CMHC to help cash-strapped owners
Looks like Ottawa sees some mortgage problems coming down the pipe even in these times of record low interest rates:
As the recession deepens, Canada’s big banks and its federal mortgage insurer are moving to head off a rise in defaults by homeowners.
Ottawa is launching a campaign to urge the cash-strapped to approach their banks for mortgage relief, as the banks adopt more flexible practices aimed at preventing borrowers from falling behind on payments. The measures by the banks and the Canada Mortgage and Housing Corp., the federal agency that guarantees mortgages, signal growing concern about increasing levels of household debt.
With house prices dropping, job losses rising and the economy not yet showing signs of recovery, both the government and lenders are pushing consumers to be proactive if they think they might have problems paying their debts.
Unfortunately we don’t seem to have many publicly available stats for mortgage debt in Canada, but I wonder how many ‘cash-strapped’ owners went in for the Government approved (but recently canceled) zero down 40 year CMHC mortgages to keep from being ‘priced out forever’?
The full article is at the Globe and Mail. Hat-tip to Observer for the link!
RSS 2.0 comments feed. Both comments and pings are currently closed.
March 24th, 2009 at 10:42 am
The government may want to suggest that the cure for my ‘mental problem’ and lack of confidence is to get out and be more proactive, but I’m not buying that either.
a) Bankruptcies continue to climb, up 21% in last count.
b) macro economic scenario globally continues to deteriorate, bad news for Canadian suppliers of goods and services.
c) Unemployment continues to accelerate , with BC now leading the number of new EI claims nationally.
d) Housing prices continue to fall as forced sales and auction type sales become the norm.
e) The Mounties get thier man (if a lieing sleazebag is what your after) in Constable Robinson , the fourth cop to admit he’s been lying to the Braidwood Inquiry. He’s assigned to the Olympic Security detail, stay off the streets or risk being mowed down by this drunken murderous idiot.
March 24th, 2009 at 10:44 am
Yet one more thing that, while happening in the US, was never, never going to happen here.
March 24th, 2009 at 10:56 am
I think this article is a classic case of a wolf in sheep’s clothing. The banks are losing money on variable rate loans, especially those below prime. Yes, they borrow from the BOC at lower rates but the banks have other costs too.
They are doing this to try and get people to lock into a rate, that way they can CHMC stamp it and sell it off the BOC. This isn’t about saving homeowners, this is the govt and the banks slowly doing what Bernanke did with Fannie Mae/Freddie Mac in a much quieter way.
If the bank can write off a payment, lock in the rate, then carve the loan off their books, it’s a huge win for the banks. For the homeowners it’s a shot of adrenaline to save their life. If they go back to smoking, drinking and 5000 calories a day they will die quickly. If they get their crap together, they just might make it.
I won’t be outraged until they suggest writing off principal with the government supplementing the write-off.
March 24th, 2009 at 11:05 am
We’re slowly inching towards the inevitable CMHC bailout….
March 24th, 2009 at 11:50 am
Every once in a while a gem of truth slips out of the labyrinth of stas can
“The number of Canadians receiving employment insurance benefits was up 22.8 per cent in January from the record low recorded in February, 2008, and consumer bankruptcies were up 21.7 per cent year over year in January.
“The source of it is the same: the poor labour market and economic conditions in Canada,” Mr. Mulraine said in an interview.
“As people get displaced from their jobs, they find it increasingly difficult to pay their bills.”
Statistics Canada’s employment insurance report “underscores the growing distresses in the Canadian labour market and suggests that not only is the pace of job losses in Canada continuing to be very brisk, but that displaced workers are finding it increasingly difficult to find new jobs,” he said in a research note.
“And in the coming months, with the Canadian economy expected to weaken further we should see this indicator edge even higher as businesses continue to cut back on the size of their work force,” Mr. Mulraine said.”
No matter what the real estate whores on CKNW, Corus Entertainment, REBGV, CREA, Rennie marketing etc etc, the big picture is screaming at you ” DON”T DO IT !!!!!!”. The CDN buisness climate is only beginning to slide into recession and it’s going to get much worse as confirmed by the ever loquacious Statistics Canada.
