Consumers less confident in BC
Re-diculous posted this link to an article in todays Vancouver Sun about a dramatic drop in consumer confidence in BC.
Consumer confidence in B.C. plunged to its lowest level in five years last month as high energy prices and economic concerns test people’s resolve, the Conference Board of Canada reported Monday.
The board said B.C. consumer confidence fell 9.3 points in June to 94.3 – dropping below 100 for the first time since mid-2003.
The consumer confidence rating across Canada dropped 6.2 points in June to 79.6, following a seven-point drop in May, leaving the second quarter reading at its lowest level since the fourth quarter of 1995 when it was 68.8.
There’s been a lot of buzz in the news about inflation and recession worries lately – could this drop in consumer confidence be blamed on the media?
July 8th, 2008 at 4:08 pm
Did anyone see this on Bloomberg this morning?
http://tinyurl.com/6ahsne
They are repackaging those rotten fish (the CDO's of the subprime mortgages) and trying to sell them again! I was in a rush and only skimmed it, but it blew my mind that anyone would get fooled again by a new name. The whole credit crunch is nowhere near over. This is the deflation Alistair Cookie is talking about. All those imaginary dollars going poof and turning back into thin air.
July 8th, 2008 at 3:50 pm
Keep in mind that most of the money supply is a consequence of fractional reserve banking (legalized leveraged monetary expansion by banks). The resulting positive feedback loop is spectacular while the money supply is expanding and catastrophic when it retracts. This was further enabled by the facilities that fueled the "Sub-prime" problems (CDOs/structured investments, CDS, easy bond rating agencies, low interest rates from central banks driving the heard to invest in this "high quality paper", etc.).
July 8th, 2008 at 9:08 am
@patriotz – I am really not interested in seeing debates over whether we currently have “inflation” or “deflation”. These are simply arguments over what “inflation” (unqualified) is supposed to mean, i.e. over terminology and are meaningless in any operational sense.
The relevant fact is that we are now seeing the highest consumer price inflation in a couple of decades and that is negative for RE prices.
Ask ten different economists to define inflation and you'll get ten different answers…
Peter Schiff has a great way of explaining price inflation in relation to money supply inflation (what I feel is true inflation). Basically: a widget's price is directly proportional to the growth or contraction of the money supply.
I agree with you that the consumer price inflation we are currently witnessing is negatively affecting RE, but it is really only amplifying the problem, it is not the cause nor was the trigger. The cause of the current price inflation is the commodity bubble.
I'll amend my previous statement of agreement about consumer price inflation causing asset price deflation to include the rational that it is mostly a 'sign' of greater change occurring in the economy at large, rather than being the 'cause'.
That said, we will/are experiencing deflation here in Canada, and this will put further downward pressure on home prices as there will be less dollars (money supply/credit) available to purchase homes.. How much we will see due to deflation will be difficult if not impossible to measure however.
July 8th, 2008 at 8:23 am
@patriotz – It is easy for the central banks to prevent consumer price deflation just by increasing the money supply. They cannot prevent asset price deflation because asset prices must adjust to fundamentals.
Disagree. Fundamentals are always in place, what changes is the banking industries ability to lend and receive back the credit they have extended. It is not so easy to increase the money supply when banks are loaded with massive amounts of suspect loans. If their balance sheets are impaired, they will not be able to extend credit. If they are not able to extend credit, the money supply stagnates. If they wait for loans to be repaid, or foreclose on asset price deflated homes and resell for less than loan value, the money supply shrinks causing true deflation. Asset price deflation can influence the money supply, which we are seeing in the US right now.
You have spades of evidence to support this south of the border.Highest consumer price inflation in decades, highest housing price deflation in a single year ever, bear market in stocks.
Consumer price inflation causes asset price deflation.
Case closed.
Agreed for most cases, such as what we are witnessing now. However, if you see wages inflate at the same time, you will not necessarily see asset price deflation.
July 8th, 2008 at 7:35 am
Sir John Templeton passed away today at age 95. All should consider his famous "4 most expensive words of investing", namely: "It's different this time"
July 8th, 2008 at 6:16 am
condohype – I agree 100% with your thoughts on the BoC rate next week. Well said!
