It’s Friday August 10th and this is your open topic discussion for the weekend: Some stuff I’ve noticed this week:
– Markets tumble in Asia
– Wage pressures raise inflation fears
– A Widening Credit Squeeze?
– Bank of Canada moves to calm money markets
– Vancouver housing market still hot.
What do you see? Post your thoughts and links here.
Then you'll be rockin' all the way to the sad house if your cash flow aren't able to fully cover your mortgage>>>A mortgage where the principal is higher than the market value. Then the wise will say, "See, I told you so". Remember, GREED and FEAR … drives prices! Not the rational and prudent!
SATV … then I would hope that your property is fully positive cash flow even in downtown times ‘coz when the market starts going down, there’s going to be plenty of supply. That would put a real downward pressure on rental rates.
If you’ve got a mortgage and your investment property is not positive cash flow and on top of that, your job is fully tied to the market … you better hope that you don’t lose your job. Otherwise, it’s default time!
Regardless of whether the house is a “real” asset, key is whether you can hold on to it.
So…will the Olympics shore up demand … hehehe …Oh, I think our water, mountains, Whistler will definitely keep the money flowing in … NOT! 8/14/07 8:57 AM water,mountains,and whistler does not shake the market every week.for first time buyers real estate is best secure item to purchase because if market crash you still hold your unit to reside,otherside does not pay you shelter after crash.and that side does not depend on w.m.w. I have heard that depend on china.fresh apple will encourage you to buy that, rotten will divert you to walk away.when investing is mandatory in mental state,every body like to swim.we keep it rockinwe keep it rockinwe keep it rockin……countinue.
Interestingly, Wal-Mart is saying its US troubles are spreading to Canada and Mexico. The question is, how much of this has to do with Wal-Mart stumbling in the market and how much with the consumer spending slowdown. If that's spreading to Canada then things may begin to change rather quickly.
van-realestate-crash … Does anyone either than mortgage peddlers (bank economists) and real estate foolish bulls actually believe the Fed can fix the problem?The Central Banks abused monetary policy to the point they no longer have control.It's funny bordering on lunacy, but "experts" and analysts continue to feel that mathematical models and computer algorithms can predict human psychology. This "credit squeeze" problem was exactly that. Spreading the risk across many financiers globally was supposed to contain any fallout, but they underestimated the conservativeness of financial institutions in granting credit in light of risk and market turmoil, and they underestimated market participants fear.Again, it's a question of WHEN before the crunch hits the streets of vancouver and evaporates demand.So…will the Olympics shore up demand … hehehe …Oh, I think our water, mountains, Whistler will definitely keep the money flowing in … NOT!
I am in disbelief. Does anyone either than mortgage peddlers (bank economists) and real estate foolish bulls actually believe the Fed can fix the problem?The Central Banks abused monetary policy to the point they no longer have control.While the Fed was pushing short rates up, the long yield kept on heading down. What makes anyone think that if the Central Bankers, with a few hundred million dollars from tax payers, can fix a multi trillion dollar problem?The smart money has left the building.
"When will the market turn?" is the unanswerable question in bubbles. When did the NASDAQ top out in 2000? When did Nortel top out (it wasn't the same time)?Here's a really easy question to answer: "When is RE indisputably overpriced?". Answer: when it yields less than fixed income.All other assets must yield more than fixed income, long term. (I mean capital assets that have a yield, not gold or collectibles). If they don't, supply will simply overwhelm demand.
When will all this hit the Vancouver home prices? There are way to many random variables to even begin to make such predictions. We know it is coming, and that the more time goes by, the closer it is.It would be nice to know exactly when, but overall it is more important to know the magnitude of future direction than the exact timing of the inflection point.
When is still the question. When will all this hit the Vancouver home prices? I thought the market would dip at the beginning of this year, but it didn't, there was no trigger to change the direction of the market. Right now I think we're seeing only small triggers today, after billions of adjustable rate mortgages reset throughout this year and the first half of next year is when the market will take huge hits. Even if there aren't huge numbers of foreclosures which there could be, people are going to be tightening up on their spending which should be enough to bring on a recession. Imagine you could barely afford your 4% ARM before and now its coming due and your mortgage rate resets to 7% and I think alot of people will be paying quite a bit more… Read more »
#4 foreign equity locusts are now a footnote in history…..
Other risks associated with subprime:1. The tighter standards will cause foreclosures which will drop prices and so on. The falling prices will reverse the wealth effect and could hurt the U.S. economy, which will hurt Canada and China's economies. IMHO China is in a bubble of its own, and looking for a trigger.2. China's bubble status is so precarious that financial instability alone can cause a sudden stock market collapse. This could happen tomorrow, next year or never.3. The negative press related to subprime COULD provide sufficent negative sentiment that the Vancouver housing market turns the corner an dthe exodus begins.
