Friday Free-for-all!

It’s Friday and we’re going into a long weekend!  Lets do our end of the week news round-up and open topic discussion thing. Here are a few stories I’ve noticed recently:

-Falling Van house prices bad for both sides
-Paying a price for houses that aren’t homes
-Translink: $11 million surplus actually $3 million deficit
-Flocks of speculators & presales vanish
-Vancouver: We’re still building lots of condos
-RBC: BC economic picture darkens
Banks only pass on half of rate cut to customers
-Flaherty: No bailouts for Canadian banks
-Carlton’s Nick Rowe on Canadian housing market
Washington Mutual Exec predicted collapse

So what are you seeing out there? Post your news, links, thoughts and anecdotes here and have an excellent long weekend!

note: any conversation on Vancouver, real estate or economics is allowed, please keep it civilized. When posting articles please only quote pertinent points and link to the original instead of pasting the entire article here. Pasting a link will automatically create a clickable hot-link. Thanks!

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bdk
bdk
11 years ago

"Across B.C., the average MLS home price in September was down 7.4 per cent to $412,149 compared with the same month a year ago, the B.C. Real Estate Association also reported Wednesday. "

Is this the gentle dip that will quickly be preceeded by the next leg up?

Skye
Skye
11 years ago

I wonder how many mortgages were backed by equity on parents' RE or other assets and how that's going to shake out, especially as a lot of those parents are set to retire… well, maybe not retire anymore. Any insight?

Drachen
Drachen
11 years ago

Patriotz "An asset with an almost certain downside in price is not risky, because you can make money shorting it with a low level of risk." Yes, but it's a semantic argument, are we talking about the "stock market investor's definition of risk" or the "man on the street definition of risk". In the case of housing it is an asset but you can't "short" the market or do most of the other financial trickery you can do on the markets so your definition of risk doesn't really cover it. Here is what dictionary.com says, I don't really care to pursue the subject further: "1. exposure to the chance of injury or loss; a hazard or dangerous chance: It's not worth the risk. 2. Insurance. a. the hazard or chance of loss. b. the degree of probability of such loss.… Read more »

patriotz
patriotz
11 years ago

The issue here is not downside risk, which is a function of the uncertainty of future earnings (rents in the case of RE), but detachment from fundamental value, which makes a fall in prices more certain the larger it gets.

An asset with an almost certain downside in price is not risky, because you can make money shorting it with a low level of risk. Risk has to be equal on both the long and short side. Unfortunately you cannot short Vancouver RE.

RE in a one-industry town is risky, because there is a real risk that local incomes, and thus rents, may be significantly reduced.

Drachen
Drachen
11 years ago

Patriotz

Stop picking nits. The discussion was about downside risk and even by your definition what I said was not incorrect (although by your definition it may have been incomplete, but, as I said the response was regarding downside risk).

Let's talk about important things and not get bogged down in ridiculous semantic arguments.

patriotz
patriotz
11 years ago

If an investment is guaranteed to return somewhere between 0.1% and 100%, it has 0 risk.

No it doesn't, because you can get more than .1% guaranteed from a risk-free investment (government bonds). If the lower bound of return on an investment is lower than what you can get from a risk-free investment, it is risky by definition.

Brittanny
Brittanny
11 years ago

TSX up over 1000 points. Careful, it's a "BEARTRAP".

"DEAD CAT BOUNCE"

betamax
betamax
11 years ago

The correction is inevitable and the upcoming post mortems will incorrectly blame the crash on coincidental events.

Yes, because then involved parties can claim that they were blindsided by unforeseeable events and thus are not greedy idiots after all.

The truth is otherwise.

crabman
11 years ago

Risk is not likelihood of loss, it’s uncertainty of returns.

I don't think this is correct. If an investment is guaranteed to return somewhere between 0.1% and 100%, it has 0 risk. Today, the likelihood of losing money on VanRE is close to 100%, making it very risky.

alexcanuck
alexcanuck
11 years ago

Oct. 14 (Bloomberg) — Bond investors from Tokyo to New York are pushing 30-year Treasury yields to record lows in a bet that the financial market meltdown will turn inflation into deflation.

More and more talk that deflation might be a real possibility. I don't know what it means for sure. I took a savage bite this morning, lost all my gains from last week, but still sitting pretty over a month. I'm staying short, we still have a recession to admit to before a bottom is possible.

jesse
jesse
11 years ago

"It could be argued that the sub-prime crisis triggered the turning of the Vancouver real estate market"

All events we are now witnessing only serve to determine the speed at which things correct. The correction is inevitable and the upcoming post mortems will incorrectly blame the crash on coincidental events. I am pretty sure MickeyFinn understands this though.

Local quoted economists and the other assorted "experts" do not understand this one bit or are lying to the camera. I'm not sure who's worse, the idiot or the liar.

alexcanuck
alexcanuck
11 years ago

Risk is not likelihood of loss, it’s uncertainty of returns.

He's right, odd as it sounds. Same as talking about inflation/deflation in their true sense, which actually has little to do with the prices at the store. Except in the long run, of course.

Patriotz: Where can I buy some of this investment of yours? And how much is the risk premium? 😉

patriotz
patriotz
11 years ago

Even if (just for fun) we were wrong, there’s still a reasonable chance that we’re right, which is inherently risk.

Risk means uncertainty of outcome. Investing in Vancouver RE is actually less risky today than in, say, 2005. At that time there was a great deal less certainty as to whether the market would go up, go down, or stay the same. Today all indicators point down.

