Friday Free For All
Its Friday and that means open topic time:
-US subprime hits BC public institutions $29.3 million
-Non plane-crash related leaks?
-TD: Vancouver bubble warning at 2005 prices
-A decline in Canadian building permits
-Fed ready to cut interest rates again
-Canadians love American real estate
-A depressing real estate debate in the US.
-UK shops feel the credit pinch
-Not keen on realtors?
What are you seeing out there? Post your news, links and anecdotes here!
NOTE: if you’re not logged in and you put more than 1 link in a post it will be held in moderation until I can get to approve it. This is to protect us from spam.
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January 15th, 2008 at 2:56 pm
I think your understanding is a bit limited Crabman.
Ouch!
You are correct that China is the only major Asian country directly manipulating their currency at the moment. Japan is doing it indirectly via the carry trade. Before the carry trade did their work for them, the Bank of Japan would step in and buy US$ every time the Yen would rise.
When you talk about China dumping US debt, what exactly will they replace it with? Overvalued Euros? CAD$?, AUS$?, Yen? What would be the effect of this? A $2 euro? A $1.50 CAD? You think Airbus and Canfor are hurting now?
If you are correct, and US rates skyrocket while the US dollar tanks, I’ll convert everything to US$ and move to Portland!
January 15th, 2008 at 11:43 am
I think your understanding is a bit limited Crabman.
True the video does not go into Asian currency manipulation (China is the only one really doing this on any scale as far as I know). But, if anything the fact that they can get away with it actually supports the video’s thesis. Here’s how it works.
At current rates the world buys up X in US debt each year.
China owns a massive amount of US debt. Proably many times X.
If China dumps say 5X in US debt into the world economy they’re going to lose a bundle because with that amount of money the rate of return would have to be pretty high. However the market is saturated with US Debt. Nobody wants to buy any more, the rate will spike upwards massively and the US will be forced to borrow at credit card rates or worse. Since they can’t pay that debt down any time soon and it would take them years to reverse their negative spending practices their interest payments alone would become crushing. World credit markets see the risk and add another premium onto the credit rates for the US… US currency spins out of control.
January 15th, 2008 at 11:03 am
So many problems with this video, I don’t even know where to begin.
The whole idea that Asians are being nice and loaning money to the US is pretty ass-backwards. The Asian countries deliberately undervalue their currency in order to create a trade surplus with the US. China, for example, pegs their Yuan to the US dollar (at about a 50% discount) and therefore has no choice but to stockpile dollars and then buy US investments with those dollars, since they can’t convert them.
January 14th, 2008 at 7:08 pm
As has been beaten to death here, it doesn’t matter whether houses in city X are more or less expensive than houses in city Y, any more then whether the shares of company A are more or less expensive than company B. What matters is the yield.
Also due to management and tax issues, a house in Cali is not a substitute for a BC RE investor the way a US company is for a stock investor. This is a liquidity of capital issue which means adjustments in US markets don’t trigger adjustments here, the local markets have to adjust themselves.
January 14th, 2008 at 4:05 pm
I’m in edmonton this week for work, I’ll report back to how depressing this city truly is.
January 14th, 2008 at 12:55 pm
The inevitable collapse of the dollar.
Make what you will of it, there are some good points presented here.
January 14th, 2008 at 11:56 am
you are funny SSkri – did you dial in through the switch from Illinois or Florida? Check your time zone first!!!
The 3.6% hike in scheduled fees by Dental Assoc has been approved. And we are to think that inflation and CPI is under controlled, while waiting for more rate cuts to come.
Thanks MR for sharing the message repeatedly.
January 14th, 2008 at 11:15 am
Blah, blah, blah, look at how much money I am making… blah blah blah…. I’m so smart…. blah, blah, blah. Hey MR, know anything about Van RE?
January 14th, 2008 at 10:25 am
Gold hits 914.00 on its way to 2,000.00
There’s no stopping it now. 10 more years to go in the commodities bull market and precious metals. Some are now saying 5,000.00 is a possibility in the next few years.
