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Friday free-for-all!

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.

RSS 2.0 comments feed. Both comments and pings are currently closed.

65 Responses to “Friday free-for-all!”

  1. 1
    the pope Says:
    That last link courtesy of CondoHype, if you haven’t seen the excellent and funny Condo Hype blog yet do yourself a favor and check it out.
  2. 2
    Akhen Says:
    GlobeInvestorGold:
    A misfire?
    09:18 EST Friday, Aug 10, 2007

    The European Central Bank, Federal Reserve and Bank of Canada all signalled their willingness to come to the aid of financial markets.

    And so they should, because that’s part of their job.

    But in seeking to calm the jangled nerves of investors, they may have inadvertently made a bad situation worse.

    Not that they had much choice in the matter.

    Faced with a credit squeeze that pushed overnight interest rates sharply higher, the European Central Bank injected $130-billion (U.S.) into the banking system. Underlining the severity of the problem, it was its biggest cash infusion yet, and about 37 per cent more than it provided the day after 9/11.

    The move came after Paris-based BNP Paribas halted withdrawals from funds that had invested in subprime U.S. mortgages, saying the sudden evaporation of liquidity for the securities “has made it impossible to value certain assets fairly regardless of their quality or credit rating.”

    The ECB was only trying to help, of course. But it may have ended up fanning the flames.

    “The ECB is treating this like an emergency; it might make traders even more afraid,” Peter Lynch, chairman of private equity fund Prime Active Capital in Dublin, told Bloomberg News.

    The Federal Reserve Board did its part by adding $24-billion in temporary reserves to the banking system - its biggest liquidity injection since April. The Bank of Canada said it also stood ready to help.

    “In light of current market conditions, the Bank of Canada would like to assure financial market participants and the public that it will provide liquidity to support the stability of the Canadian financial system and the continued functioning of financial markets,” it said in a press release.

    In other words, nothing to panic about, folks. Everything’s under control.

    The response from investors? Sheer panic.

    On Wall Street, the Dow Jones industrial average plunged 387.18 points or 2.8 per cent to 13,270.68 for its second-biggest drop of the year. In Canada, the benchmark S&P/TSX sank 280.18 points or 2 per cent to 13,478.01, with heavily weighted financials absorbing some of the worst blows.

    “Central banks are trying to calm things down, but … by reacting this way they may give people the impression that they know something the rest of us don’t,” said David Kelly, economic adviser at Boston-based Putnam Investments.

    “The real question that investors need to ask is, what does this mean for the economy? Because if it doesn’t really stop economic activity, if it doesn’t stop hiring or buying or building a plant or exporting or importing, then this will be a relatively short-term financial event.”

    Still, investors appear to be preparing for a worst-case scenario. Which is what, exactly?

    According to John Johnston, chief strategist for Harbour Group at RBC Dominion Securities in Toronto, it’s that credit dries up and the U.S. economy - huge chunks of which function on borrowed money - goes into recession. That, in turn, could pull down the rest of the world.

    Not that he sees that happening. “A more realistic case is that it’s a credit event that dings the economy but doesn’t send it down,” he said.

    Until the subprime smoke clears, investors will be left wondering whether central banks have the problem in hand, or whether they’re desperately trying to forestall something bigger and scarier.

    “That is the question,” said Stewart Hall, market strategist at HSBC Securities Canada. “Do we get concerned about this because all of a sudden there is a severe tightening in credit that has compelled the central banks to come in and provide liquidity? Or do we take the more optimistic route and say this is the way it’s supposed to happen, this is a large part of the reason we have central banks, to help out when things get particularly tight?

    “I put myself more in the camp of optimism.”

  3. 3
    Akhen Says:
    Sorry for the long article…couldn’t link it as subscription required!
  4. 4
    Maison Lunatique Says:
    since when is Burnaby “urban living”?

    over here in Ireland there has been no need for slick marketing for condos as the people have been camping out just to buy an overpriced flat during the last several years.

    there were even panics breaking out last year as the prices rose from the front of the queues to the back!

    oh how feel for those suckers now.

  5. 5
    beta Says:
    ahken, thx for the article!

    IMO the banks know that mortgage foreclosures are just getting started. The credit crunch has a long way to unwind yet.

  6. 6
    Deliverator Says:
    It hasn’t even started in Candada… yet…
  7. 7
    Jim Says:
    “It hasn’t even started in Canada… yet… “

    What hasn’t started? Subprime meltdown? Won’t happen in Canada. Stock market turmoil? Happening now. Real Estate collapase? Hasn’t really started in the US other than a few high profile markets.

