campbell repeated throughout the election campaign: “I can tell you this: the deficit for 2009-10 will be $495 million, maximum,” he said.

But Helmut Pastrick, chief economist for Central 1 Credit Union, suggested B.C.’s deficit would likely be in the neighbourhood of $1.5 billion. Jock Finlayson, executive vice-president of policy for the B.C. Business Council, said it could go as high as $2 billion.

“I could easily foresee a deficit of that magnitude,” added Douglas Porter, deputy chief economist for the Bank of Montreal.

PainInThe said...

Vic, I've owned my house now since '88 free and clear. SO I'm still WAY ahead of you.

As far as the rest of your ASSumptions, they were thinking of you when they invented the word.

Meet me back her next year and we'll see how your paper did.

Vic said...

"Vic, I've owned my house now since '88 free and clear. SO I'm still WAY ahead of you."


So that must mean you are:

A. anxious and happy to lose hundreds of thousands of marginal leverage.

B. inherited your cash young in order to pay off a house so soon in life.

C. just a grumpy,lonely old prick who is off his meds, and who reads too much Peter Shiff.

I'm thinkin it's all 3.

Olives said...

"As mortgage rates go up the punters will rush into the RE market but this is just "door dancing" as the party ends."


door dancing..heehee

That pesky bond market!

Ryan said...

Vic, you forgot option 4: a liar.

Ever notice how everyone on the internet is young and attractive and successful and made huge amounts of money buying stocks/shorting stocks/flipping real estate? It's uncanny. And somehow, despite being so amazingly successful, they hang out on the chat boards with the rest of us slackers.

Vic said...

Ryan,

it's just like those Super7 lotto commercials,but here the rich and bored come here to tell us it's the end of time, lol.

Dumb Canuck said...

Now that it looks like mortgage rates will increase in the next week or two:

Calculated Risk discussion on probability of mortgage rates going higher

What is the impact on psychology of the FTB who is using the low monthly payment to justify original purchase (ignoring longer term cost, which doesn't usually seem to be factored in)?

Roger's analysis seems to indicate that this could mean a couple hundred extra on a mortgage. Which would then mean that house prices would logically have to drop to ensure 'affordability'.

Add in end of spring euphoria, economic calamity in BC (not seen to most, yet), and tapping out of most of the FTB buyer circle, and it could be interesting.

Then again, there might be a way to talk it away. Is there another logical conclusion - better to have a good counterargument than have group think.

Happy Owner said...

I'm sure Garth feels if he can just sell another 10,000 books, he can finally afford to buy a piece of the west coast before the prices get totally out of reach.

PainInThe said...
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greg said...
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PainInThe said...
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PainInThe said...

Choke on this, paper-pushers.

And just WAIT until GM files bankruptcy on Monday.

roger said...

From Canadian Mortgage Trends...

Yields Way Up..

Canada’s 5-year bond closed Wednesday at 2.56%…after it’s biggest 2-day jump in eight months.

As most know, fixed mortgage rates are linked to bond yields. Certain non-bank lenders have already reacted by raising rates 0.05% to 0.20%.

While no big banks have moved yet, they may be getting anxious. The cost of funds on 5-year money has soared roughly 30% (relatively, not absolutely) in the last month.
..

Stay tuned

beagle said...

If you think big inflation is coming best thing to do is go by a car. 0% financing everywhere for 5-6 years and prices slashed. That's what the Russian people did before the ruble crashed last time. If money is gonna be worthless might as well have a car :)

Vic said...

nasty talk there paininyerazz. You seem to miss that your gold chart has tried twice to break $1000 and has failed miserably. As the US dollar goes down,the loonie goes up most of the time and gold only gets cheaper.

You also miss out that the rest of the worlds currencies are in worse shape. I'll stick with oil,something I can use,trade,burn and sell and doing quite nicely on so far.


Keep believing your false prophets who have been preaching the end of time,they sound like Scientologists. Take a chill pill dude,life is too short for you to hold so much anger.

HouseHuntVictoria said...

I've deleted two comments for language of offensiveness. Please don't make me a censor. It's absolutely ridiculous that people would find it necessary to use language like this.

PLEASE DON'T FEED THE TROLLS

c said...

