Monday, September 28, 2009

Bears feeling cheated??





Understandably the bears are growling.
They were on the cusp of a major drop in house prices, a veritable waterfall in the numbers and then <<<<<<< happened.


Rates were cut and banks were bailed out world-wide, including in Canada.
Forcing consumption, penalizing savers became the 'play book' that governments followed. Never mind that the poor earth is groaning under our current orgy of consumption. We have built such a worldwide ponzi scheme that any let up will cause the over-leveraged house of cards to collapse.
+++++++
Welcome to Capitalism in the 21st Century.
So 'cash-for-clunkers', zero interest rates on deposits, 'home improvement' tax-credits and other imaginative schemes were implemented. There aren't many more bunnies to be pulled out of the hat though.
So if/when RE resumes it's drop (unless we are in an inflationary spiral), there wont be much else that can be done. I doubt we will have tax-deductible mortgages in Canada, as they do in the US, the costs of this would be fiscally prohibitive.
Meanwhile Vancouver's housing bounced on a trampoline.
A quick drop, blink and you missed it, and up we went again.
Here is the graph again in case we forget how far we went up and then down:



http://www.bcestates.com/bcestates/Stats.jpg
Based on Kelpto's numbers below, September should be pretty flat. Now we will have to wait and see what October's has in store for us.


Saturday, September 26, 2009

September 2009 Projections

The Fish has invited me to post GVREB MLS monthly projections on his blog. I'll try to post weekly updates on Friday/Saturday plus an end-of-month final summary. It may take a couple tries to tune my format to suit the blog and it's audience. Feedback is welcome.

These projections are based on a linear model driven by the daily stats published by Gavin Hughes (
http://www.nvcondos.ca/). I also need to credit Canadian from RE talks for initiating these projections and Jesse for helping to fill in missing historic data.

The intent of these posts is to get an early or predictive feel for how the month's numbers may end up, and discuss the impact and ramifications to our local real estate market. Please remember, that all models are wrong, but some models can be useful.

Projection from25-Sep-2009: 17 of 21 days






Listings:5614(-9% yoy)(+24% mom)
Sales:3547(+124% yoy)(+3% mom)
Sell/List:63%(+37 pp yoy)(-13 pp mom)
MOI:3.8(-71% yoy)(+2% mom)
Actives:13,643(-35% yoy)(+5% mom)
Rate of Increase:
46 per day



Avg Price SFH:$857,048 (+8.5% yoy)(-3.7% mom)(-6.9% from peak)
Avg Price Condo:$434,517 (+7.3% yoy)(+3.0% mom)(-3.5% from peak)
5-day Average SFH:$911,863 (+6.4% from current month)
5-day Average Condo:$423,588 (-2.5% from current month)





Median Price SFH:$701,271
(+0.8% mom)
Median price Condo:$375,051
(+0.4% mom)

Month to date:




Total Listings:4545(Avg 267 per day)
Total Sales:2871(Avg 169 per day)

We're still seeing very strong sales for this time of year, but new listings are on the rise. September will have the highest monthly total of new listings this year.

It looks like we have more sellers trying to take advantage of the recent price increases and sales activity. If sales hold up this fall, we may be able to reach an awkward balance. If sales decline and listings remain high, prices may begin to recede. This fall will be a good test of the strength of the market.

Note: Missing data for September 21. (Not published by Gavin). Baseline numbers will be posted in the comments.


* Disclaimer: These projections are not produced or endorsed by the REBGV.

Wednesday, September 23, 2009

Fall is darker and more gloomy

The optimism of summer has passed, reality is sinking in. An Angus Reid poll showed Canadians more concerned about their finances and work situation than July, even though the stock market and commodities and RE have been strong in the last two months.

I think people are realising that, while we will not have an-end-of-the-world-as-we-know-it scenario, things are NOT back to normal. The economies of the world have only been prevented from falling off the cliff by the tax-payers assuming a large portion of the private sector's debt obligations.