Those who listened to me 2 or 3 years ago and took the money they were saving for a down payment are up now about 250% so their down payment is icreasing as house prices fall in BC
BTW I have it on reasonable speculation that Ron Paul is going to suggest that all Americans go out ad buy gold and may announce this during an upcoming debate
January 14th, 2008 at 8:05 am
Generic Poster,
When there is consumer confidence in the market other terms of economy like Income,Interest Rates,and Rental yield stand for nothing because millionire,billionire does not need a support by those fundamentals they can keep on buying unless money is growing.
Sorry short on time so Few more hints quickly…
Generic Poster, goes well with situation in USA.
Sofia, goes well on Alberta but then freako can not support her right away in alberta because of high Income low employment rates and better economy Alberta is calm.
Freako,is 50% close to alberta but 70% on distance from Vancouver.
Patriotz expectation is just a simple economic conditions you can apply all over the world that’s mean we have to wait for actual situation same as bears are doing it since long time.
Andrea, is preety simple but sharp her brand new comment full fill the remaining Consumer Confidence-for Vancouver Well done Andrea.
January 14th, 2008 at 7:45 am
I wonder if the rise in prices as rates rose was in part due to the panic buying that often occurs as rates begin to rise as people who have been pre-approved at the lower rate try and get in before the expiry of their pre-approval – eventually the whole thing burst.
That could well be. In that sense, rising rates drove up prices and falling rates drove down prices. One thing to note is that at the peak, affordability was INSANE. Not just bad but completely out of control. Do the math. Real prices were slightly lower than now but 5 year rates were 300% higher. Causes of this runup aside, I am puzzled as to how people qualified.
Based on your theory above, I think there are similarities between 1981 and now. What they have in common is evaporating affordability. Maybe that is what gets people panic buying, which sets off a feedback loop sending prices higher and higher. The main difference of course is that the 1981 episode happened in a brief period of time. It is also noteworthy that at double digit inflation, rent increases rapidly.
January 14th, 2008 at 7:32 am
may be i’ll explain some othertime little hint Freako with Consumer Confidence was little closer to the scene
Jeez. I know what consumer confidence is, I was pointing out the interesting wording in this article, “consumer SATISFACTION”. You read the article before commenting, right?
Now here is an idea. Post in your original language, and we will babelfish. Might be easier to read.
January 14th, 2008 at 7:12 am
I’ve been keeping that 1980-83 price history in mind watching this runup. It gave me a little immunity to “RE ALWAYS goes up”.
I remember my parents paying high $30K in Abbotsford in 1979. Couple of years later (late 1980-early 1981) homes in our area were listing for $90-100K. Then less than 2 years later, average price was around $60K.
It can happen here, and it will. Looks like the rest of the Lower Mainland is gonna follows the same pattern as San Diego and Sacramento. If you can get a detached place in Oceanside for $180K or a detached place in Sacramento for $160K, are you really going to “invest” in the Fraser Valley?
January 14th, 2008 at 6:33 am
Even if true, that’s well below historical rates of growth. Since WWII Vancouver has doubled every 25 years or so, until the late 90′s when the growth rate slowed significantly (and has NOT recovered since). An extra 1 million by 2031 is less than a 50% increase in 25 years (i.e. since 2006).
January 14th, 2008 at 4:58 am
Actually I wasn’t being sarcastic. I found the data you provided quite interesting.
I wonder if the rise in prices as rates rose was in part due to the panic buying that often occurs as rates begin to rise as people who have been pre-approved at the lower rate try and get in before the expiry of their pre-approval – eventually the whole thing burst.
January 14th, 2008 at 4:51 am
You know, there may be some information content in the above, however, I’m not able to do the mental handstands to figure out what in hell that content is.
January 14th, 2008 at 3:53 am
Apperntly by 2031 our population will grow by 1 million. Saw an add in the straight today.
January 13th, 2008 at 11:53 pm
Good work richard,there are lots of plans are being consider.
