Premature declarations

In probably the most famous premature declaration in modern history, W declared mission accompished in Iraq long before the war even began.

Today, Carney declared the recession is over before it even hit bottom. Of course, that's CanWest's headline. Over at Real Financial News Central (Bloomberg) the headline is a wee bit different: "Bank of Canada says Recovery Muted by Strong Dollar"

The definition of recession is two consecutive quarters (or 6 months) of negative growth. Apparently the definition of "recession over" is the prediction of one quarter of positive growth.

I'm advocating a level playing field. At HHV, you will not hear "recession is over" until we have 6 months of positive economic growth. I'll keep calling it like it is, not like you tell me to see it. Take that W, er, Carney.

Carney says: "HHV, if you don't accept my definition of 'recession is over,' I will squish your little head!"

Chek 6 bubble burst

I'm only writing this post because I want to be part of the Google search bonanza AND THAT SHOULD BE THE FIRST CLUE IN AND OF ITSELF!

If you believe that local news is the right of a tax-paying Canadian citizen, sign up here, and get ready to be disappointed, as you already have a dysfunctional news drain on your tax-paying pocket working overtime to save jobs with no tangible results for anyone involved except the taxpayer who pays more for less to support a corporation who made $80M last year on revenues of $1.6B. Now granted, the CBC isn't really meant to make money per se, but one shouldn't be faulted for thinking "rainy day fund" around here should one?

CanWest spent themselves into the graveyard by buying up a whole bunch of poorly performing media assets in a time of declining revenues using cheap debt to do it. You and I and every other taxpayer has already bailed them out to the tune of hundreds of millions of loonies. Do you really want to continue to chase bad money with good?

I liken this analogy as a perfect metaphor for exactly what has occurred in the housing market: cheap credit has fueled a buying frenzy of poorly performing assets. Should the taxpayer have to bail out these fools who spent more than they should have ever been given access to?

This wasn't the first failed media story in Victoria. Nor will it be the last. It's sad, depending on your viewpoint, but it's a harsh lesson in the new media world that old media better hurry up and learn.

Now, when will new home buyers be taught their own harsh lesson in foolish economic practices?

Spinning wheel of death

If you use a Mac, you'll understand this post's title. When that little spinning wheel of death appears and just spins and spins, you end up having to shut down your system to make it end. Who would have thought it such an apt metaphor for the MSM and real estate reporting?

CanWest stock closed today at a measly dime. That's down 99.4% since its 2005 peak of $15/share, and almost not worth calculating its drop from its 10 year high of $21.35. There's all kinds of theories out there that suggest advertising revenues are down because the Internet is eating into earnings, and so on. I call bullsh&t. Ad revenue is down because no one wants to pay for the crap passed off as news these days. If I can get the press release faster directly from the VREB online (and for the record I do, and I beat the TC to publishing it consistently because I don't have editors who need to "sign off" on my ability to regurgitate it) why the hell would I pay the TC to get it for me if all they are going to do is repeat its content word for word?

Here's my theory:

Media laid off a lot of quality writers in favour of a lean and mean content generating machine and dropped any semblance of quality investigative journalism because it cost too much. Many good writers opted to join PR firms or start their own and sell their insider knowledge of media and how to generate stories. And then the quality of writing and editorial ability degenerated into what we've witnessed over the past week: 3 separate regurgitation's of real estate "news," each of them barely newsworthy to provide 3 days worth of crappy "everyone is buying now, the recession is over, you're an idiot for not buying last year, boy you should feel stupid for not taking advantage of lower prices and interest rates sooner" spin. No balance, no news, no investigation into the credibility of the sources, no quotes from arms length economists, no nothing, just republished press releases.

The VREB has a director of communications, heck, they even have a communications task force who meet monthly (if not more frequently) to craft ways to influence the consumer to consume their products and services. The VREB is a member organization of the BCREA which in turn has more communications officers and likely a provincial communications task force who meet together solely for the purpose of crafting strategies to influence consumers to consume their products and services. The BCREA is a member organization of the CREA who has even more communications staff and likely a national communications task force who get together to craft, you named it, strategies to influence consumers to consume their products and services.

And the MSM publishes their press releases on a weekly basis, verbatim, as news without any fact checking, without any investigative journalism, without any arms length expert opinion and without any consistency of balance. Why no stories of how the real estate industry works to influence the consumer to consume services and products? Is that not news? Should the consumer not be made aware of the systems and coordinated efforts, not to mention the amount of money spent, to influence them with numbers and statistics which no one can quality control nor idependently verify? Why no stories about what an average sales price truly is, and what it truly reflects?

I'm no cheerleader of doom, but the sooner the market presses the off button on this spinning wheel of death that is the "reporting" of real estate market "news" and ends it, the better.

There are no winners in this situation, just a bunch of losers, and I fear the whole sh&tshow can be traced right back to the consumers who just buy anyway--well, at least they used to buy the news when it was news, now, not even the advertisers are willing to pay for the paper.

I've given credit where credit is due in the past, but not this week. CanWest, TorStar, G&M (even though you're private) and CBC (even though you cost me money), you deserve to get hammered by the market. Someone please, end the spinning wheel of death, and soon.

June stats

The sales continue. Here's the unofficial stats, press release is out:

New Sales: 946
New listings: 1436
Total active listings at June 30th: 3794
Sales to new listings ratio: 66%
Sales to active listings ratio: 25% or 4 months of inventory.

H/T to Tim Ayres on Twitter for the numbers.

