Monday, April 16, 2012

April 16: Monday Market Update

MLS numbers courtesy of the VREB via Marko Juras. These numbers are for the Victoria Real Estate Board's reporting area, including Sooke, Shawnigan Lake and the Gulf Islands.

April 2012 month to date (previous weeks in brackets)
Net Unconditional Sales: 265 (145)
New Listings: 698 (377)
Active Listings: 4230 (4116)
Sales to new listings ratio: 38% (38%)

April 2011
Net Unconditional Sales: 574
New Listings: 1577
Active Listings: 4561
Sales to new listings ratio: 36%
Sales to active listings ratio: 12.5% or 7.9 MOI

It seems sluggish sales are the new normal. Although the high MOI would indicate we are firmly into buyer's market territory for the past year, I don't see a really convincing move in prices yet. Sale price to assessment for the lower end has fallen back down to 95%, while the higher priced properties are selling closer to their assessed value. Either low end prices are weakening, or those kinds of properties are chronically over-assessed.

142 comments:

Just Jack said...

It's difficult to see any significant price declines, in the average or median because of the low volume and shift in what is being purchased.

What seems to be more interesting these days is not what is selling but what is NOT selling or put it another way what is not in demand.

Like older condominiums. Those early 1970's and 1980's condominiums seem to have rolled backed in price to mid 2006 price levels.

Such as the condominium on Burdet, that has recently been updated and sold this week for $242,600 after being listed for 235 days starting at a price of $284,000.

This same property sold in July 2006 for $235,000


Even Bear Mountain McMansions have lost some of their appeal. Such as a recent sale on Nickaulus Drive for $835,000. The property was originally bought in March 2007 for $825,500.

The property was listed for 170 days starting at $895,000.


Yet even with far fewer sales and many million and more dollar homes are selling today in Greater Victoria, the median and average have not significantly changed. Perhaps, these million dollar home sales may be temporarily raising the average and median prices.

My guess is that when the BIG ticket price home sales fall off, we will see a significant drop in our median and average prices - like what is happening in Vancouver today.

dasmo said...

I believe that's known as stats cherry picking in the housing bubble circles ;-)

Introvert said...

Yeah, so many of the bearish comments on this blog read more like wishful thinking than insightful analysis.

DavidL said...

Two interesting articles from CBC:

Mortgage market tiptoes toward subprime
As the big banks get choosier about who they'll lend money to in this hot housing market, Canada's once-small subprime mortgage industry is quietly booming.

Be very afraid of the Canadian housing bubble (editorial)
I want you to be afraid. Very afraid of the Canadian housing market. I want people who are considering buying a house in Canada to be the most frightened. People who just bought a house also have every right to be nervous. But even if you don't have a stake in the property market, I would like you, too, to be fearful of a bubble in Canadian property.

These kind of articles just didn't appear in mainstream media six months ago ...

dasmo said...

I agree that nothing was in the media before. (and I feel the correction of 10% is already here) but I do find the media bandwagon just as irritating and superficial now that it is going the other way. from article 1: "To be sure, few are suggesting a U.S.-style meltdown is anywhere near at hand. A major factor in the U.S. meltdown was rampant securitization of mortgages, where loans were divided into more and more tranches and sold to investors farther afield — watering down the underlying risk of the debt itself. There's little evidence Canadian mortgages are anywhere near as spread out."

From article 2. "And that is why I want to spread fear"

Just Jack said...

Maybe the Canadian experience will be different from the USA. Maybe our market is what would have happened to the USA if they had more government guarantees earlier on?

But what has happened is that we have gotten to the same point as the USA just over a longer time period.

Too many people own real estate, and too many people have too much debt.

Now, the government, lenders and insurers want to tighten standards up.

So how can this not end bad? Where is that silver lining?
If I can't invest in real estate - what else is there?

The silver lining is that after the market corrects, people will be able to get a positive return on their equity again. And it will be a good time to invest again.

But first the herd has to be culled.

nan said...

The us market didn't crash because of securitization, it crashed because people with no money were able to borrow too much and then weren't able to pay it back. The securitization blew the crash into the stock market instead of keeping it with the banks where it belonged, but it didn't impact
The probability or magnitude of the ability of Americans to pay the mortgages they signed up for.

CS said...

Anyone interested in understanding the US housing bubble and how that sequence of events may relate to the trajectory of the housing market in Canada might find the series of videos entitled the The housing price conundrum by Salman Khan worth a view. Khan is a gifted communicator, a math wizz and a former hedge fund analyst.

CS said...

Meantime, the CBC reports:

"As the big banks get choosier about who they'll lend money to in this hot housing market, people with questionable credit are benefiting from Canada's once-small but now booming subprime mortgage industry."

dasmo said...

it's what removed all risk of lending from the lenders so it was a major factor. It didn't matter who they lent to, it just got sold off and start again. This is what propagated the "predatory lending". Regular folks getting signed up for complex mortgages like Interest-Only ARM mortgages. After a couple of years peoples mortgage payments suddenly doubled (without interest rates changing) Most probably didn't even know what hey were getting into.

Just Jack said...

Too many home owners and too much debt. This is causing a net contraction in the number of small businesses and in consumer spending.

Get laid off as a plumber, electrician or framer and all you have is unemployment cheques. (Unless you were a sub contractor then you are S.O.L.)

Now you're maxing out the lines of credit. All of your home equity is gone and your credit cards are at their limit.

But luckily you still have your Bear Mountain Mansion.

Leo S said...

it's what removed all risk of lending from the lenders so it was a major factor.

Exactly like the CMHC did here. Even low ratio mortgages were being offloaded to the CMHC in bulk because the banks wanted to get them off their books.
Now that CMHC is pulling back, we see the results (fewer mortgages being approved, a rush to subprime lenders).

Phil said...

From that CBC article: "Unlike in the United States, it is very hard for Canadians to walk away from their mortgage responsibilities"

Why doesn't anyone do any research? Most US states are recourse, including Florida and Nevada. Didn't change anything.

Fiduciary said...

CS, I agree, Khan's series on the US housing crisis is fantastic.

happy renter said...

There's some very bearish stuff coming out in the media and then there's this:

Donals Trump Likes Toronto Real Estate
http://www.theglobeandmail.com/report-on-business/economy/housing/donald-trump-likes-toronto-real-estate/article2403771/

Seriously? I mean, the guy has condos to sell -- of course he'll tell you it's a good time to buy!

Leo S said...

Why doesn't anyone do any research? Most US states are recourse, including Florida and Nevada. Didn't change anything.

Recourse laws for mortgages reduce defaults by approximately 20% compared to jurisdictions with non-recourse loans.

So yes, recourse loans provide some mitigation to defaults, but certainly does not prevent them.

HouseHuntVictoria said...

Prices fell in the US because of supply and demand factors. Once prices started falling, the problems became known. Had prices continued to climb in the US, we'd never have had a "sub-prime crisis."

Things Canada has in common with the US before their bubble burst:

1. Highest levels of consumer debt in a generation

2. Highest levels of home ownership in a generation

3. Rampant securitization of mortgages (CMHC insured and sold mortgage backed securities over the past decade like McDonald's sold hamburgers... in the billions)

4. Declining equity in houses despite rising prices, caused primarily by low-ratio mortgages and HELOCs (is this the lowest ever? close if not)

When prices here fall significantly (10%+ Canada-wide), we will see if any of the above lead to systemic-wide financial issues. It's hard to see how they would not, but only time will tell.

happy renter said...

The Globe & Mail is looking for real life "house hunters" for a new series. Their angle looks to be something like, "wow, it's impossible to buy a house since they all sell so quickly and the market is hot hot hot." I'm sure a bearish voice from this blog would be a good addition to the mix.

Tales from the Trenches of the Sizzling Real Estate Market

dasmo said...

Things Canada doesn't have in common: "CMHC has enough capital to remain solvent unless Canada were to see “multi-year recessionary periods” with “persistent high unemployment going above 13%” and house prices falling close to 25%"

"Mortgage securitization is not nearly as widespread in Canada as in the U.S. According to TD Securities Inc.’s Canadian Mortgage Market Primer, Canadian lenders retain about 70 per cent of the mortgages they originate on their own balance sheets. This means that roughly 29 per cent of Canadian mortgages are securitized (sold to investors), compared to 60 per cent in the U.S."

Equity is not at all time lows

Anyway, it all adds up to a "correction" (which we are in the middle of as we speak) not a huge flaming crash.

patriotz said...