If people are more concerned about their finances they will reign in spending and we will have another round of pressure on assets world-wide.
I don't think we have had enough of a purge to make up for the years of excess.

BTW here is Mish's thoughts on Canada's/Vancouver's RE:

http://globaleconomicanalysis.blogspot.com/2009/09/mish-mailbag-how-does-one-tell-if.html
He is saying the same things us bears have been saying for some time.
Inventory does seem to be moving up as the list/sell number drops.

Tuesday, September 22, 2009

Demographics and all that


There is a discussion on the Real Estate Forum about whether BC should continue to attract young people. Migrants from other Provinces or immigrants to keep the tax base high.

There are lots of opinions but no data.

Well here is one piece of data- median age:

http://www.bcstats.gov.bc.ca/data/InstantAtlas/demographic/atlasdemog.html

As you can see we are sitting at a pretty high median age in most parts of the Province. Some parts like South Okanagan are over 50. That means half the population is over 50 years of age!

Lots of areas are over 40, and the curves are pointing upwards. BC's over-all median is 40 and is likely to keep moving up. Even if we had a baby boom now, and the median age came crashing down, those bouncing babes wont be paying tax for two another two decades.

Take out the children and students and retired folks and that doesn't leave a lot of people left to carry the increasingly heavy tax burden. WE NEED YOUNG PEOPLE NOW.


By contrast China's Median age is 33. In India it is 25. Canada is 39. Ontario is 37.

The fight in the near future will be to how attract young people. Countries which have low birth rates and low immigration, and an elderly population who expect good benefits are near implosion.

eg Japan which has been a two decade long deflation partly due to demographics.. has a debt to GDP of...wait for it...of 197%!!

How are young Japanese going to pay this huge debt, when there are less of them and lots of older folks who will need care and support? It defies belief.

http://news.bbc.co.uk/2/hi/asia-pacific/7084749.stm
This graph demonstrates the shift that is going on quite dramatically:

http://tinyurl.com/l8j564

Friday, September 18, 2009

Money makes the world go around...




A good comment from Markoz..

MarKoz here: I had really thought that the stagnation in sales and surge in listings last year was the beginning of the end. I was wrong. I had always considered government intervention in the RE market to be somewhat random, and that ultimately market forces would bring prices down. I now believe that no provincial or federal government will let prices down as long as their members have a pulse ...... I know that nearly 70% of Canadians are homeowners. Virtually all politicians are certain to be homeowners....

He is absolutely right. The politicians will do everything they possibly can to prop up real estate. It is the big kahuna. The result of it's collapse can be seen in the US. Wide spread bankruptcies, unemployment and bank bail-outs.

It's too bad they weren't a bit more concerned on the way up, allowing banks, speculators and regulators to behave completely irresponsibly. If you allow a huge unstable tower to be built in front of your eyes, don't you think it could come crashing down one day??

What more can they do in Canada if/when the down-trend resumes?


Not a lot.

Interest rates are already rock bottom and tax-relief on mortgages or other mechanisms to support prices will just exacerbate the huge deficit. (BTW the UK just posted it's largest ever deficit). So their options are becoming very limited.

Firstly we have to get one thing straight- who are these much maligned politicians? Are they aliens bread in captivity sent to rule and ultimately destroy our planet. No. On the whole they are just like us. Apart from the odd Billionaire like Paul Martin the rest of our pols are fairly regular Joes..who like to feel important (and popular). Some have a vision, others are guided by polls.

They will tell us what we want to hear, not what we (deep down) know has to happen. This is the same the world over. The response to the financial crisis, which by the way was completely avoidable, was to loosen money even more...punish savers yet again...and reward irresponsible activities, especially by highly paid bankers.

Was there an alternative. You bet, but I am not sure anyone would like it very much. Let real estate drop.
1) Let all assets drop and find their natural support.
2) Let the big banks fail if need be.
3) Pay up on insured accounts.
4) Seize the bonuses of the bankers responsible and let the chips fall where they may

The result would have been a catharsis of default and even possibly a rapid depression. Awful, yes. But the excesses of the last twenty years of bubbling assets, deregulation, greed and materialistic orgy would have been dealt with in one fell swoop.

