IMF: House prices compound crisis

Pani sent in this link to an International Money Fund research department write-up on falling house prices in advanced economies and their impact on the macroeconomy.  There are some interesting global stats on housing market cycles there:

Between 1970 and 2005, the average house price cycle in advanced countries lasted about ten years, with an expansion phase of six years during which real house prices increased by about 45 percent. During the subsequent four-year contraction phase, real house prices declined about 25 percent, with the range of declines across countries varying from about 10 percent in the United States to over 30 percent in Japan and several European countries.

Of course the question is how much is the current contraction phase like the average?  And housing cycle contractions don’t always occur during recessions or credit market contractions.

Evidence suggests, not surprisingly, that the macroeconomic consequences are more adverse if they occur against the context of a weakening economy and tight credit conditions, which is likely to be the situation facing many countries at present.

Over the period 1960 to the present, recessions in advanced countries that are associated with house price busts and credit crunches are slightly longer and deeper than other recessions. The duration of a recession is more than one quarter longer in the case of a housing bust, total output loss during the recession is somewhat higher, and the unemployment rate increases notably more and for longer in recessions with housing busts.

According to the IMF research, when a housing bust happens during a recession it can double unemployment rates compared to a housing bust that occurs without a recession.

20 Comments
newest
oldest most voted
Inline Feedbacks
View all comments
tsunami09
tsunami09
11 years ago

Cant be long before we hear that Donald Trump is bankrupt for the 2nd or 3rd time… Cash+g.i.c= confy seat on the sidelines.:)

flyer
flyer
11 years ago

It's looking really grim for Intrawest. Fortress Investment Group, the investment firm that owns Intawest had its stock drop 10% today. It has since plunged a further 20% in afterhours trading. Whistler-Blackcomb will probably have a new owner soon.

Edge
Edge
11 years ago

@flyer

This will be the first year ever that I opt not to buy a Whistler Edge card.

The total expense of the sport has grown beyond my budget. Skiing has been a passion for years. Last year I skied fewer days. This year, I doubt I'll make any day trips to Whistler. Given my wages today, it feels like I'm getting jacked for gas, lift tickets, accomodations and ski gear.

I'm going to try snowshoeing and saving a little more rainy-day money this year. "The new frugality" as Mish suggests.

NO -LYMPICS
NO -LYMPICS
11 years ago

Vansanity:

That Ritz Carlton is that 60 storey twist thingy designed by our national treasure Arthur(don't call me Art) Erickson.(now everbody genuflect)

Prices starting from $2.5 Million to $10 Million.

I can't understand why construction would cease and why they ain't lining up to buy them.

Maybe throw in a a butler or a BMW ? or else drop the prices a few million.

ClamChowderhead
ClamChowderhead
11 years ago

The issue isn't the money it's the developer, he's hated in the industry and if you do some digging you'll see why. He has enough money to complete the project without outside funding. Wether he has the ablity to make it happen I doubt very much.

ClamChowderhead
ClamChowderhead
11 years ago

I'm going to date myself here but that site dates back decades, it was a Head office for Shell Canada. In the early 80s an asian tycoon bought the site and began dismantling it to turn it into a high end club kinda like the Vancouver club but geared more towards the high rollers instead of old money. The tycoon died before construction started the recession hit at the same time and the widow chose not to proceed.

Vansanity
Vansanity
11 years ago

Some of the details above are incorrect with respect to the history of the site. Anyway, this is pretty big news today. Ok, I'll shuttup now.

Vansanity
Vansanity
11 years ago

Ok, final bit… the signs are all taken down from the site too, I thought the hoarding looked different. It does look like its been put on hold due to financing. Watch the news tonight.

For the bears – Don't forget this is one of Bob Rennie's projects. Rennie Marketing has been trying to sell the units.

For the paranormal believers – What is up with that site? Remember when the Asian developers that were building that parkade went under. The half built parkade sat there forever! Is the site cursed?