The US market crashed because prices were too high relative to incomes and rents. Which is the reason for every RE crash.

People who focus on other "causes" are trying to pretend that excessive prices are sustainable in Canada because some details differ from the US. Well the details were different from the US in Ireland, etc. too.

Just Jack said...

I don't have any problem with securitising Canadian mortgages. But these mortgage bundles have to be continuously reviewed so that the income stream and the market value of the total mortgages remains substantially constant (within 10 percent).

So if home prices fall, then the lender has to add mortgages to the MBS until the MBS reaches its original value.

That didn't happen in the states. So when things went wrong, no one had any idea of the value of their MBS's. Canada isn't doing this right now either, but I believe some of the changes that the ISFO is planning will identify the loss in value in any MBS.

This is a good thing.

nan said...

There is nothing wrong with debt securitization. The problem is with governments who bail out those who bought the secured debtt without understanding it. Buying something with the assumption that either the value will go up or the taxpayer will pay is ludicrous. If banks lend money and then sell it to private investors and they lose money, guess what: banks will stop lending because they won't have anyone to sell to. Capitalism at work.

Just Jack said...

Looking back at the US, 60 percent seems like a lot of MBS's. But not if you believe that home prices will always go up in value. Then a 40% cushion seems reasonable. But when the MBS's fell in value by half, then the lenders ran out of mortgages that they could replenish the MBS's with. The wheels of credit ran out of lubricant and ground to a halt.

If nationally prices were to fall by half, then our lenders would be facing the same crunch and would have credit problems too. There MBS's would have to be topped up with mortgages from their vaults that also had dropped in value.

So, while 30 percent seems reasonable when compared to the USA. It can still be too high, especially when no one is checking the value of these bundles.

Just Jack said...

Equity is not money.

Nationally, Canadians may have a lot of equity in their homes. But how does that make a market correction less likely? And what happens to equity when prices do correct?

So, who is better off. Someone with $200,000 equity in their home or someone with $200,000 in an RRSP?

Marko said...

"Such as a recent sale on Nickaulus Drive for $835,000."

Actually this property sold for $845,000.

Thanks, Marko

dasmo said...

I'm not sure...The RRSP will be taxed upon withdrawal at an unknown rate. given the doom and gloom around here one would assume that you will still be working by 65 and possibly even in your peak earning years when your RRSP is forced upon you so it might even get taxed at 40% or more...You probably will have been better off to have paid off your house, Sold it tax free and then rent...

Just Jack said...

And speaking about Bear Mountain.

Here's a blow out price for a 2 year old home on Natures Gate for $622,000. The lot was bought back in 2010 for $255,000. The residual value to the improvements is $367,000 for a 3,185 square feet of home.

Worth while to buy a pre-owned home when your only paying $115 a square foot for a 2 year old, fully landscaped home with a double garage.

And it took them 567 days to get that price after starting off at $750,000.

That's worse than buying a new car off the BMW lot. Save yourself a bundle - buy a used home.

patriotz said...

"one would assume that you will still be working by 65 and possibly even in your peak earning years when your RRSP is forced upon you so it might even get taxed at 40% or more..."

You don't have to take any money out of your RRSP (more precisely turn it into an RRIF) until you're 71.

Anyway I think you missed JJ's point.

dasmo said...

True, you won't be forced to take it out or convert to RRIF until 71, I guess my point was that 200k in an RRSP will be taxed as income when you take it out. You could sell the house and your 200K is tax free.

Leo S said...

You could sell the house and your 200K is tax free.

Given that you paid your mortgage with after tax dollars, it's not tax free.

RRSP's are pre-tax dollars. Of course in the end the tax man always gets his share :)

Fortunate Fool said...

@dasmo

"Things Canada doesn't have in common: "CMHC has enough capital to remain solvent unless Canada were to see “multi-year recessionary periods” with “persistent high unemployment going above 13%” and house prices falling close to 25%""

Actually, CMHC is in worse financial shape than Fannie Mae at the peak of the US bubble...

Here it is:
"The CMHC insures and guarantees mortgages as well as buys mortgages from banks in order to issue mortgage-backed securities that trade in the secondary market. In comparison to Fannie Mae though, the prognosis of the CMHC is notably worse. For instance, at the height of the housing boom in 2007 Fannie Mae had guaranteed over $2.3 trillion in mortgages[2], nearly a quarter of the market.[3] As of 2010 the CMHC guaranteed over $900 billion in mortgages, about 90% of the market.[4] Fannie Mae had approximately $44 billion in net assets to cover those guarantees, giving them a leverage ratio of about 50:1. The CMHC has about $9 billion in net assets to cover theirs, with the ratio working out to a staggering 100:1. To make matters even worse, 74% of the CMHC’s assets are invested in those very same mortgage-backed securities. If the Canadian housing market ever took a dive the CMHC would be bankrupt in the blink of an eye."

http://www.mises.ca/posts/articles/the-canadian-moral-hazard-corporation/

dasmo said...

Depends if you paid the 200k or it grew on it's own. In an RRSP it doesn't matter, it's all taxed on the way out.
This is why IMO it doesn't make sense to put everything into an RRSP. You have little control over the money and will potentially pay more tax in the end. besides a TFSA, keeping investments outside an RRSP has advantages. Capital gains will be half of whatever your marginal tax rate is and you already paid the tax on your initial investment when you could most afford it ;-) PLus, you can't offset losses within an RRSP.

So the case of 200k equity in your home or 200k in an RRSP to me is not so cut and dry. personally I'll take the home equity. I can borrow against it to buy an RRSP if I want.

Leo S said...

personally I'll take the home equity

I'd probably prefer the RRSPs right now, but once we buy I'm putting basically everything into the mortgage. Even at today's low interest rates, that's about a 5% after tax return guaranteed.

Unlike others here, I'm not an investment whiz so that's good enough for me. :)

dasmo said...

@ Fortunate Fool, I found that article odd since it seems to come from a reputable fellow yet it is a deceptive comparison. CMHC is a crown corp that insures residential mortgages. Comparing it to Fannie Mae and Fannie mae alone leaves out the entire picture. First off the GSE's were not insurance companies but were set up primarily to securitize mortgages taking them off the banks books. Also part of the problem was the move of the industry away from the GSE's to to unregulated private Mortgage backed securities. This helped fuel the "predatory lending" where borrowers were given interest-only, negative amortization products...etc etc etc...So there were many private, public/private incarnations of GSE / MBS firms down south. We have primarily one that is a crown corp. Of which is in fine financial shape, Unless a large portion of the population defaults on their mortgage...

patriotz said...

"personally I'll take the home equity. I can borrow against it to buy an RRSP if I want."

Ability to borrow is not wealth. It's also stupid to borrow money to put in an RRSP because the interest is not deductible.

And home equity is not wealth either, except at the time you sell the house. That's the point that this whole country is not getting, what the US did not get, and what is going to ruin so many lives here as it did there.

Leo S said...

First off the GSE's were not insurance companies but were set up primarily to securitize mortgages taking them off the banks books

The important part is the last one. CMHC has the same effect of taking the risk away from banks.

We have primarily one that is a crown corp.

And is highly secretive and up until just now, didn't even report to the OSFI for oversight.

Of which is in fine financial shape

How do you figure? Fortunate fool's article claims they are not, and we know that the quality of their portfolio is about the same as Fannie Mae's before their crash.

The problem is a lack of oversight. I'm not exactly reassured by CMHC claiming they're doing fine. Let's see what OSFI has to say about them. So far it sounds like they are not happy.

Everything always seems fine before a decline.

happy renter said...

Sensible advice for home buyers from Rob Carrick of the G&M:

A Reality Test for Would be Home Buyers

dasmo said...

I certainly wouldn't borrow against my house to invest, I was being facetious.

Ability to borrow can lead to wealth though... A lot of people have built wealth on borrowed money.

dasmo said...

I wasn't saying CMHC isn't at risk just that they aren't in bad financial shape right now. They have 10 billion in retained earnings and more assets than liabilities so not a sinking ship right now.
Comparing CMHC to Fannie Mae alone is the problem...CMHC has 90% of the market in Canada (of which 27% of that is securitized). Fannie Mae was a quarter of the US mortgage securtized market. What was the quality of all the GSE and private MBS portfolios before the crash? That is the comparison needed.

Leo S said...

What was the quality of all the GSE and private MBS portfolios before the crash? That is the comparison needed.