Governments would be there to pick up the pieces afterwards and stop people from starving -at a much lower cost. Then we would have had to rebuild a system that was not based on fractional lending or which did not allow the privatization of profits and the socialization of losses.


Were we ready for this around the world?

Not at all.

So our politicians did their damnedest to plug the hole, for now. As one economist said..."they just kicked the can down the road". The degree of debt that they are accumulating will require a huge expansion in the economy to service, if that doesn't happen there will be a de facto default which is monetization (you print the money to pay your debts).

Future generations won't be burdened by it, because it will probably come to a head in the next few years and will have to be dealt with: by slashing and cutting, or defaulting and printing money.

Sunday, September 13, 2009

Where are all these bears coming from?

As a reader once stated, Fish..'you write an obscure blog that no-body reads'. He/She was right.

It was therapy for me, a way of thinking aloud.

In any case I would have about 130 readers on a busy day and 100 on a quiet one. The same folks.


The numbers have recently been moving up. Last Friday they reached
253!

Who are these new readers? They could only be coming from 4 groups:

1) Those that own but don't want to sell
2) Those that own but want to sell
3) Those that don't own but want to buy
4) Those that don't own and don't want to buy

Groups 1 and 4 aren't going to waste their time reading a RE blog, so it is the potential buyers and sellers who have flocked here.

I wonder which group is more? I could run a poll if I thought it would be truthfully answered.
...........................................................................

Ok whither the market.

That was a VERY strong bounce from March. It caught a lot of us by surprise. It mirrored the US and Canadian stock-markets. As soon as it was apparent that the world (actually the banks of the world) would not be coming to an end, the buyers rushed out to buy, benefiting from lower mortgage rates and lower prices. For a short time the rent/buy comparison got pretty close.

The mortgage rates have inched up a tiny bit recently, the prices have firmed and so the 'great deals' are not so great. Once again the numbers support renting rather than owning.

Now we are starting to see some early signs of weakness. Two things to remember if we have moved into a bear market:

1) The bubble graph suggests that we should start seeing the drop starting soon or all bets are off.
2) The initial drop is precipitous, the subsequent one long and drawn out.

That would support what a RE-savvy friend said last night at dinner. Now retired, I asked him what to do. You missed the big drop last year when the blood was running in the streets, now you have to wait for the slow drop.

Wednesday, September 9, 2009

Buyers Gone Wild


As I said in my last comment in the previous post, folks can get too excited when they are in 'buying mode' and throw caution to the wind.

Not just foreclosures which SHOULD be bought at good discounts to asking, but often ARE NOT...but even regular purchases.

They have probably looked around a lot and finally found something that both partners (and their parents) agree is suitable, they have the pre-approved mortgage in their back pocket which will soon expire, the poor realtor has taken them to dozens of showings, friends are asking.."haven't you found anything you liked yet?", implying they are being difficult and picky.

In short, there is a lot of emotional baggage tied up in the property, and it is hard to walk away if the sellers refuse to budge on price.

That's why it is critical to decide exactly how much house you can afford and stick to it. Remember to draw up a spread-sheet and plug all possible expenses in like repairs and special assessments and higher mortgage rates in a few years.

And look around. There is no need to be panicked into buying. Remember no one HAS to buy, but many people HAVE to sell.

Yaletown and Downtown

Looks to me like the going rate is now $500 +/- /foot. Anyone paying more should have a good reason to do so. Anyone paying a lot less, is probably doing well in this market.

http://vancouver.en.craigslist.ca/van/reb/1366223183.html

http://vancouver.en.craigslist.ca/van/reb/1366551049.html

http://vancouver.en.craigslist.ca/van/reb/1366449948.html

http://vancouver.en.craigslist.ca/van/reb/1366146515.html

coal harbour:

http://vancouver.en.craigslist.ca/van/reo/1366318820.html

Here's your choice:

A one bedroom in the Fraser Valley or a 4 bed on an acre in Hawaii:

http://vancouver.en.craigslist.ca/van/reb/1366744669.html

Sunday, September 6, 2009

Time to clear something up...