Freako,Patriotz,and Generic Poster you guys are good in economy but your argumnts are not in order or place where it suppose to be kind of true but not good on timing.
sorry short on time but link by Pie is somewhat justify the scene of Vancouver.
may be i’ll explain some othertime little hint Freako with Consumer Confidence was little closer to the scene,Patriotz with price/income etc.right but joint is wrong or the place where it should be.Sofia with smart money lucky money was closer on wrong place……
January 13th, 2008 at 11:39 pm
here’s a vision of what housing might look like in the future. who needs condos? if it’s good enough for whistler, it’s good enough for vancouver…
January 13th, 2008 at 11:33 pm
For General Information on Gold
LIST OF ALMOST ALL COIN AND BULLION DEALERS EN LOS ESTADOS UNIDOS
THE NUMBER ONE SITE FOR EVERYTHING GOLD, SILVER, BASE METALS YOU NAME IT IT’S HERE
JIM SINCLAIRS SITE…DAILY COMMENTARY ON GOLD…..EVERYONE READS THIS SITE
January 13th, 2008 at 9:27 pm
You should understand that no exogenous event is needed to end a bubble. For example, the dot-com crash was preceded neither by a rise in interest rates nor an economic slowdown (the demise of the bubble caused a slowdown afterwards).
Asset prices must adjust to fundamentals in the long run.
January 13th, 2008 at 9:22 pm
Is the economy expected to serve you?
That’s why Americans are always called “consumers”, not “producers”.
January 13th, 2008 at 9:19 pm
Wrongo. Prices started falling before the rate resets.
If price/rent and price/income exceed traditional multiples, supply will outrun demand.
Always.
January 13th, 2008 at 9:09 pm
Another interesting quote from the NYT article:
“says consumer satisfaction with the economy has reached a 15-year low, according to the firm’s polling”
Consumer satisfaction? Is the economy expected to serve you? Should we call the Better Business Bureau and complain. The consumer overspent, and now he apparently isn’t satisfied with the result. If you want to point fingers, look in the mirror, bucko!
January 13th, 2008 at 8:59 pm
from NYT
http://tinyurl.com/3dm7tp
Americans spending less and feeling less wealthy
The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth.
January 13th, 2008 at 7:02 pm
On the other hand, its the resetting of rates, and its effect on all the sub-prime leanders in the US that’s led to the RE crash there – n’est pas?
That is sort of like debating whether the gun or the gunman was responsible for killing a man.
Clearly the ultimate cause was people buying places that they cannot afford, facilitated by lenders who ignored or passed on the risk.
January 13th, 2008 at 6:58 pm
Very interesting….and here I’ve been patiently waiting for interest rates to spike up to shake out this market. I suppose I no longer have to.
Can’t tell if you are being sarcastic or not. But:
1. Just because the 1981 crash wasn’t caused by high rates doesn’t mean that rising rates won’t sink real estate. All else the same, rising rates would help sink our prices.
2. In case it isn’t clear, the crash of 1981 was NOT the result of high rates. Why do I say this? Because prices were rising as rates rose. What sank that market? The irrational boom that preceded it.
January 13th, 2008 at 5:24 pm
Happy Valley, Oregon like Will County, Illinois no doubt thought “It’s different here.” Seattle and Vancouver still feel the same way now. Their turn will come. One by one by one, every city, county, and state are finding out “It’s NOT different here.”
http://tinyurl.com/d8q6j
Comment by krrish1
“Drachen,
My grandfather once told me thatâ€Land worth more than goldâ€you can see every one worried about housing sector no one is worried about gold”
My father said the same thing, with one little differance and he practiced it…that being never have a mortgage longer then 5 years, pay off your mortgage before anything else, he should know he lived in Vancouver in the 30′s.And he never owed money NONE on his home! I remember my parents inviting the neighbours for a yard party, it took them 6 years to pay that damns mortgage off and they were so damn happy!
January 13th, 2008 at 3:30 pm
Very interesting….and here I’ve been patiently waiting for interest rates to spike up to shake out this market. I suppose I no longer have to.
On the other hand, its the resetting of rates, and its effect on all the sub-prime leanders in the US that’s led to the RE crash there – n’est pas?
January 13th, 2008 at 2:13 pm
In 1981, a 50% rise in interest rates (from 13% to 18%) caused the market crash
Precipitated not caused. Interest rates fell all the way back down to 13% as the market declined.