I don't know, but Fannie Mae alone has required $150 billion in bailouts so far (and more coming). This is despite their portfolio not really looking that bad before the crash.

patriotz said...

"What was the quality of all the GSE and private MBS portfolios before the crash?"

Before the crash the financial sector and the government thought they were just fine. Because they assumed in advance that a nationwide decline in house prices was not possible.

That is the same thinking as you are doing. You are saying that CMHC is in good shape because its assets exceed its liabilities. That's only true as long as the value of its collateral (house prices) does not decline nationwide.

dasmo said...

There are key differences between our situation and that of down south.

The US had this, combined with this, topped of with this, which led to this and started this

right now we have this plus this combined with to much of this

It's just not the same setup.
To clarify my stance though. I'm not saying we are without risk. I believe we are already in a 10% correction with relatively flat performance over an extended period, with low sales volumes. So I'm not saying we are all fine, nothing to see here, I'm just saying I don't foresee a total meltdown here...

patriotz said...

They are not key differences, they are irrelevant differences. They were not found in other countries that saw RE busts nor were they found in prior RE busts in Canada including in BC.

Also the bust in the US did not happen all over the country. What did the regions of the US that did not see a bust have in common? Prices that had not risen substantially.

What all RE busts have in common is prices that have risen too high relative to incomes and rents.

MD80 said...

"This is why IMO it doesn't make sense to put everything into an RRSP. You have little control over the money"

Au contraire. You have very little control over the equity in a home, especially one that you live in. It can be very difficult to liquidate, particularly in a down market, the transaction costs are huge, and then you have to figure out where to live.

No that I'm suggesting putting EVERYTHING into an RRSP is a good strategy but a mix is probably better than anything. With liquid investments (RRSP, TFSA, non-registered, etc) you can swith asset classes in an instant or even liquidate into cash. Can't do that with a house...just stand by and potentially watch your 200k in built-up equity evaporate back into the ether.

dasmo said...

I agree. I didn't say put everything into your house either. Just that I would prefer 200k equity in a house vs 200k in an RRSP.

MD80 said...

Good for you. BTW, what's the MER on the 200k in your house? It's not all about taxes.

Just Jack said...

I've had some equity funds return over 11 percent this year in my RRSP account.

That's better than paying 4% in interest rates, principle payments, taxes, and repairs on a home. Especially when there is very little chance for house prices to change direction and start increasing in the next decade.

You can't eat door knobs and shag carpet.

Leo S said...

Sure I've had some good returns in certain funds but overall I could have done just as well at ING in 2011.

What makes me feel better about those returns is that the highly paid pension fund managers at work actually lost money in 2011. :)

SuperBob said...

The vibes over the airwaves have shifted.

There are now radio ads from a mortgage broker who explains that they are there to help, even after your bank has refused you. Never heard that sort of message over the last 5 years.

100.3 The Q has brought back their community messages assuring us that the economy is robust and that Victoria is thriving. They did this previously in early 2009. Methinks they don't have enough advertisers signing up.

Introvert said...

100.3 The Q has brought back their community messages assuring us that the economy is robust and that Victoria is thriving. They did this previously in early 2009. Methinks they don't have enough advertisers signing up.

Further to this, I heard C-FAX advertising a 60% off sale on its radio ads. That doesn't sound like business is good.

SuperBob said...

The CMHC office on Douglas is now for lease. What's up with that?

Move along,folks. Nothing to see here...

dasmo said...

Victoria isn't extremely out of whack with the fundamentals though. The average two-bedroom apartment
condominium in the City of Victoria
rented for $1,353 that's $257,000 @ 4% / 25 years. There are average 2 bdrm condos for sale in Victoria for under 300k.
average 3 bdrm house rent is $1,633
that's $345,000 @3% over 30 years. You can buy a brand new 3 bedroom at Kettlecreek for $409K so with your 20% you have some headroom for the extras.

Just saying, it's not extreme overall...

Just Jack said...

So, what's your house worth today?

Assuming that you purchased your home in the core municipalities within the last decade, and in the 1st quarter of the year.

Here are the number of sales for each the first quarter of each year followed by the median price.

2003-597 sales, $281,750 up 105%
2004-630 sales, $348,400 up 66%
2005-567 sales, $385,500 up 50%
2006-524 sales, $470,000 up 23%
2007-565 sales, $520,000 up 11%
2008-509 sales, $566,000 up 2%
2009-394 sales, $517,500 up 12%
2010-475 sales, $622,000 down 7%
2011-400 sales, $615,000 down 7%
2012-408 sales, $577,200

Falling sale volumes in the city caused price appreciation to slow and has now reversed. With home prices off some 7% from the peak and are now back to 2008 levels. Sale volume is still low, so it is very unlikely that prices will turn around and start to appreciate by this time next year.

Waiting a year to buy a home may just save you $50,000.

So there you go, do the math and calculate what your home is worth today. Then go out and spend that equity - you earned it!

Marko said...

Weird week....three accepted offers for three different buyers on various properties all three properties now have back up offers.

SFH is hovering around 635k average for the month.

patriotz said...

"Victoria isn't extremely out of whack with the fundamentals though."

I suggest you read an annual report from a REIT some time. Those guys expect an 8% gross yield (i.e. after taxes and maintenance, not including financing) and they know what they are doing.

Figure out what that comes to in price/rent.

dasmo said...

I didn't say it was a good environment for investment properties. It is not. No argument there at all...I recently poked around in that regard and could find nothing that would make any money unless you had deep pockets and could convert/develop into greater density.
I'm just saying it's not a setup for a meltdown in Victoria, rather a flat line / correction.

Leo S said...

average 3 bdrm house rent is $1,633
that's $345,000 @3% over 30 years. You can buy a brand new 3 bedroom at Kettlecreek for $409K


I believe that's known as stats cherry picking in the housing bubble circles ;-)

dasmo said...

chuckle...I was going to add that to the post myself...

LeonMaynard said...

Only one out of every eight listings sell each month.

It seems the balance between mortgage interest rate and selling price are a bit skewed with asking prices being a bit too high, which results in many un-sold listings each month.

When interest rates increase later this year and next year, one of two things will happen: 1. the ratio of sold to un-sold will increase from 1/8 to 1/12+ ~OR~ 2. House prices will decrease significantly.

If I was making a prediction I would say both scenarios will happen next year, the ratio will increase and selling prices will decline.

It all depends on interest rates, in fact it always has been an interest rate sensitive housing market in Victoria and Vancouver.

omc said...

interest rates are always a big factor in housing prices. Do you really think the interest rates will go up this year? I would be interested to hear your theory on how this could be supported economically with the fragile world economy. The US has already said that they will leave thier rate steady until late 2013. Most economists are looking until some time in 2014 before the US looks at a small rate increase.

Canada cannot unilaterally raise rates or the dollar sky rockets. What we are hearing form the bank of Canada is "jaw boning", and has happened before.

Sorry, but us long time bears have heard that the crash is just around the corner for many years now.

patriotz said...

If Kelowna (and many other locations in BC) could crash with low interest rates so can Victoria.

Victoria said...

I've been a reader for a long time but have rarely posted. I have to chime in here about housing prices. They are decreasing and that decrease will escalate in the next 6 months. I personally know of 3 people who have re-listed and re-listed without a sale. None of them have significantly reduced their pricing as the comparables indicate they don't have to.

The comps are now stale. That's the problem. Not much has sold so the pricing models used for comparison purposes are old.

No wonder nobody has sold. What is the next step?

Price reductions.

Watch.

patriotz said...

"I personally know of 3 people who have re-listed and re-listed without a sale."

Since it appears that they don't have to sell why did they list the properties?

a simple man said...

Who does not want you to think the market is falling?

http://patrick.net/housing/crash2.html

omc said...

Won't argue that it isn't a buyers market. Won't argue that prices aren't too high here. I willl argue that interest rates are going up any time soon, and the big market crash is just right around the corner. We have heard these predictions a million times now over the last 5 years.

dasmo said...

Our entire economy is based on faith. If 20% of the population made a run on the banks to get their cash our entire system folds...If everyone disagree's that the market isn't falling and it doesn't fall then that's the truth of it plain and simple.

Just Jack said...

I wouldn't say our entire economy is based on faith.

The economy is like sex.

Greed - you wanna get some
Fear - pregnancy

and faith

God, I hope I'm not pregnant.

Leo S said...