March 24th, 2009 at 11:54 am
Don Lapre:
It’s not a bailout of the banks. The mortgages were insured by CMHC at the time they were made at the expense of the borrower. CMHC has a contractual obligation to the banks to guarantee the principal of the mortgages. If CMHC wants to sponsor a program to avert defaults, they are not doing the banks a favour. It’s because it’s in their own interest.
Now of course there is a case to be made that CMHC’s underwriting was far too lax (0/40 and all that), but that isn’t the banks’ fault, that’s the government’s fault.
Now if what you mean is a bailout of CMHC by the GoC in the case it exhausts its reserves, well that’s another issue. That would have to be authorized by Parliament, and I can’t think of anything that Harper would rather not do – it would bring lie to his claims that “it’s different here” and that the Cons have been responsible economic managers. Much more likely I think that CMHC would just quietly borrow money on the bond market, as it has already been doing for a long time. CMHC has a Crown guarantee and they can borrow for the same rates as the GoC itself – i.e. very cheaply.
March 24th, 2009 at 11:55 am
OTTAWA — The number of people receiving employment insurance benefits rose to 567,000 in January, a 21.3% jump from the year before.
British Columbia saw the biggest percentage increase, rising 47.7% from last year, followed by Alberta, 46%, and Ontario 43%, Statistics Canada said Tuesday. But Ontario, where the manufacturing sector experienced heavy layoffs, suffered the biggest number increase with claims rising by 54,570 from the year before.
“In recent months, labour market conditions in Canada have deteriorated significantly,” the agency said in its report. “Through the early part of 2008, employment growth weakened, only to fall sharply later that year and into 2009, causing a spike in the unemployment rate. By February 2009, the unemployment rate hit 7.7%, up almost two percentage points from a record low at the start of 2008.”
http://www.financialpost.com/story.html?id=1422130
March 24th, 2009 at 12:08 pm
jigisup:
If your job is on shaky ground, then holding off on buying real estate is good advice. However, most people do just fine in recessions and are not at risk of losing their jobs. You can’t make a blanket recommendation for everybody to not enter the market. That’s just silly.
March 24th, 2009 at 12:12 pm
Dave:
You can’t make a blanket recommendation for everybody to not enter the market.
Well yes you can Dave. If just 5% of homeowners lose their jobs and have to sell their houses or get foreclosed, what will that do to prices?
Where were you in ‘82?
March 24th, 2009 at 12:22 pm
Really? You are willing to make a blanket statement like that? You think that nobody should enter the market.
This isn’t 1982. Prices skyrocketed in the prior years and the crash only gave up about a year of gains. If this is 1982, then we have already passed the period of time from peak to trough.
5%? Really? Do you really think unemployment is going to go up by 5%? Do you really think that all 5% are homeowners as opposed to renters? Do you really think that 100% of that 5% still have mortgages, don’t have savings and/or don’t have a spouse with an income?
I was in school in 1982. Apparently, you weren’t paying attention in math.
March 24th, 2009 at 12:31 pm
Dave:
This isn’t 1982.
Really now? We are 10 months past the market top and prices are already down 15%. That decline is just as fast as the decline from the market top in 1981, and unemployment in BC is just starting to take off.
Come back when the nominal % decline during this bust exceeds that of the early 80’s – and I’m now sure it will happen – and tell us why “this time it’s different”.
March 24th, 2009 at 12:41 pm
I don’t know if this has already been posted, but it’s an interesting article on the troubles facing Miami’s “condo king”.
http://tinyurl.com/cbanux
Good times…
March 24th, 2009 at 12:43 pm
“You can’t make a blanket recommendation for everybody to not enter the market.”
Agree completely. At the end of the day, money is just money. An exchange of economic productivity for things. If you want the home-thing, and are willing to pay, and have your eyes wide open about the risks of a) paying more in debt servicing a few years and b) having the home-thing fall in value, possibly substantially, over the short to mid term (and, gasp, possibly even long term), then who is anyone to say you shouldn’t buy.
On the other hand, if you are buying for the sake of buying because you think buying is always a good investment, or you HAVE TO BUY or end up as a non-person renter type adrift in an existential hell — well, then that’s a crazy-ass mistake.