Some time ago, Geezer was holding the “rates sunk the market in 1981″ line, so I looked into the Sauder Excel data. Here is a repost of what I found:
—————————————————–
Absolute interest rates in themselves don’t mean anything. It is rates relative to prices that matter. Below is the Vancouver SFH data I posted the other day:
Quarter Rates Prices in thousands.
1980.1 14.69 115.73
1980.2 12.92 130.37
1980.3 14.5 146.86
1980.4 15.6 171.69
1981.1 15.75 233.53
1981.2 18.55 229.73
1981.3 21.46 226.00
1981.4 17.79 208.72
1982.1 19.41 191.63
1982.2 19.1 183.34
1982.3 17.49 170.21
1982.4 14.34 150.78
Between q1 1980 and q3 1983 (18 months) prices went up a whopping 95% as rates also went UP from 14.69 to 21.46.
Let’s check the way down. Between q3 1981 and q4 1982, prices went down 34% AS RATES FELL FROM 21.46 to 14.34.
Geezer’s notion that 19% rates brought the market down is completele BOGUS.
The market went down because it ran ahead of fundamentals and it was time to pay the piper.
January 13th, 2008 at 1:46 pm
“we would have seen a much slower decline, like in the late 1990’s, but to the same real price level.”
I still maintain that the bump of the ’90s was not a bubble but an early characteristic of the bubble we are still riding.
January 13th, 2008 at 11:40 am
Vancouver is a place people invest to avoid recessions in other parts of the world? That’s a new one. When times are good, like the past 5 years, people parked the money they were making in Vancouver real estate, causing prices to double. When times are bad, people will still park the money they made in Vancouver real estate. You can’t lose, really. Can’t quite figure out how these investors will pull their money out of a recessed economy and transfer it to Vancouver but that’s a minor point.
January 13th, 2008 at 9:31 am
Mohican posted a comparison of unemployment with and without construction/RE growth. You can see that over the past few years that unemployment sans construction/RE has been flat. You can imagine what happens in a climate when construction and real estate is in a recession.
Don’t expect the provincial government to create jobs when their revenues decrease. They will never go into deficit.
January 13th, 2008 at 6:09 am
In 1981, a 50% rise in interest rates (from 13% to 18%) caused the market crash
Precipitated not caused. Interest rates fell all the way back down to 13% as the market declined. If the root cause of the decline had been interest rates alone, prices would have recovered as interest rates fell.
But IMHO if interest rates had not spiked – and of course if there had not been a US recession – we would have seen a much slower decline, like in the late 1990′s, but to the same real price level.
January 13th, 2008 at 4:33 am
They’re trying to walk a fine line – remind people that things are overdone and yet don’t spook them at the same time – an attempt to engineer a soft landing perhaps?
The last thing they want to do is signal a peak – this would trigger the sale of all those negative cash flow condos owned by speculators, who rely on capital appreciation to justify not selling – this of course would upset the current demand/ supply balance and down she would come.
Another, thing I find conspitiously absent from the article is the risk of “inflation” (a growing issue in the US) and the likely need to raise interest rates in the not too distant future. In 1981, a 50% rise in interest rates (from 13% to 18%) caused the market crash. At today’s current low rates, a 50% rise in rates is only a couple of points.
January 13th, 2008 at 12:11 am
The part that suprised me was right at the beginning:
I always try to avoid answering the obvious question: “So, how long is this current real estate boom going to continue?” Predicting when the bubble will burst can be dangerous, if for no other reason than I might live to regret being proved totally wrong.
Just calling it a bubble is unusual for the local press – sure they don’t mention fundamentals, etc, but how do bubbles usually end?
January 12th, 2008 at 11:17 pm
Well I guess even to say that prices may flatten out is being “bearish” by today’s standards. That’s about at “bearish” as most commentators were willing to be in the US 2 years ago, too, with some obvious exceptions who are well known to readers of the blog.
But really that article takes the same approach as the bull arguments in that it completely avoids talking about fundamentals. No mention whatsoever of price/rent or price/income. Just two-pages of non-quantitative babble that could be summarized as “it’s different here” and “fundamentals don’t matter”.
January 12th, 2008 at 10:09 pm
Bearish editorial in the Vancouver Sun
January 12th, 2008 at 6:43 pm
Of course I followed your link Drachen.
Cool!