I think this year will be the deciding factor for me. If inventory is as high as last year, and sales just as low, and prices still don't fall as we move through the year then I'm willing to accept the flat market theory and we would probably look to buy (will have to run the numbers on renting a house again).

There is still the risk of interest rates causing a big decline, but I just don't see them moving more than a percent or two anytime soon.

Just Jack said...

You buy when it's right for you.

I think most of us want "to get into the game" and are getting bored sitting on the bench. We want to grow up and have picket fence to paint. Share a beer over the fence with the neighbor and spend Sunday mornings cutting the lawn.

Even Shrek owned a swamp. Prince Charming had a castle.
and the Old woman had a shoe.

So, man up will you. Do you want to be an effeminate Ogre that lives with his mom in low income housing all your life!

Victoria said...

I think most people, in a market that has turned as ours is turning, 'chase the market down'. They have a price they want and they stick to it until it becomes reallllllly obvious that they have to adjust it. But then they adjust it a teeny bit until it becomes really obvious again.

In the 3 people I am referring to - the first couple inherited a whack a doodle of money after the first time they listed and didn't sell. They actually own 3 homes in this area right now. A gulf island home they have also listed (forgot about that the first time), the house I am referring to and - to complicate matters - they bought a condo at Bear Mtn as they thought the bottom 'had been reached'.

The second couple are a newly blended family. Her place is now not needed anymore so it has been empty for a year. They are now waiting for the current listing to expire so they can rent it out. This scenario also speaks to the soon coming rent price decreases.

The third one I honestly don't know but I suspect it is a marriage breakup to come.

This is serious stuff. People are going to possibly never recover from what is happening. I think it's very wise to pay attention to what is happening rather than what Realtors and the media tell you is happening.

Just my 2¢ but maybe it'll be worth a buck in the future :-)

CS said...

"We have heard these predictions a million times now over the last 5 years."

Does that prove that the future will be identical to the past 5 years? I don't think so.

There are too many unpredictable variables for anyone to know the future of a complex market.

For example, what if Fukushima blows up and here on the wet West coast we get ten, a hundred or a thousand times background radiation in our rain and drinking water?

Or what if the NDP are in power again and rev the economy by massive deficit spending involving huge expansion of the public sector in Victoria?

Or, any number of other things?

The only thing I'd bet on is that the future will not be identical to the past.

Just Jack said...

Most of us, may now have become de-sensitized to prices. So, even a slight drop in the asking price will make our hearts skip a beat and our pulse race.

In my opinion, a drop of 10 percent could clear the benches of wannabee home owners.

Back in 2007, there were 40 percent more people on the benches than today. And those left aren't the star players. The people left on the bench are the ones that always got picked last to play. You know, the kids that always wore their jock straps on backwards.

So, throw that jock strap away, stop being a bench warmer and get into the game.

So, what happens to prices when the benches of prospective buyers are empty and all the those last players into the game are rolling on the ground wishing they had worn protection?

Introvert said...

"We have heard these predictions a million times now over the last 5 years."

Does that prove that the future will be identical to the past 5 years? I don't think so.


No, of course not. But it does mean that many people have been dead wrong for a period of 60 months, which is a hell of a long time to be dead wrong, if you ask me.

Just Jack said...

Don't I know it.

Those bulls, really.

Five years ago they were saying prices would keep going up, up and up. Everyone get in now or you will be priced out forever!

They sure drank their own kool aid.

Number of advertised court ordered sales 5 years ago
- 5

Number of advertised court
ordered sales in the last year
-64

Silly bulls.

pipewrench said...

lessons of the past


#5 greed is the kicker. Last call folks...sell now or chase the rabbit down the hole.

denial is a heck of a phase we are in

It's a long way down........

patriotz said...

"it does mean that many people have been dead wrong for a period of 60 months"

Prices in Victoria have gone nowhere in the last 60 months. That means that someone who bought 60 months ago has paid a lot more money compared to someone who has rented and decides to buy now, or who buys at any time in the future provided prices don't go up.

Who's been dead wrong?

Introvert said...

Who's been dead wrong?

With "dead wrong" I was more alluding to the fact that no meltdown has happened.

patriotz, I understand that you view buying a house strictly through a dollars-and-cents lens of your own making. It's just as valid a lens as anyone else's, but you treat it as though it is the only lens that exists.

patriotz said...

It's the only objective lens. There is no other objective way to compare investment decisions.

You can't claim on one hand that the bears have been wrong and on then claim on the other hand that whether buying a house is the right decision depends on something other than financial return. Using that reasoning you could claim that everyone who bought south of the border made the right decision.

Alexandrahere said...

This is different. MLS 307663 at 4058 Dawnview Cresc. It says: Mere posting. No agency. Whats this about?

Marko said...

"This is different. MLS 307663 at 4058 Dawnview Cresc. It says: Mere posting. No agency. Whats this about?"

Not really, I've been offering this for 1.5 years now.

http://markojuras.com/749-flat-fee-mls%c2%ae/

Marko said...

Bidding war on 4014 Hessington....15k over asking.

Leo S said...

There's a few realtors that offer it now. Ours does too: http://offer.net/1226

Animal Spirit said...

Something strange is happening in the neighbourhood (at least in anything labelled Victoria in the MLS that is <575K and >1000 sq ft)

For January, February, March and April (to date), number of homes sold by price bracket:

<400K: 2, 7, 12, 1
400-450K: 7, 10, 15, 8
450-500K: 9, 19, 23, 4
500-550K: 21, 20, 19, 16
550-575K: 2,4, 10, 8

WTF has happened to sales below 500K in April??? Listings for these categories are going way up, likely due to the very few sales.

Is this due to the increased OFSI oversight on the banks, and the lower end homes having been sold to either developers, flippers or speculators in the past and them not being able to get credit to purchase the next house?

Or is it due to the low 10 year rates ending at the end of March, and the marginal buyer now being priced out of a SFH.

Both, or something else.

With #'s like these, median may be way up in April, but the base house/lot going down in price.

SilverSurfer said...

Found this gem over on Garth's blog from a comment.

Assuming the numbers are correct, it sure looks like Vancouver sales are imploding nearly across the board!

omc said...

All the hulla ba loo about raising rates gets smacked down again today with the inflation rate dipping below 2% . This is the 2nd time in as many months that the media gets all sensationalistic about the possibility of rate increases. The last time was when the big banks ended thier mortgage specials. People were asking me what I thought of the interest rates increasing. The MSM releases crappy, untrue stories with zero critical analysis and most people believe them.

I am starting to sound like a jaded, grumpy old man - and I am not even that old yet.

SilverSurfer said...

Omc,

Oh the inflation will come my friend, don't you worry about that. Whether end of the year, or next year or the year after that. Whether through interest rate hikes, or currency depreciation against some non-real estate asset boom.

You can't keep the overnight rate at near zero for YEARS, and not expect a massive bubble of the some kind to eventually form. All we have to do is see how the US Fed created the US stock bubble, then later the housing bubble.

Both a result of excessively low interest rates for a prolonged period of time. Thus, the next bubble(s) will be many times bigger likely topling the entire system or severely harming it.

This is not doom and gloom, it is the inevitability of the keynesian grand experiment that is, after 4 decades, finally on its last legs.

Of one thing, I'm pretty certain, it will not be a deflationary collapse. That's practically impossible in a fiat monetary system.

The gargatuous walls of sovereign debt, will highly likely only be contained and even reduced through massive currency depreciation resulting in large (not seen in decades) inflation. Depreciate the currency, and your debts magically shrink. Simple, but devastating to the middle and poor classes.

The curious part is that this will translate into inflation of nearly every real asset class, except real estate.

Patience, study of recent history and preparation are key. We will have the last laugh, though many will be nearly drowning in rivers of inflationary tears.

Just Jack said...

Interesting Silver Surfer. Could you list some of the other real assets that may be affected?

After all, if there is going to be another bubble, I'm going to ride it to the Moon.

Dave said...

The misconception of rates in this environment, is puzzling. Property owners should be praying for higher inflation and higher interest rates.

Re: Animal Spirit, thank for the numbers. Now if only there were some ethical realtors to explain what’s really happening with the averages this spring. Imagine how high medians will go if credit tightens further and only millionaire cash buyers are left.
It’s a long way down on the low end, before investors will step in with any cash.

dasmo said...

Sounds like I should be stocking up on my coca cola now before I'm priced out!

Irving said...