Ryan points out:

Vic, you forgot option 4: a liar.

Ever notice how everyone on the internet is young and attractive and successful and made huge amounts of money buying stocks/shorting stocks/flipping real estate? It's uncanny. And somehow, despite being so amazingly successful, they hang out on the chat boards with the rest of us slackers.
And I whole heartedly agree, except it's somewhat ironic to me to see this particular exchange given that vic has in the past bragged about posting 2 years straight of 400% gains on the stock market. Who's the lottery winner now?

I say this, unfortunately accepting that I will now likely be subjected to vic's venomous attacks (and say what you will, but his are some of the most angry and offensive posts I ever see). Just so you know vic, I hate the gold bugs too.

mln said...

Island bankruptcies jump 64% .

"We have people coming in here with $70,000, $80,000 and even $90,000 worth of credit card debt, and with their property values declining and being mortgaged to the hilt, they are getting very, very nervous," Rogers said. "It's a perfect storm."

Vic said...

c,

my postings on my profits at that time were to counter some attacks that no one was making money on the markets. I also stated mine were high risk but well DD'd investments.

If you read my posts as angry and offensive then it might be just the way you read it.

I'll try to be "nice" from now on so I won't offend anyone but which poster have you been ? I see the same writing style from many aliases on here that look very similar to yours and haven't seen "c" before.

Rhino said...

Just got an email from my mortgage broker saying they are expecting fixed rate mortgages rates to rise in the next few days and that potential home-buyers should get there rate guarantees done today. No surprise to anyone watching bond markets

Ryan said...

"And I whole heartedly agree, except it's somewhat ironic to me to see this particular exchange given that vic has in the past bragged about posting 2 years straight of 400% gains on the stock market. Who's the lottery winner now?"

Well, the upshot of my post is that we should all ignore the unverifiable stuff people say about themselves and judge posts based on the argument made and the facts provided.

If I tell you I think the current rise in prices is just the annual spring bounce, and that prices will decline from June till next spring as they have done in other markets because of rising unemployment, interest rates foreclosures and bankruptsies, you should agree or disagree with the reasons provided. It shouldn't make any difference whether I tell you I own four houses and an apartment block or rent a basement suite, whether I say my portfolio is up 400% or down 30%.

The only purpose of bragging about success is to argue from authority, which is a disingenuous debating tactic anyway, and doubly so when the alleged authority is unverifiable.

PainInThe said...

I didn't start the namecalling, but I finished it by standing up for myself.

But all it just goes to show that paper-pushers are every bit as desperate as real estate shrill shills because they're in the same exact position of denial and anger; they know everything they've built their wealth on is collapsing and will continue to collapse, and the hysterical name-calling starts whenever anyone calls them on it.

Nothing I or anyone else says here is going to prop up the collapse or postpone or alternately hasten it a single second. The Ponzi scheme has gone on long enough and it's nearly at the end.

Both in real estate, and in the world of paper finance. It has nothing to do whatsoever with perception, and so cannot be manipulated with online arguments and namecalling.

Reality. No matter how you slice it, there it is.

And I have a right to share my experience without being called a liar by those whose very profession IS lying.

Vic said...

"And I have a right to share my experience without being called a liar by those whose very profession IS lying."


When you outright lie about markets crashing when they aren't and predicting massive market mayhem at precise moments then you best be able to take the flack when it doesn't happen.

And if you quit cryin wolf then maybe you wouldn't attract the attention of the majority who think you are full of it.
You obviously don't have a thick skin for someone predicting armegeddon.

You are also asked many times how your logic of armegeddon reflects owning a home that will depreciate to nothing and you never respond except with taunts. Grow a pair if you are going to dish it out.

roger said...

Vic,

As a long time poster you have contributed a lot over the past few years. Please don't let the taunts get to you so that we can keep the blog positive.

We all have to REMEMBER..

PainInThe said...

Paper geniuses, the US stock market is down 4000 points from its all time peak.

What universe do you live in? The market dead cat bounces up 200 points a couple of times and your guys are having orgasms.

You're the ones who are nuts. And professional liars to boot.

Take your paper and shove it.