Vansanity
Vansanity
11 years ago

UPDATE: Co-worker of mine was in the alley where there were 4 others checking out the hole where the Rits is going, one of them mentioned that the project has been put on hold due to financing. I haven't been able to confirm this.

Also, Holborn is the developer and their website is shut-down today. Anybody hearing anything on this?

flyer
flyer
11 years ago

Intrawest is another one of the dogs that fits in "consumer discretionary." Ski resorts, recreational vehicles and boats are categories that will be losers for several years.

EB
EB
11 years ago

"On the News was the entire chain ” Linen and Things” going belly up."

Not surprising. I went in there for the first time this weekend, thinking a Wicker Laundry Basket was just the thing for me, until I saw the price. Eighty dollars plus tax for some wicker? That's not a business model which will survive people tightening up.

john
john
11 years ago

Old age homes in BC are being built to replace old,outdated,crappy ones that are being closed. My grandmother lives in a new one which is much better than the old crappy one she was in that should have been replaced under the NDP.

Back on topic. Vancouver is the best place on earth and there's no bankruptcies or construction problems it's all just a blip. Rich asians are just waiting for the money to transfer into their accounts from the big stock market sell off to invest in Vancouver condos.

betamax
betamax
11 years ago

housing crash + recession = 1982 all over again, only with less savings, more debt, and interest rates are already at historical lows. Hang on to your hats.

NO -LYMPICS
NO -LYMPICS
11 years ago

I think the next parameter to pay attention to is the survival of collateral cling – ons to the Housing Boom. On the News was the entire chain " Linen and Things" going belly up. Watch the "bankruptcy" floodgates open across the board.

Also, the discretionary income is lapsing…institution like North Vans 80 + year old Tomahawk Restaurant are down over 30%.

The little guys will get hit much harder in the credit crunch than the big guys. The US bailout simply helped the big players…when its the little guys that often need it most. Or is it lip service re how Gov't says it values small business in the Big Picture?

Maybe Ritchie Bros stock is the best investment bet.

Vansanity
Vansanity
11 years ago

I work d/t next to where they're building the Ritz-Carlton. Today, there is nobody working on it, and even more alarming, CTV News and CBC were out there at lunch videotaping the hole in the ground and talking to people on the street.

I googled the name but found nothing. Anybody heard of a problem with this development? I'll be watching the news tonight.

For those who remember, this is the same site that sat as an unfinished above grade parkade for nearly 20 years along Georgia St.

NO -LYMPICS
NO -LYMPICS
11 years ago

No.

Whistler can NOT collapse(unfortunately)…Gordo and Co. , if given a choice given allocation of public funds, or in re-allocation of designated funds, would rather evict elderly from extended care homes than be embarrased by Ritchie Brothers gavel banging down loudly and frequently in an auction selling off Whistler while the 2010 luge , ski jumping and downhill skiing is happening.

We are world class , remember,image is priceless…we can't have our political leaders faces looking redder than a Baboon's ASS . My God, perish the thought you ungrateful wretches. PS Maybe Gordo and Co can have the elderly wave flags and sell those stupid looking Pokemon rip-off Olympic mascots.

VHB
VHB
11 years ago

"Connie picks up a total of $2,200, and she says it couldn't have come at a better time because her boyfriend drives a truck and the dump truck business has been terrible, and they just bought a house."

Oh man. You called it, Crash.

Crash
Crash
11 years ago

Here's someone who sounds like a forclosure waiting to happen:
http://tinyurl.com/59apws

Gadwin
Gadwin
11 years ago

LOL, the company running Whistler-Blackcomb is facing solvency issues because of the credit crunch:

http://www.cbc.ca/canada/british-columbia/story/2

Noooooooo, where we going to ski and snowboard now? Cypress and Grouse?

PS. I don't think Intrawest will go bankrupt but if they did, the provincial government will step in with tax payer money 🙂