For JustJack, it sort of looks like the other "real assets"may have already been affected.

Just Jack said...

We've talked about bubbles and how they form and what they need to flourish.

And for the most part the bubbles have been in the stock market or the housing market.

But can bubbles happen in any other market or asset class? If the bears were to design the perfect bubble what would it be?

Could you create a bubble in fine arts?

Something that Six pack Joe could leverage and gamble his kids education fund on.

Introvert said...

This is not doom and gloom, it is the inevitability of the keynesian grand experiment that is, after 4 decades, finally on its last legs.

I disagree. Usually, Keynesian methods are never implemented forcefully enough to ever know whether they would have been successful. For example, in response to the U.S. economic meltdown Congress passed an $831B stimulus package, which was half the amount that economists like Paul Krugman suggested was needed. Then, when that stimulus only succeeded in averting economic catastrophe rather than giving the economy a significant boost, opponents declared the Keynesian method useless. But that was silly because the Keynesian method was only tried in a perfunctory and diluted manner.

Alexandrahere said...

Animal Spirit: So far this week on my pcs in the four core municipalities SFH with a min of 2 beds and 2 baths, I have 25 sales 5 of those, or 20% have gone for less than $500K.

Robert Reynolds - HMR Insurance said...

Some rumblings of an interest rate increase is coming. I think probably more warning and posturing, than actual action.

I can't see BoC incresing rates unless inflation gets going big time. Any increase to interest rates will goose the Canadian Dollar higher, which is the last thing the economy needs.

On another note, the big insurance companies are all starting to hurt. I've seen three rounds of substantial rate increases to long term insurance products in the last 6 months. Essentially how a Life Insurance company works is they invest your premium dollars in long bonds, typically 30 year. The returns they get from these bonds helps them keep rates lower. With little to no returns from bonds, they have to raise rates.

higher rates, mean fewer sales, which means lower earnings, Insurance Company stocks are already getting hammered but I expect the to go even lower. The big players will be fine, and as their stock price drops their dividend yields will be very attractive.

Fiduciary said...

A bubble in Fine Arts could exist, JJ - you can even have a bubble in something silly like tulips. Whether one could be manufactured is a bit of a different question though, but probably.

http://en.wikipedia.org/wiki/Tulip_mania

Just Jack said...

With the aging baby boomers, maybe something to do with longevity, replacing body parts with artificial or other animals, body rejuvenation, etc. Even if the companies are completely bogus- it wouldn't really matter - this is about profits not ethics.

These baby boomers have money what they don't have is time.

Even Dick Cheney got a heart.
Coincidentally just before the Chinese stopped allowing prisoner transplants.

Cheney probably has a dozen clones some where to harvest for the next hundred years)

We had a dot.com boom
Why not a dotage.com boom

Alexandrahere said...

I've known of many young homeowners during the past four years going to their banks to re-mortgage before their term ended just to lock into a lesser rate because of the constant warnings of increased interest rates. All that happened was the rates kept going down and the poor kids ended up paying a relatively high (bonus/premium) to the banks, only to have found out a year or so later when their term would have ended, they could have locked into an even lower rate. Shame on the media.

Olives said...

"Of one thing, I'm pretty certain, it will not be a deflationary collapse. That's practically impossible in a fiat monetary system. "


Huh? Deflation is happening all around us as we speak - that is exactly what central banks are trying (not successfully) to prevent, and in trying to do so have made the eventual collapse worse by creating all the more debt that needs to be deleveraged.

patriotz said...

"it is the inevitability of the keynesian grand experiment that is, after 4 decades, finally on its last legs."

The Keynesian experiment both started (in the 1930's) and ended a lot sooner than that. Keynes said that governments should save during good times and spend during bad times.

We really haven't had that in Canada since the 70's and in the US since the 80's, although there was a brief return during the 90's in both countries.

happy renter said...

I just looked at a mortgage calculator for the first time in a while to see what the bank thinks that I could currently afford if I wanted to buy a house today. TD seems to feel comfortable with my taking out a $2800/month mortgage, plus property taxes and utilities. By contrast, I currently pay $1500/month in rent, no property taxes, and very minimal utilities (never more than $25/month). Up until now I've felt that my monthly spending on housing is fairly extravagant and at the upper end of my budget in terms of my being able to also save money toward retirement, etc. I know that this kind of realization isn't news or shocking, but I'm kind of amazed anew by the financial burdens that so many young families must be saddling these days if they're in fact maxing out what the bank will give them. I wouldn't sleep at night if I was actually spending $2800+/month of my particular income.

dasmo said...

I would strongly recommend against a young family taking out a $600k mortgage on a house...There is a reason it's called the property ladder, you get on on the lower rungs and climb as your equity and your income also rise. There are plenty of $350k-$400k SFH options out there right now...

SilverSurfer said...

I'll try to find the time to reply to various posts, but this one I could not delay.

Olives said: "Huh? Deflation is happening all around us as we speak - that is exactly what central banks are trying (not successfully) to prevent, and in trying to do so have made the eventual collapse worse by creating all the more debt that needs to be deleveraged."

Let us begin with a definition. Deflation is a contraction in nominal inflation rates below 0%. In other words, a negative inflation rate. Go look up some charts, even during the worst part of the 2008 crises, there was all of about 3 months worth of deflation in the USA, preceeded by some "disinflation" (contraction inflation rates, but still overall positive nominal inflation). I use the word "nominal", because as we all know reported inflation metrics like CPI are extremely skewed to paint a rosy picture.

Yes, Bernanke studied the Great Depression, and yes, one of the big mistakes was insuficient central bank liquidity being injected or not provided long enough, and this is precisely my point. In a post 1930's fiat monetary system, a deflationary spiral will not be allowed to take place - PERIOD! Quite simply, via one form or another (ZIRP, QE1,QE2, Operation twist, LTROs, currency swaps, TARP or other tax payer bailouts, tax cut extensions, Cash for Clunkers, or whatever...), they will NOT let the system go down though a deflationary collapse.

Marko said...

" There are plenty of $350k-$400k SFH options out there right now..."

Have you seen them?

SilverSurfer said...

Relevant Inflation Charts:

LINK: 1910 to 1999

LINK: 2000 to 2012

As you can see, we had only a few months of deflation in 2009, then guess what? QE1, QE2, Operation Twist, etc... see here for timelines (ignore that it's an Oil chart).

dasmo said...

These are pretty good lower rungs considering I have family friends who started their climb in a trailer...but alas we are in the age of entitlement...

http://www.realtor.ca/propertyDetails.aspx?propertyId=11526969&PidKey=285081804
http://www.realtor.ca/propertyDetails.aspx?propertyId=11729020&PidKey=618648645
http://www.realtor.ca/propertyDetails.aspx?propertyId=11777566&PidKey=-686463755
http://www.realtor.ca/propertyDetails.aspx?propertyId=11448063&PidKey=-1679712416
http://www.realtor.ca/propertyDetails.aspx?propertyId=11772961&PidKey=64747231
http://www.realtor.ca/propertyDetails.aspx?propertyId=11789163&PidKey=-334868991

dasmo said...

and the list goes on.

http://www.realtor.ca/propertyDetails.aspx?propertyId=11239020&PidKey=-86331347
http://www.realtor.ca/propertyDetails.aspx?propertyId=11798194&PidKey=2012964653
http://www.realtor.ca/propertyDetails.aspx?propertyId=11714558&PidKey=-1075066323
http://www.realtor.ca/propertyDetails.aspx?propertyId=11803515&PidKey=-1768577699
http://www.realtor.ca/propertyDetails.aspx?propertyId=11783476&PidKey=899679142

SilverSurfer said...

Just Jack,
I hear you, I too missed out on the VC rounds for Instagram. 1 Billion for 2 years of work by a dozen people who made a photo sharing piece of software is great work, if you can find it. Well ladies and gentleman, time to sell your declining AAPL stock, and mark your calendars for April 17th, you'll have a chance to participate in the $100 BILLION dollar mega tech IPO. If that one succeeds, and by that I mean wake up at 6:30 AM, put in your $100K, and sell before market close; then, here's four others that you can also risk your retirement savings on:
Twitter - because 140 characters is as much info as our ADHD population can handle.
FourSquare (4Billion) - Because it's not good enough for the government .. I mean your friends, to know where you are, they also want to know what you have been eating.
DropBox Because the buzzword "cloud" is starting to get annoying and it's better to cash out before storage moves to torrents or something. No wait, that's already been done.