Last month's numbers:

New sales: 879
New listings: 1362
Total active listings: 3789

Sales up, new listings up, total listings up. Clearly Victoria is in an overall SELLER'S market being driven by the low-end and move-up buyers.

The average price for single family homes sold in Greater Victoria last month was $588,186, up from $573,442 in May. The median price also rose to $529,900. The six-month average was $559,827. The overall average price for condominiums was $298,200 month, down slightly from $306,971 in May. The average for the last six months was $294,725. The median price for condominiums in June was $275,000. The average price of all townhomes sold last month was $413,218, up from $400,788 in May. The median price remained unchanged at $375,000. The six month average was $401,829.

Prices aren't going up, 26 properties over $1 Million drove the average higher. Consumers keep preferring SFH's over condos and townhouses:

MLS® sales last month included 539 single family homes, 242 condominiums, 104 townhomes and 18 manufactured homes.

Credit where credit is due

I've taken a lot of swipes at the MSM and the real estate industry for their perceived lack of balance over the years. Today I'm not. I'm praising them for this article instead. Here are the highlights:

Caution, not immediate gratification, should be the mantra for buyers looking to buy their first home

It's easy, but financially dangerous to be mortgaged to the hilt based on today's ultra-low teaser interest rates

Mortgage rates are going to increase by two to three per cent over the next two to four years

First-time buyers should be thinking more long term, arranging their financing based on expected rises in mortgage rates that will be a reality in two years

buyers should not expect their real estate investment to make a fast or big payoff when it comes to sell

Younger buyers should be paying attention to the financial restraint of older buyers

Sound advice if you don't want to eat macaroni most of the time while sitting at your granite kitchen island

Credit where credit is due, indeed.

Truth in numbers

Seems there may be a bit of a communications battle being waged between Teranet and the CREA these days.

You'll remember that CREA recently told us that the average home price jumped over 16% in the last month.

Teranet says:

Repeat sale prices for Canadian homes fell for a fifth straight month in April, dropping 6.7 percent from the same month a year earlier, a report on Wednesday showed.

The National Post had an OK discussion of methodology and what that might mean to the numbers:

With the economy in recession and unemployment increasing, Millan Mulraine, an economics strategist at TD Securities, said it was hard to justify a rise in house prices, as suggested by the CREA survey. But he was not convinced prices had fallen as sharply as the Teranet-National Bank survey had found.

Here's what I think: the numbers really don't matter. If you're a first time buyer, you're buying products in Victoria that are clearly in a sellers market, haven't experienced any kind of price correction at all and you can likely only afford them because of hyper-low interest rates. You may think you're getting a deal, but that's only because you're looking at it based on a monthly payment. I wonder how that will end up looking for you in five years time?

Long term planning

Post by Reid:

Let’s look at the long term financial security of two families both aged age 30 that live in Victoria, earn $100k per year and wish to buy a $500k house. The Optimistic family has $25,000 in their RRSP’s and plan to withdraw this to buy that home and finance the rest over 35 years. They have been told this is a sound financial decision as interest costs and property taxes are less than the rent they are currently paying. They will have to pay back the $25,000 over the next 15 years into their RRSP, so they are told they are not robbing their retirement. This family would like to put money into their RRSP, but each year they simply have nothing left to invest given the high cost of living. This family manages to make all their mortgage payments and in 35 years they are mortgage free just as they retire.

The Balanced family is in the exact same situation, but has done a lot of research on financial planning and has decided they will save their $25,000 deposit while leaving their RRSP account alone. They save hard over the next year and learn how to live below their means. With this new found skill they decide they will pay off their house over the traditional 25 year period while maximizing their 18% RRSP contributions each and every year. Once their mortgage is paid off the Balanced family plans to invest their mortgage payment into the TSFA until they retire at age 65.

These families go about their lives and meet all their payments under the following economic circumstances for both:

• Inflation stays low at 1% allowing five year mortgages to stay a 4.25% throughout the next 35 years
• Their houses manage to appreciate at an average rate of 3% per year, a full 2% more than inflation
• RRSP and TSFA investment return on average 6.5% per annum
  

As these families retire, they are both feeling good about their house purchase decision. The Optimistic family never used their house as an ATM machine and managed to get it paid off before they retired unlike many of their friends who took a mortgage into retirement. The Balanced family made a lot of sacrifices over the year, but they feel really good about their retirement.

The chart below shows how the net worth of these two families increased over the 35 year period. Net worth is defines as the value of their house less outstanding mortgage plus the value of their RRSP and TSFA’s.


At the end of 35 years, both families own houses outright that are worth $1.4 million making their investments in those homes 35 years earlier look pretty good. But the big difference is that the Balanced family has investments worth over $3 million and the Optimistic family only has about $150,000 saved in their RRSP’s. The only way the Optimistic family can finance their retirement is to sell their house or take out a reverse mortgage.

You may say that this example is extreme, but if you research how much average families actually invest in their RRSP’s, the Optimistic family is like many typical Canadian families and most will have to sell their homes to support retirement. A key message here is that you have to save a lot more money for retirement than one thinks and it needs to far exceed the value of your home. Although three million dollars may seem like a lot of money it is actually about what a 30 year family will need in 35 years to properly support themselves under the above economic assumptions.

Proper financial planning will not stop you from buying an overpriced house, but only make you realize that you must factor in proper retirement and other financial matters into the overall buying decision. For most it takes many decades to generate real wealth, but it can be achieved.