July 8th, 2008 at 6:13 am
Look away Look At Me, another downer article.
Catalyst Mill closing Pulp Mill in BC:
http://www.canada.com/victoriatimescolonist/story…
This is the first pulpmill that I've heard has been closed, so far its been the sawmills. I could be wrong, there may be others that I haven't heard of.
As for my old hometown in the Kootenays, the mill is still closed (several months now), most of my family that lost jobs are either moving to Alberta or retired with a $25K buyout or have found other jobs (only 1 has).
The town's real estate is slowing in sales and increasing inventory (sound familiar?). Last I checked there was 154 homes on the market, whereas last year at this time there was 24.
Also, on BNN this morning, they were reporting Siemens plans to cut 16,750 jobs globally. In Canada they employ 6,000 and they have not stated how many here will stand to lose their jobs.
Link: http://www.ctv.ca/servlet/ArticleNews/story/CTVNe…
Since this recession is a consumer led one (remembering that the last 2 recessions were intentionally caused by raising interest rates), this recession will likely be long and drawn out. They'll be plenty of stories like the ones above. Not to sound all Chicken Little here, but the times ahead are not going to be good.
July 8th, 2008 at 2:25 am
.
There's a thread over on RET about getting out of a pre-sale contract. If this is such a hot RE market why would anyone want to sell? Just hold and unload for a profit just before the 2010 Games. Wasn't that the theory?
All of a sudden there's a proliferation of 'reasons' why sellers must exit the market rather quickly … job offers in distant countries…family obligations…nothing to do with wanting to bail. No, nothing like that.
July 7th, 2008 at 11:29 pm
Look at Me wrote "That’s funny how you only choose the bearish headlines, why not post the article in the Sun last Friday how BC leads the nation in economic growth.
At least pretend to be neutral."
Hey, Look At Me!
Why does the blogmeister have to pretend anything? An interesting topic is an interesting topic, isn't it? He and many of us here find "bear" topics interesting. Is there a "bull" blog you would recommend? Yes? No? Hey, why don't you start one up? If you can make it interesting, people will come. Seriously! Keep in mind that you'll find a lot of lazy passersby criticize your blog. You know the kind I mean, don't you?
July 7th, 2008 at 9:01 pm
It is easy for the central banks to prevent consumer price deflation just by increasing the money supply. They cannot prevent asset price deflation because asset prices must adjust to fundamentals.
You have spades of evidence to support this south of the border.Highest consumer price inflation in decades, highest housing price deflation in a single year ever, bear market in stocks.
Consumer price inflation causes asset price deflation.
Case closed.
July 7th, 2008 at 7:53 pm
deflation will be fought
tooth and nail at great
cost to the hoi poloi……
we.are.so.screwed!
July 7th, 2008 at 7:24 pm
deflationary pressures are starting to pick up of late; inflationary and deflationary pressures are both evident, a clash of the titans so to speak. i think the bond market now is reacting to the deflationary pressures, interest rates have come down the last week or two. not a big problem unless unions start leveraging significant wage increases tipping the balance the other way.
July 7th, 2008 at 6:32 pm
Link to Reuters story about the BoC becoming more aggressive on curbing inflation.
July 7th, 2008 at 6:30 pm
The Bank of Canada meets on July 15. If they up the interest rate, the party's over. My guess is that they'll keep the rate as is, with rate increases coming in future meetings.
Funny thing, this creature called inflation. It may just be the beast the kills the RE boom.
July 7th, 2008 at 6:16 pm
Here’s the best proof I can offer as to the amount of deflation the residential housing market in the US is experiencing
That is asset price deflation, which is something entirely different from consumer price deflation.
Consumer goods are things you have to buy. Assets are things you don't.
The asset price deflation we are currently seeing is in fact partly due to consumer price inflation, as we also saw in the 70's. The difference in the 70's is that it was stocks and bonds, right now it is housing and stocks with bonds likely to follow (higher interest rates).
I am really not interested in seeing debates over whether we currently have "inflation" or "deflation". These are simply arguments over what "inflation" (unqualified) is supposed to mean, i.e. over terminology and are meaningless in any operational sense.