But all these tech bubbles are tiny compared to the Japanese Bond bubble that is yet to pop (2014?) and swallow half of Asia with it. Or the US bond bubble we keep hearing about, but that bubble still has a few years left in it I think. It would be the second to last bubble to pop. You know, after Europe and China crash and everyone runs to the US dollar one last time. Unfortunately, bond yields are at near zero and so value is already peaked - Did you also miss out on last year's 30% gains?

So what's the last bubble? Gold, Soros warns, will be "the ultimate" and thus the last bubble. Last, until the system is reset or massively reformed that is. WHEN ALL ELSE FAILS, THEY WILL RUN TO GOLD.
Since 2010, Central banks are now net buyers of gold. The same entities that propagate the global fiat paper system unbacked by any real asset are now ammassing gold. What does this tell you? It tells you they know the jigg is up, and it tells you that in the end, gold is the only currency that can be trusted because it can not be printed, and if you physically hold it, has no counterparty risk. This aside from a 5,000 year history as a global currency.

You want to ride it to the moon? I don't know about that, but you can probably ride it to $5,000 easily, mind you, it may take another few years. That bubble hasn't even began yet. Less than 5% of people are *invested* in gold, and that 14Karat marriage ring they will sell at the Cash4Gold stand at the Bay Center doesn't count.

SilverSurfer said...

Missed link in previous post: WHEN ALL ELSE FAILS, THEY WILL RUN TO GOLD.

SilverSurfer said...

SilverSurfer said:"This is not doom and gloom, it is the inevitability of the keynesian grand experiment that is, after 4 decades, finally on its last legs."


Introvert said: "I disagree. Usually, Keynesian methods are never implemented forcefully enough to ever know whether they would have been successful. For example, in response to the U.S. economic meltdown Congress passed an $831B stimulus package, which was half the amount that economists like Paul Krugman suggested was needed. Then, when that stimulus only succeeded in averting economic catastrophe rather than giving the economy a significant boost, opponents declared the Keynesian method useless. But that was silly because the Keynesian method was only tried in a perfunctory and diluted manner."


831 Billion? Globally we're into 29 TRILLION of gross Central Bank stimulus! And what have the stock markets done? Climbed back a mere ~40% in 3.5 years. I'd call that a "bit" of a failure. Also analyze what's going on with the latest monetary injections, they are getting larger and larger and lasting less and less time in terms of stabalizing the markets. 1 Trillion LTRO? Lasted 2 months!!! Now Europe is at the edge of the cliff again, this time with Spain. Oh but they won't stop here, these sociopaths will continue their inflationary injections until the whole system collapses. When will that be? Who knows, but we're getting closer with each ginormous monetary injection.

Leo S said...

I'm kind of amazed anew by the financial burdens that so many young families must be saddling these days if they're in fact maxing out what the bank will give them.

Indeed. We are on the edge of getting comfortable with the mortgage we would take on for a cheaper than average house in Victoria. The mortgage broker informs us we could get double that amount.

There is a reason it's called the property ladder, you get on on the lower rungs and climb as your equity and your income also rise.

While I agree that is lower risk, it's going to cost you in a flat market. Instead of jumping into the smallest thing you can afford with the intention of upgrading in 5 years, you're better off waiting until you can buy the place that you can see yourself staying in for 15.

The property ladder only makes sense during times of very strong price appreciation, when prices are rising faster than you could save up money.

CS said...

@SilverSurfer:

"Globally we're into 29 TRILLION of gross Central Bank stimulus! And what have the stock markets done? Climbed back a mere ~40% in 3.5 years."

This needs a little analysis.

According to the Government Accounting Office audit of the US Federal Reserve all of the $16 trillion originating from the US Fed that were mentioned in the article you reference have been repaid (See page 137).

So it appears that these programs provided an effective and reasonable response to a shortage of bank liquidity following the collapse of the US housing market.

Some people would have preferred a depression during which they could have picked up assets at pennies on the dollar, but for ordinary folks in need of a wage government intervention looks to have been the better course.

Additionally, stimulus has been provided through government deficit spending, some paid for by money printing. But the perceived necessity of this arose from private sector deleverage, which threatened to collapse the money supply.

One test of the Keynesian response to the present financial crisis will depend on how, or whether, central banks successfully wind in the money they have recently created, if and when the economy begins to heat up.

The financial crisis was less the result of banking misbehavior than a result of the 1994 GATT agreement that put the Western workforce into direct competition with four billion Asians.

A consequence of that agreement has been the destruction of labor's bargaining power. That is why Western economies are now much more deflation prone than before.

Globalization has also weakened the effectiveness of stimulus spending, since most of the extra cash that winds up in the hands of consumers is spent on imported Asian made stuff, e.g., car parts incorporated in cars which have gone down, not up, in price over the last 15 years, clothes and computers. The result is that stimulus spending stimulates rather little beyond the retail sector.

SilverSurfer said...

CS said: "According to the Government Accounting Office audit of the US Federal Reserve all of the $16 trillion originating from the US Fed that were mentioned in the article you reference have been repaid (See page 137)."

Interesting 266 page document., thanks for sharing. Don't have time to read this now, but great, let's assume this is true. Still 13 Trillion to go. That's nearly equivalent to 1 year's worth of US GDP. ETA for the remeinder to be paid back?


CS said: So it appears that these programs provided an effective and reasonable response to a shortage of bank liquidity following the collapse of the US housing market.

That's highly debatable, probably at many levels. Many of the programs ended up "pushing on a string". Injection of trillions into banks does not change the indebtedness status of their potential borrowers, and thus does not translate into banks lending said money. You can fill their coffers with money, but they have no obligation to lend it. So what did they do with 11 trillion of said money? Only 3 Trillion was used.Further even if they did lend it out in significant quantities we could have had a massive inflationary spiral due to the money multiplier effect. Also much of this global stimulus/bailout money has translated into significant food & goods inflation. This ends up hurting the low middle class and the poor, to say nothing of 3rd world countries. At any rate, the proof is in the pudding. Where's the US housing market right now? Yep, still declining.

CS said: One test of the Keynesian response to the present financial crisis will depend on how, or whether, central banks successfully wind in the money they have recently created, if and when the economy begins to heat up.

DING!DING!DING! That's the 100 trillion dollar question! But why do you have any doubts? Bernanke himself said he can execute his Exit Plan by raising interest rates in 15 minutes, with *LMAO* 100% Confidence!. This is the same guy who was wrong in 2005,2006,2007,2008,2009, 2010.... The markets are now addicted to stimulus spending. The lender of last resort, is quickly becoming the lender of only resort. Even China has slowed down US treasury purchases.

CS said...

"The lender of last resort, is quickly becoming the lender of only resort."

If no one else is lending it means that deflation is still occurring but for CB lending.

The extent of CB lending and money creation is a measure of the severity of the deflation.

The severity of the deflation reflects the extent of the preceding inflation that took US private debt to three times GDP.

Mindset said...

Huh? Deflation is happening all around us as we speak - that is exactly what central banks are trying (not successfully) to prevent, and in trying to do so have made the eventual collapse worse

I’d like to add three discussion points; middle-class job losses, interest rate reductions, and the Canadian currency increases of the last decade.

First, we have outsourced an incredible amount of our production to countries with non-existent labour standards, patent respect, or environmental or social standards. This has been huge in driving down the costs of imported goods (we import a lot of finished goods, and ship a lot of raw goods). For example, almost all of the operating system and hardware of a loved iPhone or iPad is outsourced. While our wages are still relatively high and good jobs are available, this has been fundamental to the lower costs in everything and increasing our buying power. This has short-term deflationary effects until a ‘new balance’ is achieved.

Secondly, while so many great middle class jobs were being outsourced (technology, medical analysis, financial services, manufacturing) making our imported goods cheaper, we have had our currency evaluate incredibly over the past decade (remember when Canadian dollar was 60 cents US?). This has also made imported goods more affordable (Anyone else buy a car in the States? Luxury cars were a steal). This has deflationary effects in Canada until a ‘new balance’ is achieved. What happens to the price of a basket of goods in Canada if our dollar returns to 60 cents? Or even 90 cents? A 10% increase in cost on all imported items, no?

Last but not least, debt service costs are an important component of the cost of goods in any country as indebted as Canada is. A lot of our purchases have been based on a ‘future repayment’. So as interest rates go up, so does the ‘price’ of anything that we borrowed money to buy. Lower interest rates have short-term deflationary effects until a ‘new balance’ is achieved.