Look, if I hated my job, and someone offered me my dream job even though it paid substantially less than what I make now, who would recommend not taking the dream job just because it is financially not the wisest choice?
I say this as someone who happily rents and thinks real estate is a really really really crappy investment right now. I also say this as someone who knows a number of people who have bought in the past few years, and you know what? They are all genuinely happy with their decisions. Tell them they shouldn’t have bought.
All that realtor twaddle about “buy if you can afford it and don’t foresee selling for a long time” is actually OK advice — the problem is it tends to be acted on by the wrong people.
March 24th, 2009 at 12:47 pm
Dave, you’re a bit of a window licker, aren’t you?
Even if unemployment rose by 2% and half of them were home owners, that would mean a lot of over leveraged, unemployed individuals. Spousal help? How many of those laid off people were one half of “I buy three my huzzba buy three” over leveraged Donald Trump wannabes?
How many “motivated sellers” does it take to turn a town market into a tailspin? My guess is only a few hundred, if that. If sales are flat and a couple of desperate, paniced people slash their prices because they *must*, that would be the pebbles that strt the avalanche.
Have you been paying attention at all? In the last few years the average savings in BC households was about -8%.
Very shortly we’re going to have an entire city full of people desperate to cash their phantom real estate wealth back into liquidity. They’re going to discover the painful gap between “paper fortunes” and “money in the bank”.
We have a province full of greater fools. The tide’s going out and we’ll soon see who has been swimming naked. Pick your cliche then get the popcorn, the show is about to begin.
March 24th, 2009 at 12:51 pm
You know what I wish? I wish all those jokers who were hanging around bear blogs in 2005, patronizingly arguing until they were blue that there’s no way there were going to be defaults on mortgages while interest rates were so low — “..but in the 80s there were rates of 18%. You guys just don’t remember that, you don’t GET it…”
I wish they’d come back and explain again how with low enough interest rates, a trillion dollar price tag is affordable housing and good value to boot, which is why no one at all is anywhere close to defaulting, and there are first time buyers flooding the streets….
After hearing yet another round of hoocouldanode on the news, I’m getting sort of sick of it.
March 24th, 2009 at 12:51 pm
Dave, I really doubt we’re anywhere near a trough, which in fact would indicate a bottom. The fact is prices continue to deteriorate as negative economic factors slowly filter through the tightly held denial and propaganda of government, industry and a whoring media.
This is certainly not 1982, I wasn’t in school, I got to live through that mess in real time as an adult. Prices collapsed in 1981 and had lost an average of 54% by 1985. It was only apparent to ‘main street’ that prices had troughed and the recession was waning in late 1986 and 87. I would say the most of the gloom had lifted in 87 but there were still lots of people who took much longer to recover. Some never did.
If this is going to be a repeat of every other recession in the last 70 years then we haven’t even started to see the worst. By the numbers it will get much worse as was the case outlined by Statistics Canada this morning in the National press conferance they held in Ottawa.
Unemployment is only ‘officially’ stated at 7.7%. we all know that it is much higher because the hedonic measurements such as seasonal adjustments, revisions, underemployment, bankruptcy, self employment, new part time and youth part time season employment are not factored in to the headline numbers. The government of Canada is forecasting 10++% by 4th Q 09 unemployment as is the forecast with most major economic forecasts.
It will be undoubtedly higher as it was in the 1980’s when huge numbers of people stopped being officially unemployed when they no longer able to collect benefits. What we saw in the 80’s was a swelling of the welfare rolls. People on welfare are not counted as unemployed because they are off the EI radar.
Based on the economic forecasts and an eye on the historical behaviour of all recessions ( which most agree that this one will be one of the worst) then we can make an educated suggestion to avoid the real estate market for at least anothe few years as we will most likely see much lower prices after the bubble euphoria is swept away in it’s entirety. The current optimism is misplaced and smack s of desperation.
March 24th, 2009 at 12:52 pm
patriotz:
You’re sure? I’m not. I’m pretty optimistic about BC pulling through this recession just fine.
Back to 1982… If you bought a home JUST three months before the peak, you would only lose 12% by the time the market bottomed. Further, you would have been even in price in less than one year from that bottom.