  8. 8
    ReductiMat Says:
    Jim, how will the liquidity freeze affect Canada?
  9. 9
    Drachen Says:
    ReductiMat:

    Essentially it just raises the cost of doing business for many companies. This has a net negative impact on the economy as a whole which can be just a blip or can trigger a recession or depression.

    On the RE front it makes mortgages more expensive and the creditors more reluctant to lend money so people will have a tougher time getting approved.

  10. 10
    tulip-Mania2 Says:
    Robyn Adamache, a senior market analyst for the Canada Mortgage and Housing Corporation said

    “Vancouver’s resale market is a prime example of strong growth, fuelled by the city’s low unemployment rate, higher incomes and rising net migration into B.C., she said.”

    Robyn, Why don’t you give us the numbers?

    How much net migration? How much have incomes grown?

    In God we trust, all others please bring data.

  11. 11
    Jim Says:
    “how will the liquidity freeze affect Canada?”

    The liquidity freeze? What’s happening is a credit tightening that is inconsistant by market. It will affect people differently in different regions. Any thing else is either a wild ass guess or wishful thinking depending on if you are “invested” or not.

  12. 12
    tulip-Mania2 Says:
    “Any thing else is either a wild ass guess or wishful thinking depending on if you are “invested” or not.”

    Somewhat peculiar that excess liquidity caused the problem, and now the central bankers are thought to be firing up the printing presses again.

    But perhaps not, my wild ass guess is that they are trying the old “moral suasion” tactic.

    Central bankers must surely realize there is so much hidden and underreported inflation, that they cannot cut rates.

    It won’t be long now before inflation, and stagnation come to co-exist again.

    Tick Tock, Tick Tock

  13. 13
    squidly77 Says:
    housingbubblecasualty.com
    garyincalgary asked
    is subprime alive in canada
    go there to read the answer
    vancouver is mentioned
    latest post..under comments
    wow..all the bubbles..your in a massive one as are we in calgary
    i can hear the hiss though
    good luck vancouverites
    your bubble will burst
    keep poking the pins in it
    when you get sick of that
    kick it in
    its close now
    mortgages are getting sooooooooo tough to get
  14. 14
    squidly77 Says:
    come over to the
    albertabubble.blogspot.com occasionly
    we are fighting what you are
    irrational exuberance and
    money hungry hogs
    that dont want to work
    nah..they want free money
    that rennie must drive you guys ballistic
    fight on
    the crash is closer then many think
  15. 15
    exvancouverite Says:
    Hi Squidly77,

    Enjoy your posts over at the Alberta bubble blog. Occasionally, you guys have some push-n-shove matches going on over there. lol

    If anyone wants to exam a bubble, then this mildew rain-city really takes the cake. I’m envious of other places that think they’re in a bubble. Vancouver is probably on of the most unhinged places in the western world.

    Hopefully, we will follow the same trajectory as Calgary, and especially, Edmonton … waiting as this mess unwinds :)

  16. 16
    Vanhattan Says:
    Well, I don’t know about you guys but where you are putting your money? I just pulled a bunch of $ out of the market 2 weeks ago on a hunch and in the process saved myself 5% that it would have dropped this week alone. I feel more secure owning real property right now. Sure I am not a “flipper” and I live in my investment so it does not matter in the short term. When the equity markets are this volatile where does one put their cash…in art? My point is, there is a lot of money out there and where to put it to work is and always has been a problem of much study. I would not expect a real estate crash here with sound properties with fair valuations, location, amenities and did I say location? I would expect more prudent investors with tighter grips on their $. Still, for those who have been sitting on the sidelines for the last several years, your opportunity may be here as flippers may want to bail? Just don’t expect 2004 prices…:). The problem always seems to be that just when you think the crash is imminent or actually taking place, the conversation and paranoia shifts to a differnt focus and it is quickly back to business as usual. Short term memory for all involved I suppose. Things are different this time I believe. The world has changed in many ways that we do not yet quite understand.
    Best of luck to all.

    PS; I do not post much but very much enjoy the daily banter. Thanks to all posters for keeping this a spirited conversation!

  17. 17
    patriotz Says:
    over here in Ireland there has been no need for slick marketing for condos as the people have been camping out just to buy an overpriced flat during the last several years.

    Would that be the same Ireland where 1 in 7 houses is now vacant?

    Yes, you too can be the proud owner of yet another empty property!

  18. 18
    Patiently Waiting Says:
    vanhattan,

    Most of my money is in GICs. Has been for several months. Its my safe harbour in the storm.

    I expect to see 2003 prices in two or three years, perhaps lower. There have already been reports of declines of over 30% from the peak in some bubble markets in the US. And its just beginning. 30% off the peak is when I consider buying.