Some fantastic short term things happened in the last decade, but they all had an expiry date clearly stamped on them that we chose to ignore.

600 Billion in CMHC lending? HELOCs? What kind of strategy for a better future in Canada is that?

The last decade has been like giving our children visa cards instead of helping them get a job, then lowering the interest rate and increasing their credit limit when they were having problems buying things, while the whole time, the neighbor kids were doing good work and building the businesses to make the things that my kid was buying.

Nuts.

SilverSurfer said...

The #1 problem with inflation vs deflation arguements is that often time neither side can agree on a definition. If they can't agree on a definition of the terms, then there's little sense in discussing the issue.

CS: I was not referring to *debt* deflation, which yes according to the chart you linked yes it is occuring.

The inflation I'm talking about is the reported CPI, or it's real shadowstats alternative which is even higher. You may see individual asset price deflation (ie. Real Estate) - absolutely, and certainly debt deflation as people claim bankruptcy (thus reducing their debts thus deflating their debt, thus resulting in debt deflation).

But broader deflation? The Fed will never allow it to happen! That was my point, 29 Trillion and still going. The arguement that the broadmarket has deflation because 29 Trillion didn't do much to increase inflation is a moot point. 29 Trillion did what it did, abruptly ended deflation after its ~3 month period in 2009, and allowed broad inflation to resume.

Scroll up a bit and look at the 2 charts I posted for Olives - No deflation! How can you argue with those charts?

I think most deflationists & inflationists agree - this grand experiment is now in uncharted waters. Too much creative stimulus without precedent, and far far too long of ZIRP policies. The Fed's exit plan is pretty much impossible. The markets are addicted to stimulus. Withdraw stimulus (by all its various forms), and absolutely you will get deflation, leading promptly to a massive depression. The Fed isn't stupid, it knows this. It is scrambling to buy time, and jawbone about Congress doing 'something' to restore jobs and growth, but it ain't gonna happen.

ZIRP + trillions of stimulus can't last forever. The stakes are getting ever larger, the stimulus is getting bigger and bigger and lasting less and less time. This will not cause them to stop though, they can't! So eventually, loss of confidence in the US markets and specifically in the US currency will occur, and that's when when we get a SHTF moment. My prediction is that it will be a massive inflationary collapse via currency depreciation. More than likely they will introduce SDRs or some variation of a new currency (likely backed by some percentage of gold to allow inter-central bank trust), and revalue the dollars against it.

To be clear, by "collapse" I don't mean the dollar goes to zero, or to infinity via hyper inflation. I just think there will be a very significant loss in buying power (30-70%) as they re-flate the dollar such as to make the massive debts insignificant. That's why I'm a believer in an inflationary collapse, not a deflationary one. The latter has already been tried in the 1930's, they wouldn't dare let that happen again... and by not letting it happen, they are causing the opposite problem.

The main problem is central planning of the economy. You can't call it a free market and let some central authority set interest rates and by proxy the value of the currency.

chris said...

^"The inflation I'm talking about is the reported CPI'^

If we are talking CPI, which is things like gas, food, utilities et al. Then I lean towards the senior analyst views below, whose job it is to forecast which way these consumer expenses are heading.
http://www.businessinsider.com/ruchir-sharma-breakout-nations-and-the-commodity-bubble-2012-4

From the article "This conviction is the main reason for the optimism about the prospects of the many countries that live off commodity exports, from Brazil to Argentina, and Australia to Canada."
What if these analysts are right about a CPI bubble bursting? For starters I caught on the news yesterday the it fell sharply last month, so maybe it's already unwinding.

Leo S said...

Just a note, I'm on vacation for 3 weeks as of Monday so won't be posting the weekly updates.

CS said...

Mindset, your analysis of the effect of outsourcing and off-shoring and low interest rates on the CPI and the impact of low interest rates on young people seeking to own a home seems correct to me.

I am doubtful, though that we will see a large increase in interest rates in the near future. We still have a way to go in adjusting to the effects of global wage arbitrage. So the negative effect on wages and employment rates will likely persist for five or ten years during which spontaneous economic growth and credit demand will be muted at best.

In fact, our economy is vulnerable to a slow down in China. Michael Pettis of Beijing University is predicting China's growth will average no more than 3% per year over the next decade. That would imply a sharp fall in demand for Canadian commodities.



correct.

CS said...

Silver Surfer:

I define deflation the same way Adam Smith and Milton Friedman did: it is always a monetary phenomenon.

On that definition, we can say that the massive debt deflation occurring in the US and other countries is evidence of a deflationary tendency, since credit is money, and outstanding credit is falling.

However, as you say, the central banks are determined not to allow deflation to occur, and so far they have been successful.

But as to the $29 trillion, all of the $16 trillion of short term credit provided to financial institutions by the US Fed have, as I pointed out above, already been repaid. This may be true of the rest, although I am unaware of what the remaining $13 trillion comprises, i.e., who lent it to whom and on what terms.

Confusion about deflation can arise, I suppose, when people including myself, talk about something such as the effect of globalization being deflationary.

What is actually meant is that globalization is causing prices of manufactured goods and tradable services to fall, a normal consequence of (monetary) contraction.

But you are correct that, despite "deflationary" forces, there is no monetary contraction due to CB intervention.

But I do not expect CB intervention to set of a burst of hyperinflation in the foreseeable future. The goal at present, I believe, is to avoid outright deflation, hence a Bank of Canada target CPI inflation rate of 2%, without setting off a round of strident wage demands.

The ultimate goal, I beleive, is to lower the standard of living so gently that we hardly notice -- or a least don't rebel.

That way, we will get to wage parity with the Third World and then some kind of revival in our manufacturing and tradable services industries will be possible.

In the meantime, real assets will tend to hold their value, as real wages fall, although housing may be an exception since it is both an asset and a consumption good, and with real wages falling so may house prices.

CS said...

Chris:

Re: RUCHIR SHARMA: The BRICs Are Running Out Of Steam

Nice article.

If is Sharma and Michael Pettis, cited above, are correct and the BRICs do run out of steam, it will be interesting to see whether central banks in western states are still able prevent deflation.

Their problem being that they are operating in an open system, where stimulus spending tends to flow offshore for the purchase cheap Chinese stuff, without doing much for the local economy.

Animal Spirit said...

For a good non-cleansed reading on what may be happening to China's economy, I refer to Patrick Chovanec's work.

Unfortunately the possible implications of a slowdown in Chinese growth could be quite troubling for BC. We export a lot to China (coal, wood, gas, copper, lead, zinc (in the future)) and have based our strategies on expanding that export. If demand slows, then prices drop and our economy would take a signficant hit. The implications could be much larger for speculative trades such as copper than for core commodities such as coal.

All this would mean decreased revenues, delayed projects, job losses,... ouch.

patriotz said...

"I define deflation the same way Adam Smith and Milton Friedman did: it is always a monetary phenomenon."

"Deflation" was not used in an economic sense until the late 19th century, the time of the Long Depression which was the first sustained deflationary period of the industrial age.

Monetary theory as we know it didn't exist at all in Adam Smith's time, the 18th century.

CS said...

"Deflation" was not used in an economic sense until the late 19th century"

Correct. And, in fact, when gold was money, deflation would have been hard to achieve without burying gold bars someplace where they'd be inaccessible to all.

But deflation is a coordinate concept with inflation and Adam Smith talked at length about currency debasement, i.e., inflation of the money supply.

From what Smith said, it is clear that he would have agreed with Friedman that inflation is always a monetary phenomenon. Likewise deflation.

CS said...

"Unfortunately the possible implications of a slowdown in Chinese growth could be quite troubling for BC."

And as Mish argues, European disaffection with globalized free trade threatens a disastrous global trade war, which would presumably have "disastrous" consequences for us as much as most other people.

LWilliams said...

Yawn, we're all screwed.

Mindset said...

I am doubtful, though that we will see a large increase in interest rates in the near future. ...the negative effect on wages and employment rates will likely persist for five or ten years during which spontaneous economic growth and credit demand will be muted at best

Care to make a comment on what effect you think this will have on Real Esatate prices to keep this relevant to this blog?

My analysis indicates government interventions as the DJ pumping the RE party after the 2007/2008 correction, pushing RE prices up, and creating a large short-term debt-based local economy (is that statistic of 26% of Canadian jobs directly tied to RE accurate?).