March 24th, 2009 at 12:54 pm
“Come back when the nominal % decline during this bust exceeds that of the early 80’s – and I’m now sure it will happen”
Hey Patriotz, I read this blog often and respect your opinion. Percentage-wise, if we’re now down 15%, where do you think the bottom will be this time?
I’ve also been hearing a lot about hyperinflation to come in the next few years, and if that is true, it won’t be a good idea to be sitting on a pile of devaluing cash. Typically real estate is a good investment during hyperinflation, but does this make sense in the Vancouver market? Will there be a point sometime in the next few years where we reach an axis between falling real estate prices and rising inflation where it makes sense to turn that cash into a real estate asset?
March 24th, 2009 at 12:55 pm
“Look, if I hated my job, and someone offered me my dream job even though it paid substantially less than what I make now, who would recommend not taking the dream job just because it is financially not the wisest choice?”
Your creditors
March 24th, 2009 at 12:55 pm
A point of clarification: what is a “window licker”?
March 24th, 2009 at 1:07 pm
” I also say this as someone who knows a number of people who have bought in the past few years, and you know what? They are all genuinely happy with their decisions. Tell them they shouldn’t have bought.”
I don’t know if I agree with what you’re saying. It is very rare for people to admit that they are sorry they bought. It’s embarrassing. If I was in their shoes, I would tell people the same thing. You only talk to very close friends and family about something like that. I probably wouldn’t tell a friend who had told me that it was a bad decision. But if someone purchased next door from me, and paid $150,000, I wouldn’t feel good about it.
I also think it depends when they bought. Some of my in-laws bought 2 years ago, and said they were looking at the long-term. But now they do have some regrets, because they bought at the peak, and so they are the first to lose value in their homes. People I know who bought 3 or 4 years ago are still very confident that their homes’ retaining at least the value of purchase price. It is much easier to be philosophical if you don’t think you’ve actually lost anything.
I have a friend who I counselled not to buy a few years ago, and she did. She admitted she was avoiding me for fear I would say “I told you so” (I wouldn’t). But outwardly, and day-to-day she is happy with her decision.
The only time I tell people that it’s more about their happiness, is if they already bought. And I only say it to be nice and to make them feel good. But I actually think that wasting tens of thousands of dollars due to impatience is dumb. Think how many hours a person has to sacrifice to earn that, after taxes.
March 24th, 2009 at 1:08 pm
“what is a “window licker””
It’s a nasty term for mentally handicapped people.
March 24th, 2009 at 1:10 pm
buzzkill:
Prices collapsed in 1981 and had lost an average of 54% by 1985.
No they didn’t. The market lost 33% peak to trough. Keep in mind that the peak was one hell of a run-up. Further, the market bottom price of $150k was past just 2 quarters prior to the peak. In other words, most buyers never experienced a nominal loss.
Let’s look at that time again in relation to average Vancouver prices:
1975 – $75k (never to be seen again)
1983 – $150k (never to be seen again)
1991 – $300k (never to be seen again)
2006 – $600k (never to be seen again?)
If we could play the 80’s out again, I would take that in a second. I would even buy one year past the peak. Wouldn’t you? If not, why so greedy?
March 24th, 2009 at 1:17 pm
And Scullboy’s use of the term shows what an arxehole he is.
His use of phonetics suggests he is also a racist prick.
March 24th, 2009 at 1:17 pm
Have you taken your med today yet, Dave? Are you even living in BC like the rest of us? With unemployment going up like this in BC, we will definitely see big tix item going down in price (like house and car) simply because ppl just cannot afford it. Just wait till the national unemployment rate hit 10% comes this Summer, BC will be around 9% and VAN will be around 8%. Olympics will not save us except for a couple of months.
March 24th, 2009 at 1:18 pm
17- And when did said purchasers break even in inflation-adjusted terms?
March 24th, 2009 at 1:29 pm
Don Lapre:
Who cares?
Did their salaries go down because of inflation?
Did their mortgages go higher because of inflation?
March 24th, 2009 at 1:31 pm
“5%? Really? Do you really think unemployment is going to go up by 5%? Do you really think that all 5% are homeowners as opposed to renters? Do you really think that 100% of that 5% still have mortgages, don’t have savings and/or don’t have a spouse with an income?”