  19. 19
    Patiently Waiting Says:
    “Check out MLS D1178564, fresh from ZipRealty:
    Price Reduced: 07/31/07 — $595,000 to $495,000
    Price Reduced: 08/03/07 — $495,000 to $395,000
    Price Reduced: 08/09/07 — $395,000 to $349,000
    Now that’s what I call a MOTIVATED seller!”

    From thehousingbubbleblog.com, about a house in Florida.

    When will we see this in Vancouver?

  20. 20
    Akhen Says:
    Patiently waiting … interesting price reduction figures.

    Wait until the defaults that come out as the result of interest rate renewals.

  21. 21
    satv is a troll Says:
    My point is, there is a lot of money out there and where to put it to work is and always has been a problem of much study. I would not expect a real estate crash here with sound properties with fair valuations, location, amenities and did I say location? I would expect more….
    You forgot to mention the Olympics, which once televised across the world, immigration will increase to several million a month, and I just skimmed through, but somewhere between the fear injection, and the need to act now, before one is “priced out for ever” from the best place on earth, there must be a line or two in there on how we are running out of land.
  22. 22
    jesse Says:
    Anecdotal story:

    Friends’ relatives are getting back into the local market (after selling about a year ago). Only this time they are only buying uncompleted presales. Why? They don’t want to bother renting it out because they say there’s no way they can cover the mortgage with rent.

    So, for them, the best way to play the market these days is with a call option play. All they could lose in the end is the presale downpayment. Who says property markets aren’t sophisticated.

  23. 23
    beta Says:
    Just don’t expect 2004 prices…:).

    Of course not; prices won’t be that high. (No smiley because no joke.)

    My money’s in GIC’s and PC Bank 4% savings account. Safe harbour.

  24. 24
    tulip-Mania2 Says:
    The Bernanke Agenda: Just Say No
    The Fed chairman feels the pain of subprime borrowers and the Street, but he’s got his priorities

    Finally a guy with balls

  25. 25
    Damir Says:
    Cramer is a windbag with his own agenda, so it shouldn’t be a huge surprise he is conflating “credit crunch” with “lack of liquidity”. We temporarily have the former, which will resolve itself as people establish a more realistic model of the MBS and corporate lending out there, but there is no significant lack of the latter. Those who need mis-priced risk to make their deals happen will be screwed - but then they should be.

    I have to say I’m surprised at the Fed’s ability to keep walking this “inflate - but not too much” tightrope. They’ve managed to avoid deflation (#1 but mostly unstated goal) yet still keep short term interest rates at a reasonable discount to “real” inflation (#2 but more public goal) for far longer than I would have expected.

    Without a second body blow to the system, it is entirely possible the broader markets will muddle through the current mess, allowing current real estate bubble will deflate slowly.

    BTW - those of you looking at GICs and money markets as a safe harbor should read the terms of your investment very carefully. Many of those allegedly cash-friendly investments have significant exposure to non-agency MBS and other debt instruments of dubious reputation.

  26. 26
    hibernating bull Says:
    BTW - those of you looking at GICs and money markets as a safe harbor should read the terms of your investment very carefully. Many of those allegedly cash-friendly investments have significant exposure to non-agency MBS and other debt instruments of dubious reputation.

    I’m not the most financially astute person, but the ‘G’ in GIC tells me that unless the bank itself goes down, the GIC is as safe an investment as there is. That’s why it has the lowest returns. No?

  27. 27
    Patiently Waiting Says:
    There are stock market GICs, but mine are fixed rate. The safest of the safe.
  28. 28
    Damir Says:
    If the GIC is covered by CDIC (conditions apply, many are not) then it will be covered to the limits allowable by CDIC. It is also not always true that a GIC taken from a CDIC member is itself covered by CDIC.

    All that said, if safety is a concern I personally would definitely take a GIC from a Canadian bank over a broker’s money market fund.

    It’s a complicated world out there…

  29. 29
    Ulsterman Says:
    I read this reader comment from the link (to an Irish real estate blog) supplied by Patriotz:

    “The average house price should be no greater that 5 times
    average earnings (According to the bank of England and the
    old central bank of Ireland). Average Industrial wage =
    32,000 euros and therefor house price = 32,000 * 5
    house price = 160,000 euros.

    Average house price in Dublin say 400,000 euros this means
    that the house price must drop at least 50% to come back
    into proper valuation. Also markets are called mean
    reverting which means that all markets eventually revert
    to the mean (average) this includes stock markets, bond
    markets, property markets etc.”