Vic said...

roger,

point well taken,sometimes the trolls need some attention or they breed. I am just not sure why PB's gold blog doesn't satisfy their doom and gloom fantasies where they can run rampant.

Sorry for causing any negativity on the blog. Back to the RE debate.

omc said...

some new language to help in the confusing realty market:

Dopelor effect: The tendency of stupid ideas to seem smarter when they come at you rapidly. The realtors are known for pioneering this area. An example would be the rehashing of reports that were authored by them selves every few days to the TC in the disguise as news.


Bozone (n): The substance surrounding stupid people that stops bright ideas from penetrating. The Bozone layer, unfortunately shows little sign of breaking down in the future as is indicated by the vreb sales numbers.

Dumb Canuck said...

Anyone else seeing a lot of for rent signs on both character suites and the apartment buildings? I was out on Gorge Road today - one even had move in specials advertised.

Does this mean that the rental market is about to get a lot looser? And cheaper?

patriotz said...

Does this mean that the rental market is about to get a lot looser? And cheaper?...


The low end doesn't get cheaper, it gets looser - they get less picky about tenants, accept people with pets, dicey references, bad credit, etc.

However they will forgo rent increases for quality sitting tenants.

The high end (i.e. condo rentals) gets cheaper and it is certainly getting cheaper now in Vancouver by many reports.

Vic said...

BNN commentator mentioned someone she knew whose mortgage quote went from 5% up to %5.4 something in a few days. Looks like interest rates will take the wind out of the sails or create another flurry of panic buyers as per the end of the 0/40 ball and chains.

HouseHuntVictoria said...

On rents:

the rental market isn't liquid enough to see wild price fluctuations, up or down. Especially the reported rental market. I think if you're educated on the rental market, a savvy negotiator and a desirable tenant, you can get a better deal now than over the past few years. Just don't wait for September.

Vic, i too expect a flurry of buying at the first public hint of increased rates. There's been little writing in the MSM that rates are increasing. I guess they don't want to poop on the party.

womp said...

@omc - hahaha, thanks for the laugh. "Bozone". Too awesome.

roger said...

I just read this article in The TC this morning. I couldn't believe how myopic some of our civic "leaders" are in this town. This Island is the Twilight Zone..

Region's economy 'in good shape'..

The Greater Victoria economy might be in a better position to rebound from the current economic downturn and recession than any other region in North America, according to the Greater Victoria Development Agency.

"We are basically in a better position than most other jurisdictions in North America, and dare I say the world," said development officer Sasha Angus

Angus admits the document might not paint a picture of where the city stands at this moment because it's based on 2008 information,

HouseHuntVictoria said...

Peter Dolezal's follow-up article is up on the Peninsula News Review. Regular readers will recognize this article from last month's post here.

I encourage readers to participate in the discussion over there in a respectful manner. Peter has demonstrated a willingness to engage with his readers. If people sling insults and accusations, the bear points to be made will be dismissed as angry outbursts. Please keep it clean.

roger said...

HHV,

I think you said it all in your post to Peter.

His viewpoint is what I would expect from a former RE professional - It is always a good time to buy real estate.

I think there is little to be gained by any more posts or comments. If his initial and subsequent posts did not identify that prices have fallen in the last year and that there are "sunk costs" associated with buying he is not a balanced commentator. The article was more about promoting his book than offering a balanced discussion of renting versus owning.

PainInThe said...

Wow. How expected.

PainInThe said...

The "Greater Fool" Theory

Vic said...

Looks like a declining asset that has peaked and losing value every day just like Victoria real estate. The charts say it all,the peak was months ago at $1250 CDN, a 15% loss.


Let's put it to rest please and get back to the real estate.

Any opinions on Mondays numbers ? I say sales up, prices flat and this will be the last month of high sales.


http://goldprice.org/gold-price-canada.html

HouseHuntVictoria said...

Vic, sales prices and volumes will be up across the board, mostly in SFH, lesser in condos and townhouses.

I think June will be busy too.

roger said...

Sales are now reaching their peak across the country. The spring selling season starts to abate every year starting in mid-June. Shopping for real estate wanes once the kids are out of school, folks start taking vacations and the long awaited summer weather arrives. Another reason for declining sales is that many families want to be in their new home by mid-August so that they are ready for the start of the school season.