I read comments about a soft slow landing or a decade of flat RE prices and wonder what the logic is behind them?

10 years of flat interest, flat net worths, and flat lending will not keep things where they are today. We are where we are today because all three of these factors were moving quickly in a positive direction.

And if a quick correction of this scale can happen in beautiful world-class land-locked and economically-mighty San Francisco it can't happen here for some reason? Really? What would those be? Weather? Ocean Views? Gary Oaks? Tourism? Retirement Money? Doesn't everyone in all of those cold US States want to live or retire in Sunny California too?

Flat prices for the next 10 years also means that things will get better fast enough to offset the debt burdens, aging populations, and societal costs (e.g. Health Care, pensions) expected in the next decade, on top of everything else we are discussing.

I wish I did, but I just don't see it.

Mindset said...

Yawn, we're all screwed.

...and obviously too 'cool' to participate in the discussion.

Go back to bed.

The DP said...

Sorry but this discussion has lost all relevance to looking for a home in Victoria. Recent comments are akin to not buying in 1984 because of the threat of global nuclear war. Or postponing a purchase decision in 1994 because of worries over the spread of global social collapse.
(Remember this one? One of the most widely-cited articles of the 1990s:
http://www.theatlantic.com/magazine/archive/1994/02/the-coming-anarchy/4670/1/ )
Real estate is a local industry, affected by supply and demand.
For an individual or family to buy a home typically involves sinking most of their net worth, and a good chunk of future earnings, into one investment. This will always be a decision that has risk attached to it.
Trying to predict global industrial demand, mass migration patterns, and the actions of the world's central bankers - and link these directly to the purchase of a condo in Victoria is utterly preposterous.
If you want to buy, do your due diligence, build a cushion so that you could weather an interest rate increase or price drop, find something you can afford, and then do it. Or don't. But don't expect that an obvious entry point will ever appear, when the fundamentals look perfect, Canadians are flush with cash and world peace blankets the land.

Mindset said...

If you want to buy, do your due diligence, build a cushion so that you could weather an interest rate increase or price drop, find something you can afford, and then do it.

And for those without a cushion? First time home buyers? Retiree's that need to hold on to the cushion they have built up? People working in industries where they could be layoffs?

How much cushion are you recommending? Are there better things to buy (SFH vs Condos)? What does 'something you can afford' mean?

Can you help people by being more specific?

This blog is supposed to help people make one of the biggest purchase decisions in their lives or to analyze RE as an investment. It was started by a young family looking to start out here, and after some deep analysis and reflection, they left for one of the booming provinces, which was probably pretty smart.

Should someone with their first job buy a condo now with $25K down? Is 200K better off in an RE rental or a GIC? If my retirment nest egg is my house, what should I do?

These are not trivial questions, that deserve discussion. We end up off topic once in a while, but that's probably better than shutting the conversations down.

Just Jack said...

My opinion is that first time buyers should not be in this market, unless they have a large cushion in other more liquid investments.

My opinion, is that we will be moving from a market that is heavily leverage and credit driven to one where cash will be king. The more liquid your investments are, the better will be you opportunity to take advantage of the opportunities that will present themselves.

If you are in the residential market now, it may be a thought to downsize and convert equity to cash and then diversify.

And if you have recently retired. Then leaving Victoria for a less expensive city where property values are already into a contraction may be helpful to stretch the budget, especially if you take 6 months or a year to rent before buying in say Vernon, Kelowna, Penticton, Salmon Arm, etc.

Mindset said...

My opinion is that first time buyers should not be in this market, unless they have a large cushion in other more liquid investments.

I'm with you Jack. I feel for the young families starting out, and the retirees looking to maximize on a decade of fantastic RE gains.

There is a world of opportunity out there, unfortunately, a lot of it is not in BC these days, especially in RE.

It sure is a beautiful day though. Days like this are exactly why Victoria has so much lifestyle appeal.

happy renter said...

"My opinion is that first time buyers should not be in this market, unless they have a large cushion in other more liquid investments."

And that's exactly why I'm on the sidelines. There's no sense in maxing myself out when I don't have to and I know that in Victoria right now, I'm certainly not going to get priced out of the market any time soon. I keep a keen eye on real estate because I do want to own a house some day, but waiting for a while and building up a bigger down payment while the market does nothing but drop/stay flat makes way too much sense for me right now.

I've mentioned it before on this blog, but I watch my colleagues who have young families and who have bought houses in the last 2-3 years and they're so stressed out because they bought way more house than they can really afford. And by way more house I don't mean really fancy, nice houses, but just average Victoria houses that cost them 30%+ of their pre-tax income each month on the mortgage payments alone. Mention interest rate hikes to these people and they start to sweat. Literally. These are stressed out people who are in bad financial situations. That's really not for me.

happy renter said...

Talked to someone in Interior/Okanagan real estate the other day who guessed that prices there are down about 20-25% from the peak. Ouch.

dasmo said...

You mean the retirees should sell in Vancouver and move to Victoria...

Leo S said...

You mean the retirees should sell in Vancouver and move to Victoria...

I'm sure some will. Quieter, more relaxed place to retire. But if you want that, why not go to Qualicum Beach? Same beautiful weather, far cheaper to buy, even quieter and lots of amenities for seniors.

The fact that Sidney actually lost population in the last 5 years shows that we aren't that big of a retirement destination that we think we are. That place is perfect for retirees, and yet they still aren't coming.

Leo S said...

Or rather, they are coming but they're dying off even faster.

CS said...

@Minset:

"Care to make a comment on what effect you think this [absence of sharp rise in interest rates] will have on Real Estate prices..."

One consequence that might be expected is that the RE market will not necessarily crash as it did in 1982, when Victoria prices fell by about 40% (over four years) following an increase in the 5-year mortgage rate from 13.25% in 1980 to 18.75% in 1982.

@DP "Sorry but this discussion has lost all relevance to looking for a home in Victoria. ... Trying to predict global industrial demand, mass migration patterns, and the actions of the world's central bankers - and link these directly to the purchase of a condo in Victoria is utterly preposterous."

I think such discussion is highly relevant. For one thing it reinforces the view that the future is highly unpredictable. Knowing that gives one an awareness of the depth of water in which one is swimming when investing most of one's lifetime disposable income.

CS said...

But while saying that absent a large increase in interest rates house prices will not necessarily crash, I do not wish to suggest that prices will necessarily not crash.

If, as I have argued, wage convergence between the West and the Rest is now irreversibly underway, it means that real incomes will fall, which means that real house prices will fall also.

And if inflation remains moderate, so that nominal wages increase only slightly if at all, that means nominal house prices cannot rise sharply and are likely to decline.

Just Jack said...

Retirees coming to Victoria and those leaving Victoria are pretty much a zero sum game.

Condominium complexes that have age restrictions will appeal to retirees. But, market prices for age restricted buildings under perform those buildings that do not age discriminate.

Logic would have complexes with age restrictions receiving premium prices if there was a net increase in retirees to the city.

It ain't happening.

Mindset said...

One consequence that might be expected is that the RE market will not necessarily crash as it did in 1982, when Victoria prices fell by about 40% (over four years)

A small correction, I believe the 80's correction was a bit less than 30%.

I'm not sure about timing, that is always the difficult part. I don't think any of us saw the CMHC inteventions coming.

I do think that BC RE has some serious headwinds against it today and the govt appears no longer willing to dump fuel in the tank. If everything holds the same (even interest rates), prices are still going to come off.

RE prices were being held at a false high by momentum that is clearly not there anymore, and there are a lot of sellers out there with room to move prices down and still make out like bandits on their home sale.

Selling a house for 50K under assessed for $600K, that you bought in 2000 for $350K is still a pretty amazing gain on a 10 year investment. Especially if your mortgage the whole time was cheaper than rent.

Just Jack said...

I feel that the affects of the boom will have a sustained negative affect on those industries that benefited on the way up.

In my opinion, we have overbuilt housing and there are too many dwellings for our population. That means a lot of unemployed or under employed carpenters and mortgage brokers in the future.

The economic stimulus of building homes itself raises the price of homes. What happens when that stimulus is removed?

Marko said...

Monday, April 23, 2012 8:00am

MTD April
2012 2011

Net Unconditional Sales: 417 574
New Listings: 1,050 1,577
Active Listings: 4,307 4,561

Please Note
Left Column: stats so far this month
Right Column: stats for the entire month from last year