How would a credit squeeze likely affect things here.Mortgage rates have two components, the riskfree bond rates and the spread. The MBS bruhaha concerns the latter. From what I gather, the secondary market has become illiquid, which means that the mortgage originators cannot sell off their risk and will think twice about who they give a mortgage.The fed may or may not lower short term rates. They are between a rock and a hard place, as there are inflationary pressures as well. Also, not that long term rates may rise even when Fed lowers.As for Vancouver, as I have suggested, I don't think Vancouver lenders are compensated for their risk, even with 25% down. If lenders start to voluntarily excercise caution, appreciation is finito.
Scoop: If you have a tooth ache, you can take painkillers for a while, possibly long enough to get addicted, but eventually, the tooth has to be fixed or pulled.They can’t hide inflation for ever; eventually we would become the Argentina of the North.
Can someone help me connect the dots from what's going on in the financial markets back to Vancouver real estate?How would a credit squeeze likely affect things here. Actually my concern is that that as the market deteriorates, central banks will make the decision to keep rates low and let inflation go in an attempt get out of this mess with relatively little pain. If that happens then as a renter/saver, I lose out. If that is a likely scenario, wouldn't I be better off going and getting a big fat mortgage now?
Just a heads up, NAR releases q2 data on Wednesday. I still expect medians to be up as result in the change in the sales mix, but one never knows. The q3 will definitely be interesting. Once the sales mix returns to normal, the medians will drop double digits in a flash in the more speculative markets.
Good article indicating the potential spill over of credit squeeze. Banks involved include BMO, CIBC World Mkts, TD Securities, Metcalf & Mansfiled and National Bank. And they say Canada is largely immune!Breaking News (Globe and mail):Credit crunch hits Canadian firm Canadian PressMonday, August 13, 2007 TORONTO — Canada's Coventree Inc. became another victim of the U.S. subprime mortgage crisis on Monday when the specialized financial services company reported that it has been unable to fund the repayment of $250-million in notes that were to mature Monday.Coventree, which did its initial public offering late last year, saw its shares fall by $4.48 or 34.5 per cent to close Monday at $8.50 on the Toronto Stock Exchange after a trading halt on the shares was lifted. The stock had been issued in November at $10.75 for total proceeds of about $41-million..Continue Reading… Read more »
Great article Tony. And don't forget this crashed happened right before the "real" olympics in LA – Summer of 1984.
great link tony danza, i havent seen that before.The more things change the more they stay the same.
Tony Danza … thank you so much for posting the article. The arguments for the continued push upwards of GVRD housing prices seems so eerily similar it's scaryFundamental reasons for the upwards move seems similar in every cycle when the real reason is psychological in nature. Once that clicks in one's head, they'll understand the game!The article is precious!
Interesting article about the subprime. Guess who else has been lending money to the Americans fueling the overexcited RE market. Like I said before, wherever there is a trending market, in the absence of capital control regulations, foreign money will come. Vancouver's (the rest of the country as well) RE market is no exception. Remember, most of the world has had cheap liquidity for a long time. Japan's carry trade is one where cheap money is borrowed for global investing. If other banking systems are taken down by the US subprime mortgage blowout where the peak of rate resets hence defaults is projected to come at the end of this year, the stock market is right to project big problems with the financial sector. One can expect this drying up our Vancouver's foreign speculator's cash as a way to crash… Read more »
Our markets (RE, stock, economy) has been on a tear for some years. This "subprime" indigestion/cancer, born out of cheap liquidity and made clear by tightening liquidity, seems to be the straw that will spark the end of the party and mark the start of the downward carnage … well party for me!Anyone care to speculate which is the next hammer to fall?As always, the reward goes to those that are patient and prudent … NOT to the greedy and foolhardy who views risk as merely something that the experienced throw in to ruin the fun.The market is projecting more problems to come. Even with the large injection of liquidity and great news from CIBC, financials opened high on the day with a close lower than what has occured for some time.Leverage is a 2 edged sword >>> in an… Read more »
This article has probably been posted before but I couldn't resist:Ben Stein's 1984 warning
satv: RE always goes down… they aren't making mortgages anymore…… i'm willing to bet this will put a kink in your plans for world domination….
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Michael,In Victoria, prime locations,I am seeing many homes over $600,00 selling $10,000 under asking. Homes over a million are coming down at least $50,000 and homes in the 1.7 range at least $200k under asking. I am linked up to the Private client services.The Peg. Everyone makes fun of the Peg. You are all mean. Just kidding. Anyway, I am just sick. My cousins 24 year old daughter has just over-paid for a 2 bedroom house with her boyfriend. She is employed for the summer with the government and used her 3 pay cheque stubs for the mortgage. She won't have a job after September. Ex Winnipeger