Another thing that may dampen the party is fixed interest rates. Mortgage rates climbed significantly this week in the US due to the dramatic runup in 5 to 30 year treasury yields. Government of Canada bond rates also advanced and some non-bank Canadian lenders raised their mortgage rates late in the week.

Once sales start declining, as they do every summer, the media will be reporting this as "news" just like they did when sales got better every month during the typical spring season. What effect will this and other economic news have on consumers and potential house buyers?? Only time will tell...

Vic said...

"What effect will this and other economic news have on consumers and potential house buyers?? Only time will tell..."


Very true roger,next week will be very volataile with the indecision in the markets wether the FED will prop up the treasuries further or not and the repruscussions either way.


As well the market action late Friday has created much speculation this bear rally has much further to run still but it may have been a hedge fund short blowing up. I am on the fence on that one but will let the charts/action tell me.


Not sure when Gordo presents the bad news for BC but when they have to run a pilot program for employees to take a day off every week you know it can't be positive news coming.

PainInThe said...

OH I GET IT... you guys are here knocking real estate with the sole agenda of convincing people to invest in crashing paper instead.

Drumming up business.

No wonder you've been so rabid and nonsensical.

Now it makes COMPLETE sense how people, who could easily see a real estate bubble, refuse to acknowledge and see the even larger popped paper bubble all over their faces.

Got your number now boys.

Vic said...

Home Depot was nuts today,looks like the sellers will be shrinking fast as they decide to just fix up the box and stay rather than try the move up game with rising interest rates coming.

Roger said...

Vic,

Looks like the Fed was buying treasuries (quantitative easing) on Friday. Treasuries recovered a fair bit but still down for the week.

Flaherty is now trying to talk down the Cdn. dollar with the threat of BOC intervening and buying up US dollars to stem the loonie rise.

Next week will be interesting. I will be watching the fallout from GM and keeping an eye on the credit and currency markets.

VREB numbers will be out Monday and I am prepared for all the gushing about the market rebound by the realtors and MSM. Does two months confirm a rebound?

omc said...

It's going to be a very strange market with the interest rates on the increase. Sales for the next 3-4 months will be very high as people panic to use their preapproved mortgages. I am sure the realtors will be beating the drums. Just like before, I believe, things will have to slip until there is some semblance of affordability, and many of the people who would have bought when affordability was restored have already bought with the low interest rates. The last slip happened when the realtors said it could only go up forever, and I think people got a little taste of reality. They might not be so eager to beleive this time.

I remember last year Dodge going to the press trying to get the loonie devalued, I think it lasted a couple of days and then kept going. I wonder how many people realize how unstable and bad for businesses these big swings are. Or do they just look that they can go cross border shopping again?

Vic said...

omc,

It will be am interesting month...will the move-up sector sellers panic to get the sale while they can still secure the new home ? Thats alot of pressure when trying to swing two deals. This is where prices could easily decline with rising sales as the low interest rate window closes.

patriotz said...

OH I GET IT... you guys are here knocking real estate with the sole agenda of convincing people to invest in crashing paper instead....


My GIC's and bonds are doing just fine thank you.

I admit I did buy some preferred shares last December.

So speak for yourself.

NiceTry said...
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PainInThe said...
This comment has been removed by the author.
PainInThe said...

Patriotz, you're the only one here who isn't a broker, and I wasn't referring to you.



Speaking for myself, I divested of all paper last year long before the crash and haven't regretted it for a single second.



And now with the CIA in the US actively pushing rumor campaigns about Chinese counterfeited gold to attempt to kill the market to prop up Obama's economic sleight-of-hand, I know I'm on the right track and that they're petrified of a free gold market.



You can bet on governments and their Ponzi paper scheme to fix the problems all you want; I'll go on betting they will continue to make them worse, as the very same people who created the probs in the first place are "fixing" them with taxpayer bailouts to their cronies.



Even if you think that's not your bet and you're merely surfing the bear trap, you're playing a very dangerous game and I hope you will be able to get out before the final act.



Crash... it's what's for dinner.

omc said...