That number is arbitrary, pulled out from the air with no rationale behind. 5% just sounded sexy.
March 24th, 2009 at 1:38 pm
Raven:
I also like the use of the word ‘just’ to imply 5% was somehow a conservative expectation.
March 24th, 2009 at 1:48 pm
27-
1)People concerned with meaningful fundamental analysis who want apples to apples comparisons, not misleading figures.
2)Yes in adjusted terms
3)Yes in adjusted terms
March 24th, 2009 at 2:02 pm
Don Lapre:
1) In the real world, people use nominal dollars. People get paid in nominal dollars and take out mortgages in nominal dollars. That’s meaningful. People don’t care about imaginary numbers made up by an arbitrary basket of goods.
2) And so?
3) And so?
What is the purpose of correcting nominal dollars into real dollars?
March 24th, 2009 at 2:09 pm
1)I think you meant people LIKE YOU don’t care about inflation-adjusted figures, and it is for this and I’m sure many other reasons that you cannot complete the most basic financial analysis.
2)Declining standard of living amongst other issues
3)See #2
March 24th, 2009 at 2:15 pm
“I wish all those jokers who were hanging around bear blogs in 2005, patronizingly arguing until they were blue that there’s no way there were going to be defaults on mortgages while interest rates were so low — …I wish they’d come back and explain again“
If wishes were horses…
Those same people will twist things around again and say they always knew what was going to happen, or that no one knew what was going to happen, or whatever. They will never be “wrong”. On these boards, you can see that Raven likes to call herself “a happy bear”. I guess everyone likes to feel like they’re right. Everyone’s a clever bear these days. It’s quite fashionable.
You must have noticed your acquaintances giving you a little lecture about the crash? Telling you not to buy? It turns out, there’s very little satisfaction in actually being right
(The trick is not to care and just do what you think is right).
March 24th, 2009 at 2:26 pm
“Real Estate can only crash when interest rates are 18%”
-guy who never heard of Japan.
Here, all save you from making your next quote.
“It’s different here. Vancouver is limited by geography”
-guy who never heard of Japan or Tokyo
March 24th, 2009 at 2:26 pm
1) Really? I challenge you to ask some ‘real world’ people if they use inflation adjusted figures when looking at their salary or mortgage. I have a hunch, it’s a small minority.
2) How so? And please define, ‘amongst other things’.
3) See #2, backatcha
March 24th, 2009 at 2:33 pm
Dave @31 – Over 20 years productivity in real dollars is up, as are mortgages, but wages in real dollars are constant.
The reason this matters is the big picture, the aggregate economic machine and how it runs.
Using that big picture, lots of people saw this particular market collapse happen.
It seemed pretty simple – if your growth comes from credit, you’re borrowing from tomorrow to fuel today.
At the most extreme, the nominal picture makes that equation obvious – 18% interest on retail credit per annum and wage increases at 1-2%, and someday the aggregate consumer is going to tap out and have less money to spend on stuff because they’re clearing debt. Those numbers are pretty clear. And there was a lot of handwaving about further increases in productivity and other invisible pink ponies that would save it all.
But to actually see the subtler picture, real dollars mean you’re actually seeing what’s happening.
Nominal always comes back to the individual, and it’s too easy who make wishes on your own wallet — or worse, assume that your particular financial scenario and how that works is what happening with the rest of society. We can keep looking at individuals (I’m fine, other people are idiots) but the big picture has been pretty clear for awhile.
Markets include everybody.
March 24th, 2009 at 2:35 pm
Dave:
#23 , Sorry Dave but the REBGV simply doesn’t publish the raw data in any specific market segment and what you see from the REBGV stats are aggregate average figures.
You need to be more specific in evaluating real estate prices and values which is not what the REBGV does ( or BC Assesment for that matter even thogh thety have the ability to do so it is not thier mandate)and how it fools many unsophisticated members of the public who have no education in statistics or evaluation.
They seem to use the fact that most people don’t understand the market specifics to promote thier own silly nonsense and thier blather always falls apart whenever specifics are published by an independant body.
Anyone who states that real estate prices were only down 12% for a few months in the 80’s is drowning in kool aid.