I read on many bear blogs that rich outside investors from China, Hong Kong, the US, Alberta, The Middle East, South Africa, Israel etc are helping drive up real estate. (These are just some of the absentee owners in my building)

I think it is true, they are a factor. Especially in the high-end and down-town market.

However before we get too self-righteous about it, we have to remember that one of the reasons we get to live such a high standard of living is due to the constant infusion of outside money.

What do we produce in this Province that has monetary value:

Some of our fruit and vegetables and meat.
Natural gas and hydro power
Wine
Natural resources- coal, metals, wood, some oil
Films
Gaming Software
Gold and silver

The price of many of the above have plummeted in value.

Meanwhile we have a lot of things to pay for...cars, trips to Mexico, TV's, fridges, medicines, huge medical costs for the greying population, doctors fees, huge costs for the permanently-on-welfare and drug-damaged populations. We also have to pay for a Province the size of a huge European country, where everyone expects clean water, electricity, a school nearby and to be flown down for free, for emergency treatment, by helicopter even if they live in the farthest flung corner or an inaccessible Island.

Then there is the Olympics...

How can we possibly afford all this?

We can't.

We have been kept solvent due to the constant influx of outside money. From tourists, unfortunately from drugs (with all the mayhem that brings) and outside investors. They maybe Taiwanese 'helicopter' families living on the Westside sending kids to Private Schools, they maybe Korean or Middle Eastern investors on the North Shore, Germans buying ranches in the interior or South Americans parking money in our banks.

What they all have in common is the dollars they bring with them. Millions of them to buy their properties, pay for the up-keep and enjoy our Province. Their money moves around, gets taxed, gets deposited in our banks, gets lent out, gets spent again and makes jobs etc etc.

So while us bears may complain about these folks competing with locals for properties, the truth is, without the constant infusion of outside money we could not sustain our life-style. A lot of us bears would probably lose our jobs and the medical and social system would not be sustainable.

Even now our Province is in a serious financial mess. Somehow the Liberals believed that despite the financial catastrophe down south and in Europe we would only have modest deficits, or that is what they told us before they were re-elected. Well that myth has been blown out of the water. Major cuts are coming.

If the money stops flowing from outside, you can expect those cuts to be a LOT deeper.

JIMVHO

Thursday, September 3, 2009

The BUBBLE Graph and Economic Psychology

Jason asked about the bubble graph:



That bubble life cycle graph.....I very much want to believe in it. Does anyone know how the dude who came up with it came up with it? Is there any scientific explanation of why a bubble would behave that way? It seems to make sense, but so far I've held off my wife from wanting to buy in this bubble using numbers, data, and facts. It's getting tougher the longer this drags on, and I'd love to show her that bubble lifecycle chart and say "Look! We're right at the precipice! Don't give up now, Dr. So-and-so proved that humans are sheeple and act in this way because of X Y and Z!"



The graph is well-known to demonstrate bubble psychology. The version I use (http://tinyurl.com/ntvgvj) which is widely duplicated on the net, was drawn up by the Professor of Economics and Geography at Hofstra University, Jean-Paul Rodriguez. I cant find his original article on the net anymore, but it was dated 2006.



The reason it works so well, is that there are so many who didn't get in on the bubble run-up and jump in when the price first breaks. They are the last buyers and the next drop has no more buyers to prop it up and we drop longer and deeper. The steepness of the drop can be sudden or slow and steady.



It seems to describe psychological behaviour of bubbles very well.