The relevant fact is that we are now seeing the highest consumer price inflation in a couple of decades and that is negative for RE prices.
July 7th, 2008 at 5:53 pm
Just to beat the building permit horse beyond death, below is a link and an excerpt. Developers are seeing an end in residential sector. Too bad! I was hoping they would keep the break-neck pace of building crappy condo's going for the remainder of the year or so. Glut glut glut! Oh well, 27,000 plus under construction right now… nothing to see here.
http://www.canada.com/ottawacitizen/news/story.ht…
Non-residential permits were up 12.8 per cent to $2.9 billion in May. "The rise came mostly from strong increases in the industrial and institutional intentions," Statistics Canada said.
Residential permits fell 6.6 per cent to $3.7 billion during the month, led by a big decline in multi-family permits. "The value of permits in the residential sector has been on a downward trend since September 2007," the agency said.
Charmaine Buskas, senior economics strategist at TD Securities, said the "robust tone in non-residential permitting activity should buoy building in the near term, though a slowdown in those sectors is also expected as the economy continues to cool."
July 7th, 2008 at 4:54 pm
The BC economy is not booming, with economic growth approaching negative territory. House prices continue to fall as sales volumes sky dropped in June. The outlook for Vancouver real estate has never been more bearish with the Olympic fever ignited in our anus.
spin, spin, spin
July 7th, 2008 at 4:17 pm
quoted here and then summarily executed for their lack of any kind of valid argument or realistic data.
drachen:
you have such a way with words
July 7th, 2008 at 4:12 pm
The truth will set you free. The new carbon tax and cap and trade will mean that BC will soon become the economic wonder of the world. We are standing at the feet of a great new society. We have crossed the rubicon into a whole new century of prosperity. The more taxes the better so please keep sending in your loot.
Thanks
Joe Stalin
July 7th, 2008 at 4:03 pm
Dunno, I feel feverish whenever I think about the Olympics.
July 7th, 2008 at 4:00 pm
Anonymous
Here's a fact for you;
Your sarcasm/irony detector is malfunctioning.
"Olympic fever is ignited in all of us."
I mean really, does that sound like he's serious?
July 7th, 2008 at 3:38 pm
John, sales plummeted year over year and listings are growing, some places like N.van the number of listings is up approx 113%.
DT condo listings are up 65% YOY, so what you are saying and what is actually happening is quite the opposite.
Months of inventory is growing and Sell/List ratios are were below 50 for the month of June.
Please post some facts!
July 7th, 2008 at 3:12 pm
"Why Is Southern California Housing So Expensive?
Conventional wisdom goes that Southern California is experiencing a severe housing crisis with no end in sight. A lack of developable land, years of underbuilding, and a huge surge in population due to Southern California's desirability as a place to live have engendered a serious imbalance between housing demand and supply. Adding fuel to the fire is the fact that Southern California's wealth has grown significantly due to its robust and diverse economy. With all these factors at work, we are told, it's no wonder that home prices have risen so spectacularly"
July 7th, 2008 at 3:04 pm
Yes John, it's true, it's all true, and wait until the world receives our calling card during the Olympics.
July 7th, 2008 at 2:56 pm
"The BC economy is still booming"
I assume you are joking. Just in case, here is a report from the BC Business council that shows a shrinking economu. The economy was in recession with negative growth last quarter.
Like I said, I assume that you are joking and not an out right liar.
http://www.bcbc.com/Documents/BCEIndexv7n1.pdf
July 7th, 2008 at 2:41 pm
The BC economy is still booming, with economic growth approaching record territory. House prices continue to rise as sales volumes sky rocketed in June. The outlook for Vancouver real estate has never been better with the Olympic fever ignited in all of us.
July 7th, 2008 at 2:33 pm
Looks like Muir is setting the stage to blame the real estate crash on gas pricing.
I guess it makes sense, since gas prices have gone up a few cents a month and house prices a few thousasnd a month.
July 7th, 2008 at 2:31 pm
HMMMMM? Consumers being less confident? What does this mean?