Vic,

Unfortunately I am expecting the worst in the next few months. Sales will be very high while people use up their preaprovals and of course the realtors will be drumming the whole time. I am afraid that the average joe will believe some of the market recovery stuff and maybe even jack up the prices. It might take a while for reality to sink in and prices to start to correct. Who knows what the government will do to keep the balloon inflated at that point.

We were originally going to start looking and low balling this winter, but now we just don't know. We don't really have to buy for 2 years.

If things don't return to earth in the next year I may present a case for a move to Ottawa to my wife. We would both be able to do very well there and I would actually earn a fair chunk more with more oppotunities for advancement. we would be able to easilly afford a very nice house there in the best of neighbourhoods vs the over $800k price for a decent house here.

Before some 1/2 wit realtor blasts in about social class or what ever, think about it. If your professional (real ones, not 1 week training) families start moving away because it's too expensive your dead. We directly employ people here and you will feel it.

Roger said...

The length and depth of a recession in Canada is dependent on a recovery in the US. We keep hearing about green shoots" and that a bottom has been reached in the US housing market.

The impact of subprime has mainly been felt but that is not the end of the story. There is another wave of housing defaults on the way as Alt-A and prime mortgages start going into default. Commercial mortgages (think shopping malls) are also under pressure. Credit card companies are already feeling the pain with many like American Express finding that 9-10% of receivables will never be collected.

You can see for yourself what is going on in this 5 chapter set of graphs and charts. I encourage everyone to take 15 minutes to click through them. It is quite enlightening and the housing price graphs show what happens in a credit fuelled bubble.

Mortgage Meltdown - Charts & Slides..

patriotz said...

If your professional (real ones, not 1 week training) families start moving away because it's too expensive your dead....


This is exactly it. It's one thing for Silicon Valley with its big stock options, or NYC with its huge bonuses to be expensive, it's another thing for Victoria (or Vancouver) to have house prices out of whack with professional salaries.

No high-tech industry, or any other value-added industry, can be viable under such a handicap. Look at the contrast with Seattle, which itself is no bargain except compared with BC or California.

Anyone who thinks this province can prosper on real estate and drugs had better guess again.

Roger said...

OMC,

I agree with your comments. Once the spring sales season starts to wind down in June prices will level off and will then resume their slow downward trend in the fall. The only way things will accelerate quickly is if the stock market crashes again and consumer confidence sinks.

I lived for twenty years in Ottawa and was employed in the high tech sector. There is far more opportunity to advance in your career and you will definitely make a lot more money for the same effort. Houses are a fraction of the cost and are much better built.

The downside is the winter but frankly I never found it to be a major consideration. Skating on the Rideau canal and the Winterlude festival was enjoyable. Summers at the beach or in the countryside were great. The city is definitely more cosmopolitan than Victoria and has more to offer if you like cultural events, museums, restaurants or the arts.

If you want to build a financial future for your family, have a nice home and better career opportunities you might want to consider moving there now instead of later. You can always move back here later when prices have fallen and you have built some equity elsewhere. Just my 2 cents worth.

Inglishmagor said...

Yesterday being a nice day the little lady and I went for a walk out in the Oak bay Gonzales area. I forget how wide the neighbourhood gap is. Some of the areas in Victoria do command the outrageous prices they are listed for. They are a very rare commodity when competing with all of Canada.

I just don't see the price range reflecting the areas. We passed a little cottage less than a block from the beach for 550k. I don't understand how a 3 bedroom home in Tillicum can sell for the same amount. I'm not looking to buy yet, but it looks like a little extra can get you an incredible area right now.

I'm not sure how real estate works for price. In the long term does a nice home in an average area hold value more, or an average home in a nice area? I'm a novice and this question looks vital for me when looking in Victoria.

Vic said...

This is the one disconnect in the market right now and happens with every boom where crap areas of town suddenly become trendy because a few dumps got a makeover and the agents hype up the area.

Oak Bay comes at a cost and that is higher taxes and sometimes picky neighbors who think they are the yard cops. Nicer homes for sure but I bet in reality inside that cottage is really a tear down and the lot is what is going for $550,000.

As roger said,as summer progresses and the markets show we are in for a long drawn out recession of 5 years or more, then we will see the reflated real estate hype move on to some other angle which will be most likely the unemployment scene. The TC needs readers bad and you can't beat a dead horse once it shows it isn't recovering.