    I don’t know about the validity of the 5 x average earnings, but can you imagine how far Vancouver prices have to fall if this ratio is universally applicable?

    This renter says bring it on PLEASE!

  30. 30
    exvancouverite Says:
    Without a second body blow to the system, it is entirely possible the broader markets will muddle through the current mess, allowing current real estate bubble will deflate slowly.

    Ah. The ole’ soft landing scenario. I was so hoping that would happen. Yeah, it’s entirely possible. I believe that will happen … even if millions of others don’t :)

  31. 31
    exvancouverite Says:
    Just a little schadenfreude from yesterday.

    housing bears

    The WSJ article link is printed in its entirety, but it we already know how the story goes.

    Eventually, the wolf does show up.

  32. 32
    Richard Says:
    “When will we see this in Vancouver?”

    I was checking out prices for 2 bedroom condos for a couple of months, but haven’t seen any advertised that had price changes last month or this month. there were a few in june, mostly going down in $10k increments, but sometimes up.

    “satv is a troll”… ha ha ha.. that just cracks me up.

  33. 33
    markx Says:
    Given the magnitude of credit crunch in Europe, maybe their RE bubble is even more out of hand? I know that the three funds in question involve US mortgages, but overall credit in EU has been booming. New apartments in Kiev, Ukraine, for example, start at 30x annual income. The run up is about 600%. I know that it’s not comparable to mature market, but bubbles tend to follow a similar pattern.
  34. 34
    Damir Says:
    …maybe their RE bubble is even more out of hand?

    Yep. It’s in Asia, too. Which of course runs completely contrary to the “we’re special!” theory for our local run up.

  35. 35
    satv Says:
    VANCOUVER CONDO…
    KNOWS HOW 2 PARTY…

    My money’s in GIC’s and PC Bank 4% savings account. Safe harbour.
    depend on what amount in bank/annually compunded interest rate. government takes half of that if you have just one property all is yours.what about rent you paying,moving expenses time by time,owner restrictions etc,etc.still if you happy thats good ,but how long can you manage moving and paying increasing rent. then beat your head for bubble no bubble what a life without house and wife.
    satv is troll said……
    there must be a line or two in there on how we are running out of land.
    hey robsnumber,
    vancouver was out of land since 3 decade,what we got now for new projects is parking lots, and warehouse conversions.our developer earn some respect their engineering art work convert 50 parking into almost 500 for single projects+units.
    ultersman said……..
    I don’t know about the validity of the 5 x average earnings, but can you imagine how far Vancouver prices have to fall if this ratio is universally applicable
    ultersman,
    you can get some idea from chicago ,but metrocity or states all over the world have 0% chances because amenities,in door/outdoor activities,night life etc.etc.no other state or city can beat them .you must count some name like chicago,new york,new delhi,hong kong,central london,paris,bombay,worlds best vancouver.I might missing few more.and for your kind information vancouver will be known as metro vancouver starting sept,2007.
    Manhattan,
    congratulations if that was your first purchase ,all is yours and you don’t really have to waste time again to think -think-think.post your comment too often otherwise market represent only one side of coin here.

    tulip mania said……
    Robyn, Why don’t you give us the numbers?

    How much net migration? How much have incomes grown?

    In God we trust, all others please bring data

    tulip mania,
    Robyn know you will abuse those immigrant, I can tell you the great source international immigration is common but there is one more thing is to add there was a word about 2016 olympics in california ,but recently chicago took over.so california who was getting ready to kick start suddenly got depressed .so they decided to join Vancouver along with Alberta ,and washington.do not start any joke on california and washington.
    ************condo party
    Now let me welcome everybody to the vancouver west
    a place that’s untouchable like elliot ness
    The track hits ya eardrum, like a slug to ya chest
    Pack a vest for your jimmy in the city of sex
    We in that sunshine state with a bomb ass hemp beat
    The state where ya never find a dance floor empty.
    And pimps be on a mission for them greens
    Lean mean money-makin’-machines servin’ fiends.
    I been in the game for ten years makin’ rap tunes
    Ever since honeys was wearin’ sassoon.
    Now it’s ‘2010′olympics
    And they clock me and watch me
    Diamonds shinin’
    Lookin’ like i robbed liberace.
    It’s all good, from diego to tha bay
    Your city is tha bomb if your city makin’ pay
    Throw up a finger if ya’ feel the same way
    Dre puttin’ it down for
    vancouver condo.
    vancouver condo…knows how to party.
    vancouver condo…knows how to party.
    In the citaaay of b.c.
    In the citaaay of good ol’ watts
    In the citaaay, the city of b.c.
    We keep it rockin! we keep it rockin!
    vancouver condo rocks

    that song was edited from california-love to vancouver condo-from2pac-2-pack2.

