Are we being duped?

The first time the Department of Finance decided to put up $25B to buy asset backed debt, I was skeptical, but did some balanced reading and decided that hey, if they're already guaranteeing mortgages through CMHC, and they hold some risk, perhaps owning those same insurance backed assets and collecting some interest payments may actually work to help out the taxpayer, if not the banks that make up a large proportion of retirement income for many Canadians.

But then I read this. Now, I do recognize the source, but considering this is a conservative writer taking a conservative finance department to task over what could be viewed as non-conservative financial dealings, I'm left scratching my head. Take this key piece of information for example:

"In a piece in yesterday’s National Post, TD Securities economist Eric Lascelles noted that there are no signs that credit has been withdrawn in Canada or the U.S. — in fact, mortgage lending has grown at 7.7% this year and personal loans are up 15.3% in this country."

That really is mindboggling. Mortgage lending grew. Personal loans are up 15.3%. And yet banks are telling Ottawa they have no cash to lend: to business. "We have to get some of these debts off our books if you want us to lend to businesses who need money," say the banks. "After all it's your government's capitalization policies that prevent us from just throwing money at them." Or at least that's what they want us to believe.

So businesses are seen as risky lending ventures right now, but lending to the people who depend on them for their income, not so much. Disconnect? Me thinks there may be.

But what is the government to do when every other capitalist nation is spending like a drunken sailor from Havanna with a no-limit credit card? Acknowledgingly, I don't have too much exposed in this game right now. But in Canada, it really doesn't matter if I have cash in the markets, or cash in my mattress, because the DoF has the ability to grab whatever it needs of whatever I do have, whenever it needs to. So I care. And I think you should to.

I'm all for universal healthcare. I'm all for universal education. But I'm not for corporate welfare for businesses that sell products that people neither want nor can afford. Nor am I for businesses holding the taxpayer hostage crying foul because their cousins in the south and east have been given the tax-slavery proceeds of a nation wrapt in fear of losing their jobs and homes.

I don't want to see people lose their homes or jobs, which is exactly why I say to my government that today is the day that will deliver the least amount of pain. Throwing more money at the same problem doesn't solve it, it delays it and makes it worse. Why should the whole street have to pay for the bad purchasing choices of a few houses? Let those houses fall, and let smart, sensible, competent houses replace them.

For all of us, I hope I am wrong and the policy wonks at the DoF are right.

As an aside, for those of you reading this who want to attack the current government because of their ideology-driven policies, I feel it necessary to remind you that policies like what we have seen today are not dreamt up in some cabinet meeting by politicians, but emerge from the inner workings of departmental policy analysts and financial professionals--they present the government with choices, and you'd be amazed at how much influence the technocrats have with government in Canada, especially with the inexperienced ones.

More good thoughts, IMHO here.

VREB release: you provide the analysis

The number of property sales throughout Greater Victoria declined in October while prices remained stable.

A total of 316 homes and other properties sold in October through the Victoria Real Estate Board’s Multiple Listing Service® (MLS®) down from the 512 sales in September. There were 708 sales in October of last year. The number of properties available for sale at the end of October was 4,680. That represents a 41 per cent increase compared to October of last year but a slight decline from the 4,754 properties available for sale at the end of September.

Victoria Real Estate Board President, Tony Joe, says despite the decline in the number of sales, it is important to keep the market activity in context. "The last six years have seen extraordinary growth. Last year in particular was truly exceptional both in terms of sales and prices so comparisons must be made with care. A more realistic comparison would be with 1998 -- a year in which sales and inventory levels were comparable to today and a time when the market was considered to be strong and stable." Joe noted there has been a total of 6,012 sales in the first ten months of this year compared to 4,571 in the corresponding period in 1998. There were 4,057 active listings at the end of October, 1998.

The average price of single family homes in Greater Victoria last month was $565,741, up from $549,284 in September; the six-month average was $574,848 though the median price in October was considerably lower at $495,000. There were seven single family homes that sold for over $1 million in October, including two in Oak Bay, one of which sold for between $2 million and $3 million.

The average price of all townhomes sold last month was $389,731, down from $405,287 in September; the six month average was $425,866. The median price in October was $369,500. The overall average price for condominiums at $323,028 last month was up from $319,562 in September. The average for the last six months was $316,644. The median price for condominiums in October was $280,000.

MLS® sales last month included 184 single family homes, 76 condominiums, 26 townhomes and eight manufactured homes.

H/T to Billy Corgan at VV for the link.

Steady hand on the tiller

With all the doom and gloom these days, what's a bear to do? Besides strap on the crash helmut (sorry can't leave that poor guy alone).

As much as I hate using the old washed up political cliche, I can't think of a more appropriate way to summarize what the HHV households are up to: steady as she goes.