Risk is not likelihood of loss, it's uncertainty of returns. An investment which may yield a total return of from .1% to 100% is very risky, even though there may be no possibility of loss.

Drachen
Drachen
11 years ago

Dave

"Do you really know that there is lots of downside risk? Or are you speculating?"

Duh, yes we know there's lots of downside risk. Haven't you been paying attention the last couple of months? Even if (just for fun) we were wrong, there's still a reasonable chance that we're right, which is inherently risk.

I mean come on, if you're going to spew your bs on here at least try not to be so obviously wrong all the time. Make me work for it or something.

MickeyFinn
MickeyFinn
11 years ago

"If prices exceed levels justified by rents and incomes, more housing will be built than people are willing and able to buy." …patriotz Agreed… this is exactly what was happening in Vancouver from 2000 – 2007. Vancouver’s excessive and unsupportable real estate price run-up persisted for many reasons but was largely driven by the unrealistic assumption that insufficient real estate rental yields were justified by the seemingly guaranteed gains in the underlying capital asset (in other words, what an investor did not earn through rent he/she would earn through the increase in value of the underlying real estate). But as Patriotz points out, the cycle naturally drove even more new development. The run-up in Vancouver real estate prices caused developers to plan, market, sell and then build more and more units. This was the inflating of Vancouver’s real estate bubble.… Read more »

Keeping an Eye on Th
11 years ago

Dave/Rob

Speculating is when one can’t be sure of the outcome.

Where is the uncertainly?

The thousands and thousands of housing units under construction, the record high listings, the 50%or plus drop in sales, the steady price declines, aren’t subjective interpretations, they are facts.

Dave
11 years ago

People buying real estate right now must be retarded! No upside gain in the near future with lots for downside risk. Talk about stupid people.

Anon, it is always a good time to buy for some people.

Do you really know that there is lots of downside risk? Or are you speculating? Not everybody wants to speculate and some would prefer to just buy.

Keeping an Eye on Th
11 years ago

One of the very few places on earth where RE bulls are more dellusional than those of Vancouver or Vancouver Island are the hillbillies from Kelowna.

http://forums.castanet.net/viewtopic.php?f=23&amp

"It doesnt matter why I am here. Perhaps I am not even here at all. If I lived in Toronto I would still be on this thread becasue I enjoy reading how dellusional people are about the Okanagan. It is fun"

patriotz
patriotz
11 years ago

There are three stages to any market correction:

1) the calamity that triggers it,

What was the trigger that started the US market decline in San Diego in 2005 or the decline in Alberta in 2007?

If prices exceed levels justified by rents and incomes, more housing will be built than people are willing and able to buy. This imbalance of supply and demand will cause the market to turn without any external stimulus. Bubble markets are pyramid schemes. There are only so many greater fools and they have to run out eventually.

Anonymous
Anonymous
11 years ago

People buying real estate right now must be retarded! No upside gain in the near future with lots for downside risk. Talk about stupid people.

Mario
Mario
11 years ago

Here is my opinion – I would strongly recommend that you think twice before purchasing a Millenium developed unit….my colleague purchased one, and has had nothing but trouble. Metrocan construction will not, I repeat will not fix your deficiencies, and have cut so many corners, there are problems with new units….and Metrocan is the same contractor used for the olympic village. If you see the millenium/metrocan partnership, then run the other way…

What am I talking about, well, my friends unit wasn’t properly plumbed, so feces and urine would leak from the top unit down to his living room. Metrocan’s response: This is normal. Millenium, What goes around, comes around!

MickeyFinn
MickeyFinn
11 years ago

Keeping an eye on the Pimps… "Exactly!" The scholarly impartial experts seem so scholarly (and impartial) and they're so good at obfuscating. By the way, these "pundits" are correct that sub-prime mortgages were a major factor in fueling the run-up in prices in the US housing market (and they played a part in "triggering" the collapse). But although it is correct to say that we did not have sub-prime mortgages here in Vancouver we had our own brand of insanity that created our bubble. As I have previously suggested, in our case the run-up was driven by – amongst other things – demand from off-shore speculators. It was also driven by local specuvestors who were always quick to recite the old mantra: 1) they're not making anymore land here in the Lower Mainland, 2) development is constrained by mountains and… Read more »

Krish (actually bdk)
Krish (actually bdk)
11 years ago

Realize I did that I am biggest dumb and biggest stupid I was thinking price go up when really price go down and I stupidest dumbest for thinking you nutslaps don't know but nutslaps more smart than me I am biggest dumb.

I make big joke that north van realtor number wrong when price go down 13% and now big embarassed and biggest dumb I am.

scullboy
11 years ago

Drachen,

Unless Wolfey is a smokin' hot college boy, it ain't gonna happen and even then he'd have to be hotter than the smokin' hot college boy I just met. 🙂

Gosh, where are krrish, browntown et all? They finally disappared…..

Keeping and Eye on t
11 years ago

“As regards the Vancouver real estate market bubble, we are still in the calamity stage. The global financial crisis has shocked the system and is just “one of the triggers” that has sent Vancouver real estate into it’s current downward spiral and you are fooling yourself if you think we’ve seen all the pain of the financial global crisis” But these two scholarly impartial experts disagree: http://www.reportonbusiness.com/servlet/story/RTG… “The U.S. housing collapse was a crisis brought on by overuse of subprime mortgages. Thus, Mr. Tal said, it's important to remember that its peak risky mortgages made up 5 per cent of the market in Canada, compared with 33 per cent in the U.S.” Don’t worry it’s different this time, here: “At 70 per cent, the equity Canadians have in their homes has also been increasing over the past decade, while in… Read more »