Metaldwarf said...

FYI

BoC announces Interest rate changes, if any, on thursday.

With the soaring Canadian Dollar it will be interesting to see what they do.

omc said...

inglishmagor,

I know wich house you are looking at. You need to figure out the true cost/worth of that one as your cost plus the cost of demo, plus permits and the cost of new services. Basically raw land minus. Not many people paying that kind of money are going to want to live like that so thats what you'll get when you sell it.

It would, however, return or maintain value better than tillicum. I wouldn't bother with tiilicum, but try e-town instead. Much closer to town and the land is much prettier. I have seen Vancouver gentrify and I would predict that area will be very changed in the next decade.

Reid said...

My sense is that SFH sales for May will be strong; stronger than April and May 2008. There is a buying frenzy going on out there and it is all being driven by these low interest rates, huge borrowing capacities and an assumption real estate prices have bottomed. This trend in my opinion will continue as long as interest rates stay this low or go lower (highly unlikely). If interest rates rise materially in the coming weeks/month, then it will go crazy for 2 months as people panic to get in before their pre-approvals run out (seen this a few times).

The MOI for houses in Victoria, Oak Bay and Saanich East will all likely be under one month for houses under $650k indicating a very strong sellers market. Under these conditions prices will not drop and are likely to rise slowly until we are through the buyer panic. I do not expect prices to drop off materially in 2009 unless the recession shows itself in Victoria or five year interest rates rise towards 4.5% (both I see as unlikely this year)

Although there will be some seasonality, the market will be driven by debt capacity over the coming year and never in Canadian history have average people been able to borrow more money than today. Over the next 18 months interest rates should rise, but likely only to levels between 5.0 to 5.5% for discounted five year rates. At these levels, the number of buyers able to afford a SFH at current prices will be far less than today.

The average Victoria family would have their debt capacity reduced by about $100k if rates rise to 5.5% by late 2010 as appears likely if we are truly working our way out of this recession.

My research does not indicate any real inflation risk in the economy until 2011 or 2012. If this inflation comes, this is where we could really see a real estate meltdown, but we are going to have to see five year interest rates rising above 6.5%.

I continue to be baffled by the risk people are willing to take on both in terms of the real estate losses, but also on their retirement. Clearly few people could care less about their financial future if they are willing to borrow more than five times their income at a time when their salary/wages are not likely to grow for some time.

PainInThe said...

There is no bottom whatsoever in in the US housing market yet. The only things selling are literally giveaway foreclosures, which are continuing to plunge prices on everything around them.

Is the press there lying through its teeth? Of course, just like everywhere else.

It's like a bunch of nuts on the deck of the Titanic believing if they blow at the water hard enough, the ship won't sink.

omc said...

I agree with reid's assesment, which is why my wife and I are bowing out of buying for at least a year. The asking prices are now far higher at the over $650k level than they were earlier in the spring. If we were to have the prices back off further than they were earlier this year in the next few months I would feel far more secure in buying, but I expect them to stay/rise a bit. People are still buying like crazy and we haven't even seen the rush that happens with preapprovals when things go up. The bubble is filling with people who paid far more than their homes are truly worth and cannot afford the payments at a reasonable interest rate. A recipe for disaster in a few years that I will not include my family in.

mr4am said...

Looks like Geitner will fly to China to beg for another 2 Trillion needed just to pay for 2009's [US] deficit. I guess Hilary's recent trip didn't quite do the trick.

Translation: Hey China, if you don't want us to rev up the printing presses and devalue the dollar making your (Chinese) exports more expensive, then the answer is simple... lends us more money! :)

This will not end well.

Vic said...

Was reading Geitner is floating some trial balloons on a new tax called the VAT. The purpose is to knock the trillion dollar plus debt into the low hundreds of billions. New taxes won't go over well right now and would kill the consumer and growth but what other choice does Obama have to reduce this debt. Was also something about taxing health benefits too.

Reid said...

Roger thanks for US mortgage charts. The most interesting chart I saw there was the mortgage failures by year of purchase for jumbo loans. Given that jumbo loans are usually defined as mortgages over $417k this is very well aligned with Victoria mortgage levels at todays interest rates for entry level buyers.