Here's my top five must do and do not things in an economic environment like that which we find ourselves in today:

1. Pay down debt. Let's be honest. Investments are not performing. GICs are not performing and interest rates on pretty much any debt eat the difference from anything remotely "safe" that you and I have access to. So the best thing to do is get rid of any and all debt. If you're out of debt, save up a minimum of 3 months worth of expenses, 6 months is ideal. Take confidence in knowing you can weather whatever waves get thrown your way in this storm.
   
2. Don't spend any money on unnecessary things. That new Wii so you can play Rockband? Actually, you may want to get that, it could potentially keep you entertained for many a night with the whole family and prevent you from spending other money on unnecessary things. So, Rockband and Wii, cool. New big screen TV to watch yourself rock out, not cool right now. Patience, it will only get cheaper.
   
3. Take advantage of every opportunity to learn something new. Instead of spending money going out, read all this great stuff we get for "free" online. We are looking at an unprecedented economic learning opportunity. Drink it in. Disect it. Discuss it. Learn from it. Learn how to make money from it. Learn how to see it coming in the future and protect yourself.
   
4. Don't quit your job. I nearly did. I was set to start my own business 2 months ago. I'm delaying that for the near future. Job security is paramount in these times. Remember the pecking order in the downtimes: consultants go first, newly hired next, retirees are offered "early retirement" incentives, and then people plain old lose their jobs. Do everything in your power to be the best employee, contractor/consultant or whatever you are.
   
5. Do not make a major purchase. Cars are about to get really cheap. Hyundai is already offering "don't pay till 2010" incentives. But most importantly, no matter how bad your current rental is, do not fall for the "same price as rent" and "time in the market is better than timing the market" advertising going on right now. Need to be convinced your safe not buying? Check out the chart from Roger below. It uses an assumed 5% loss YOY for the next two years. And unless things change, we'll be into double digit negative YOY declines next spring already.
   

The key number that convinced me here was in the Total Interest row. Saving $44K in interest payments alone using such a conservative correction as a baseline is worth it to me. The savings only get better when you consider the next jump up:

When I see work like this, I realize why I kept blogging everytime I felt fatigued. Thank you Roger, your contributions to my real estate education have been immense.

Grab yer Helmut, crash ahead

March 17, 2008:

B.C.’s unprecedented housing market expansion will continue into 2009, as economic fundamentals and market conditions remain conducive to high sales volumes and rising prices

October 23, 2008:

Housing prices will continue falling from their March 2008 high into next year, bringing the provincial median sales price down 13 per cent to $310,000 in 2009 and by a further five per cent in 2010.

Oh Helmut, it is hard being a dismal scientist. I wonder when the Sun plans to revise this piece for accuracy.

26 years ago

Consumer confidence was at the same level as it is today.

Interest rates were at 15%.

House prices dropped 18% YOY.

In 2008, if the trend continues, single family house prices may drop up to 18% from April 2008 average prices. Yep, the more things change, the more they stay the same.

Of course we're insulated on our island

Remember, we are nothing like the lower mainland here in Victoria.

Three all-too-common viewpoints, me thinks:

1. The “Phew, got out just in time” seller:

"We looked at it as a shame we hadn't been selling a year ago," Dinsdale said, "but we're happy we were selling now as opposed to six months from now."

2. The “We can’t believe how fast the tide did turn” sellers:

"It was amazing how fast everything around us came down," he added."Even swimming downstream is tough."

3. The “We’re trying to convince ourselves it was a good decision but still really scared it wasn’t” buyers:

"I think if I might have waited, I might have got a better deal," Ray Keyland said, referring to the three-bedroom, 1,779-square foot house they picked up for $399,000.However, Keyland added that he also worried they might run into higher interest rates. Now that they're in the house, "we're in it for the long haul."

For them, I hope that one per cent hike in interest rates isn’t the difference between “long haul” and “Oh, sh$t.”

Two thoughts

One from someone with no financial interest in the market:

It appears that Canada has been caught up with home buying fever just as the United States and other countries around the world, said Shiller, co-founder of the S&P Case/Shiller Home Price Index.

Asked whether that meant Canada could face a similar bust, he said: "Yes, especially in places that went up a lot like Vancouver and Calgary..."

And another with an invested interest in keeping up the "morale":

Tony Joe, Victoria Real Estate Board president, responded by saying that there are pockets in the U.S. where the housing market is healthy.

If there is a bust in Canada, "There's going to be insulated places in the country and with all the attributes that Victoria has, of all the places in the country, we are probably best-insulated," Joe said yesterday.

Tony's right. There will be insulated places, just like in the US. These places didn't rise too far, too fast and create the conditions for a bubble in the first place. I'm thinking places like Charlottetown and Shediak fit. Does this sound like Victoria to you? Read more at the TC.