Oh yeah, look south. Look closely. You can see your future.
July 7th, 2008 at 2:24 pm
Thanks Alistair.
July 7th, 2008 at 2:10 pm
Newsworld mentioned residential permits were down and commercial and institutional permits were up. I don't know how to interpret that, time lag maybe. Maybe if the permits are for long term care facilities, schools or hospitals but as a widespread phenomenon it seems unlikely. It seems logical that in recessionary times corporations wouldn't be expanding office, warehouse or manufacturing space.
Let's see what this looks like in a few months.
July 7th, 2008 at 2:06 pm
Is this the good news article you were referring to?
http://www.canada.com/vancouversun/news/business/…
Maybe i'm just too much of a 'glass half empty' kind of guy, but the news that the economy in BC is slowing less than the rest of Canada doesn't really seem to be overly positive.
I am open to other sorts of news and opinions though – you can post links to articles in the comment section here and they will be automatically hot-linked. I had to look around a bit on the Sun site, so perhaps this isn't the article you were referring to.
July 7th, 2008 at 2:06 pm
"That’s funny how you only choose the bearish headlines"
What is so funny about it?
July 7th, 2008 at 2:05 pm
"Guess the economy doesn’t know it’s in a recession."
Wrong. You should say that builders do not know that the RE is about to go bust. No surprise. It was the same in the USA and UK.
July 7th, 2008 at 1:59 pm
@Matt
It has the appearance of stagflation right now, but that is a misconception of the definition of inflation when used with the term stagflation.
We are in a massive deflationary time due to residential, soon to be commercial, followed by credit card, auto, etc, debts (which is credit) being wiped out. This is not inflationary in the true sense of the word. There is a big difference between price inflation and inflation.
Inflation when used with stagflation means a contraction of the money supply, accompanied by rising unemployment and sluggish economic growth.
Price inflation has other economic aspects attached to it such as commodity costs, labour costs, dollar value, tax laws, etc.
Here's the best proof I can offer as to the amount of deflation the residential housing market in the US is experiencing, it is from a subscription newsletter:
“The latest Case-Shiller index shows a fall of 15.3 percent in US house prices since the start of this year. The size of this can be appreciated when it is applied to the peak valuation of $US 23 TRILLION in total value of US housing stock set last year. It reveals that $US 3.52 TRILLION of this paper wealth has been written off valuations. This is HUGELY deflationary! Housing lenders in the US are being cut off at the knees as if these falling valuations were a sickle swung horizontally. When the write-offs arrive on their books and balance sheets in the second half of this year, there will be sheer hell to pay and no money.
US construction and development loans, a specialty of regional and local banks, hit a delinquency rate of 7.18 percent at the end of March, the highest in 14 years, according to the FDIC. In October, the rate was 3.22 percent. US auto loans issued through car dealers have a delinquency rate of 3.13 percent, the highest since at least 1990, according to the ABA.”
It's not stagflation.
July 7th, 2008 at 1:44 pm
Look at Me
The Sun and Provence are far from neutral. BC's economic growth is largely a red herring when used by Real Estate pumpers because the bulk of that growth has been in the form of Construction and related fields which will obviously disappear once the market crashes. As for your 'building permits up' story I'd have to see some actual source info to comment.
As for choosing only bearish headlines, that's not true at all. If you go through the archives you'll see many extremely bullish articles from the Sun and Provence quoted here and then summarily executed for their lack of any kind of valid argument or realistic data.
July 7th, 2008 at 1:38 pm
http://www.reportonbusiness.com/servlet/story/RTG…
July 7th, 2008 at 1:35 pm
How about building permits up, due to strong demand for non-residential construction. IE commercial buildings, meaning more jobs. Guess the economy doesn't know it's in a recession.
July 7th, 2008 at 1:27 pm
That's funny how you only choose the bearish headlines, why not post the article in the Sun last Friday how BC leads the nation in economic growth.
At least pretend to be neutral.
July 7th, 2008 at 12:56 pm
We're almost at the point where the economy is starting to stagflate isn't it?
http://www.bloomberg.com/apps/news?pid=20601082&a…