It has played out almost perfectly in the US. I have included a chart and some links to go over:





Source: Seattlebubble.com





The notches at the top can be slightly different in different bubbles. Here is the chart for California:



http://www.doctorhousingbubble.com/wp-content/uploads/2008/04/ca-median-price.jpg



But when it finally drops- it drops:



http://www.doctorhousingbubble.com/wp-content/uploads/2009/01/socal-housing-prices.png




It is not just RE - all bubble assets TEND to follow the graph. look at gold in the late 1970's. It peaked, dipped ran right back up and then crashed good and hard.



http://www.usagold.com/reference/prices/gold-price-history.gif



A quick look at the NASDAQ chart from 1997-2002 will show a similar pattern.



The shape of the graph gets skewed by desperate efforts of governments to keep the asset at bubble levels, and stop it falling. They do this even at the expense of future generations of savers and tax-payers, and just exacerbate the situation.




It would be better to allow a collapse and then pick up the pieces, rather than the slow bleed that eventually ends at the same place. The Trillions that the US has spent on trying to prop up housing has just slowed the process but the end-point is the same. Income and housing have to come back into balance.



Will we follow the graph?? Who knows, just because the US did doesn't mean we will too. Maybe we are not in a bubble!



Maybe the resilience of our prices is an indication that we were very undervalued in the past (which as I stated before we probably were) and are now reaching fair market value on a global/resource availability scale. Heck, maybe we are the new Monaco of the North?



I personally think that we have over-shot to way over-valued, but that it is just my opinion, which was vindicated for 6 months late last year and early 2009 but which reversed after that. I am waiting to see where we go from here.






Tuesday, September 1, 2009

As Summer fades the time has come to re-evaluate the bear case


The last twelve months have been very interesting. This time last year the financial crisis was galloping along and taking with it the highly speculative Vancouver Housing market.

We hit a no bid situation as everyone hoarded money, wondering which banks and even countries (eg Iceland) would be closing down. MOI hit twenty months, the stock markets lost 50% in half a year and it looked as if the bears' most dire predictions were coming true and we would all be carried off the cliff.

However the central banks and governments of the world, having done NOTHING to stop the speculative bubble, acted en masse using Trillions of our money, and promising obligations to future generations not yet born, to stem the bleeding.

The result was an abrupt turn around in the Vancouver market.


We really hadn't seen much of a recession in BC early in 2009. The Liberals were still talking about small and manageable deficits, there were lots of large Olympic and non-Olympic related building projects and suddenly we had the lowest mortgage rates in the last 40 years, lower gas and heating bills and Federal tax incentives.

The result was that the fire was reignited. SFH are within spitting distance of the previous highs.

Here is Larry's up-dated price chart:

http://www.yattermatters.com/real-estate/vancouver-real-estate-august-average/

Now it gets interesting. There are a few things worth noting:

1) The Provincial fiscal situation is not good. We are headed for a $2.8 Billion deficit and that assumes the worst is over, which I personally doubt. Cuts ahead, I expect the Federales who are $50 Billion in the hole to follow suit too and start cutting.

2) Unemployment will continue to rise and will do so even if we have the anemic recovery that would be my best case scenario.

3) The big projects are done...Canada Line, Golden Ears, Whistler Highway..where will these folks get hired now?


AND...

The boom that we have seen over the last 6 months or so has been pretty selective. the bubble was everywhere...Vancouver, Fraser Valley, Vancouver Island and the Okanagan and in all types of housing.

The bounce has been mostly in Vancouver and Victoria SFH. One look at Larry's chart will show that. In fact while SFH prices are up an astounding 10% YOY, condos and Town-homes are down 1% YOY.

Similarly the housing situation outside of Vancouver has been much more subdued. Many place are still falling (even beautiful cities, if they are resource based) others just stopped dropping and stabilized but are vulnerable to a dip.

The current graph of house prices is completely compatible with the bursting bubble graph :

http://2.bp.blogspot.com/_mJmwQtPmusk/R8qBvunTR1I/AAAAAAAABik/1xij0kBSJ30/s400/bubble-lifecycle.gif

However if prices keep going up, despite a worsening economic environment and a bubble graph which is calling for an imminent drop, then we will have to rethink the basis on which we have made our assumptions..ie we were wrong!