The chart shows that people who bought in 2003 were OK, but those buying in 2006 and 2007 got hammered harder on a relative basis than other mortgage types.

Remember 2007 in the US was when many people came into the market once it has its inital drops thinking they were getting deals. Yet they are now getting hammered the hardest. Looks an awful lot like what we are seeing in Victoria today. Very interesting and scary.

HouseHuntVictoria said...

Roger, tell me about Ottawa neighbourhoods please? Houses there are about 60% cheaper than here from the looks of realtor.ca

patriotz said...

I just posted this in another forum. This house is no palace but it is in one of the best parts of Ottawa. For twice that price you do get a palace.

FRIENDLY FAMILY ORIENTED STREET STEPS FROM THE EXPERIEMENTAL FARM & MOST AMENITIES. $289,900

Roger said...

HHV,

Ottawa has dozens of neighbourhoods so it depends what you are looking for. Some things to consider:

- older home with heritage features like all brick exteriors
- newer home with all the toys in a modern subdivision
- close to downtown (Rideau canal, shopping, nightlife, museums, government)
- quick access to bicycle paths
which are far more extensive than Victoria's
- access to high tech area which is mainly in the West end (Kanata, Nepean)
- proximity to bilingual schools for the kids
- small city lot or larger acreage
- mature neighbourhood with lots of trees and parks (like Fairfield)or newer area with quick access to box stores (like West shore)

If you want to take this offline email me or we can get together for a beer and go over the Ottawa map.

Roger said...

Patriotz,

I used to live about a kilometre from the listing you posted. This is a pleasant area to live, close to shopping and the area around the experimental farm is quite nice.

The house you posted has what they call a mansard roof which is not everyones cup of tea but it does give lots of space on the second floor. There are many conventional bungalows (ie. ranchers in BC) in the area and they have full, heated 8' basements which is not counted in the square footage.

It is easy to get something that is in good shape and quite pleasant for 300K.

omc said...

This is too funny! Maybe we'll all move to Ottawa. Seriously though, I do know quite a few people from the tech industry who have jumped from here and Vancouver in the last few years. I am not in tech BTW. I did a bit of soul searching years ago when I couldn't buy a decent job here (50-60k a year is NOT decent here) and tried to come up with alternatives. Vancouver didn't make the list and neither did anywhere on the praries. Ottawa came first.

HouseHuntVictoria said...

Roger, Patriotz, OMC thanks for the links tips etc. Roger, I'll take you up on that beer offer, we'll coordinate via e-mail. Likely week after next.

PainInThe said...

Wow, for an older house that really is nice. First one I've ever seen I've liked. High ceilings, no fake dustcatching crown molding to make them look lower, tall windows.

And TWO bathrooms. Now there's luxury!

And that mansard roof really is practical.

patriotz said...

I posted that listing because I have family living nearby and I know the neighbourhood. Island Park Drive which starts just to the north is sort of Ottawa's counterpart to W. King Edward in Vancouver. The south side of Carling is cheaper than points north but still nice.

BTW I still think that house is overvalued based on rental value (which would be about $1500/month). Should be about 225K. So yes there is some downside to Ottawa prices but not a lot.

Roger said...

Here is a different perspective on those in debt in Victoria..

Debt levels...

Dave said...

Experimental farm? Should keep the kids entertained during the Ottawa winter at least.

patriotz said...

There are a lot more things for kids to do in the snow than in the rain you know.

Or are you alluding to the fact that they used to grow MJ there? :-)

HouseHuntVictoria said...

Month end Victoria Real Estate Board stats: New sales: 879, New listings: 1362, Total active listings: 3789. Full release on VREB.org later.

From Tim Ayers on Twitter

Dave said...

I'll take the Coastal climate over Ontario any day, as would most people in Ontario.

I was referring more to the two-head sheep and cats with wings.

Roger said...

Dave,

Yours is a typical West Coast attitude that everyone would rather have the Coastal climate and BC is the "Best Place on Earth".

Ain't true. I lived in the East and many of my friends do not want to move here because of the rain and grey skies all winter.

Many here don't like it either. Thats why you see so many RVs heading south for the winter.