  36. 36
    Ulsterman Says:
    Here’s a comment from thehousingbubbleblog.com:

    “The Winnipeg Sun from Canada. “It has smashed records, defied expectations and baffled buyers. But experts say Winnipeg’s sizzling housing market won’t cool off any time soon.”

    “Wes Schollenberg, president of the Winnipeg Realtors Association, said…the association looks set to reach a record annual sales total of $2 billion for 2007. ‘We’re shooting for $2 billion and we don’t expect any drop-off,’ said Schollenberg.”

    What’s so sad about the rocketing house prices in Winnipeg is that here’s yet another city in Canada that once offered its youth the ability to buy a home and raise a family.

    The “housing miracle” takes hold and one generation “wins” and the remaining now enter that weird world where owning a SFH to raise a family beomes a fantasy.

    Hopefully this market goes bust before Winnipeg loses its one attractive feature.

  37. 37
    van-realestate-crash Says:
    I’m not at all surprised. Winnipeg is running out of land as well, with the Pacific to the West, and the Atlantic to the East, and US to the South, furthermore it is considered to be the California of the Prairies.

    It has nothing to do with irrationality, hype, or low interest rates It’s about fundamentals.

    My God, those poor suckers that are buying into this fraud. Imagine, if you will, trying to unload a house in Winnipeg when this market turns.

    Many will walk away,

  38. 38
    beta Says:
    Winnipeg. LOL.
  39. 39
    Michael Says:
    Does anybody else seeing more places on MLS that are like 10-15k below what they would have been listed at like a month ago? Has any kind of downward movement started here yet?
  40. 40
    Gianni33 Says:
    “But experts say Winnipeg’s sizzling housing market won’t cool off any time soon.”

    Of course it won’t.. everyone wants to live in the ‘Peg

  41. 41
    HADENOUGH Says:
    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

  42. 42
    satv Says:
    Longtime gay lover gets nothing in will
    Common-law relationship gave no rights to house rules court-cbc.com
  43. 43
    blueskies Says:
    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….

  44. 44
    Tony Danza Says:
    This article has probably been posted before but I couldn’t resist:

    Ben Stein’s 1984 warning

  45. 45
    Akhen Says:
    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 upmarket, it’s great. In a downmarket … it’s going to slice you in half! (Finance 301)

  46. 46
    Akhen Says:
    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 our party. More speculation on my part, but seems to be playing out that way. Enjoy the article (pay attention to the bottom):

    Globe and Mail:
    Central banks soothe markets again with injections
    13/08/07
    By David McMahon and Krista Hughes

    NEW YORK/FRANKFURT (Reuters) - Central banks in the world’s leading economies pumped extra money into the financial system for a third straight trading day on Monday, but in far smaller amounts as investor nerves steadied over the dangers of a credit squeeze.

    The European Central Bank lent out an extra 47.67 billion euros ($65.29 billion) in overnight funds, its smallest amount since lending rates shot up last Thursday on fears European banks faced huge exposure to risky U.S. mortgage debt.

    Rest of article …

  47. 47
    Akhen Says:
    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 scary

    Fundamental 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!

  48. 48
    digi Says:
    great link tony danza, i havent seen that before.

    The more things change the more they stay the same.

  49. 49
    Crabman Says:
    Great article Tony. And don’t forget this crashed happened right before the “real” olympics in LA - Summer of 1984.
  50. 50
    Akhen Says:
    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 Press

    Monday, 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 …

  51. 51
    freako Says:
    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.
  52. 52
    scoop Says:
    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?

  53. 53
    tulip-Mania2 Says:
    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.

  54. 54
    freako Says:
    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.

  55. 55
    freako Says:
    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.

  56. 56
    blueskies Says:
    #4
    foreign equity locusts are now a footnote in history…..
  57. 57
    Michael Says:
    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 than 7%, some 8-9%. I know people here in Burnaby that had ARM and they had to start paying 10% when it reset. I don’t think these people will be able to hang on to their mortgages for very long.

    http://tinyurl.com/2qucvy

    Tick tock, tick tock.

  58. 58
    freako Says:
    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.

  59. 59
    patriotz Says:
    “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.

  60. 60
    van-realestate-crash Says:
    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.

  61. 61
    Akhen Says:
    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!

  62. 62
    oh please Says:
    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.
  63. 63
    satv Says:
    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 rockin
    we keep it rockin
    we keep it rockin……countinue.

  64. 64
    Akhen Says:
    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.

  65. 65
    Akhen Says:
    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!