March 24th, 2009 at 2:43 pm
Arwen, you’re being nice to Dave by trying to explain it to him in a gentle way, but don’t bother. He’s been around here long enough and heard it over and over again.
I could spend the effort to prove the claims he’s making here false, like I usually do, but what’s the point?
Don’t feed the troll. He’s been proven wrong over and over again – no point arguing with him. He doesn’t get it and he never will.
March 24th, 2009 at 2:45 pm
buzzkill:
You are misreading my posts and don’t know the data source. The data was taken from the UBC Sauder webpage which is based on a Housing Price Index for average homes in Vancouver. The data is sound as is my use of it.
Nobody said the market went down only 12% from the peak. I suggest you read the post again.
March 24th, 2009 at 2:50 pm
Arwen:
Arwen, my question could have been more precise. Whilst I agree with much of your response, it doesn’t address the larger context of my actual question. What I meant to ask was… What is the purpose of correcting nominal dollars from the perspective of an individual homeowner?
Don asked me when our imaginary homeowner broke even on a ‘real dollar’ basis. I said, who cares? I have yet to hear an answer.
March 24th, 2009 at 2:55 pm
heres a good example of how governments play silly buggers with statistics and how easy it is for a desperate owner to grasp onto whatever number is easier to swallow. In the following example is the market up or down. It depends on which numbes appeal to you. The whores will take the positive ( even though it’s also down) to spin in a positive light, the realists will quickly see that they’re talking crap.
“Home prices post 6.3 pct annual decline in January
Email this Story
Mar 24, 10:45 AM (ET)
WASHINGTON (AP) – A government report says U.S. home prices fell 6.3 percent in January from the same month last year.
The Federal Housing Finance Agency says prices, on a seasonally adjusted basis, rose 1.7 percent from December to January.
Changes in the geographic mix of sales explained the unexpected monthly increase. Home sales included in January’s data were weighted toward areas that haven’t borne as much of the brunt of the housing recession, the agency says.
The government index is calculated using mortgage loans bought or guaranteed by federally controlled mortgage-finance companies Fannie Mae (FNM) (FNM) and Freddie Mac. (FRE) (FRE) It is down 9.6 percent from its peak in April 2007.”
March 24th, 2009 at 3:03 pm
ella:
It is hard to say, isn’t it. Most people avoid contemplating regret, and are rarely honest with themselves, let alone others. But most people muddle through and make the best of what they have and are either capable of forgiving themselves for good faith screw ups, impose hindsight justification, or avoid thinking about it entirely. Hey, I regret not buying in 2001. But whaddyagonnado, my head (as well as my wallet) was somewhere entirely different, and despite that non-decision, life is still good. People buying overpriced real estate will live through the flipside of my hindsight 2001 non-purchase decision, and most will live just fine in the home they chose, though they may be a bit sheepish if you ask what they paid.
Amyway, I don’t want to argue the point too hard, because I have already voted with my actions here (happy renter blah blah blah). But the essential point that started it was that there was only one “blanket recommendation”, which I didn’t agree with. Many people are quite content to do financially unwise things: drop out of life and travel, go to grad school, buy a sailboat, marry the wrong person, own a rec property, get cosmetic surgery, have kids, whatever. Yet the transaction (forgone wealth vs the benefit of travel or rhinoplasty or darling darling children) is perfectly acceptable to them. Same goes with buying overpriced real estate. Unwise, you bet. Acceptable, maybe. Happiness enhancing? Possibly.
Now if the question is — is buying now a recommended financial/wealth-building/profit maximising strategy? The answer is — are you nuts???
March 24th, 2009 at 3:22 pm
Don asked me when our imaginary homeowner broke even on a ‘real dollar’ basis. I said, who cares? I have yet to hear an answer.
I care, and so do most people here.
And so does everybody else who is utterly baffled, gobsmacked, confused: everyone who thought they were making the right decisions to find their assets bleed their worth away, whether or not they account that way or use that language to describe what’s happening to their family’s income.
“Declining standard of living” pretty much sums it up. So does “Worldwide liquidity crisis”.
I’m a software engineer. People might not “care” to use my language to describe the malfunctions within a system, but they sure do care if the system overpromises and underdelivers. They care if all their data goes missing. They care very much about the fundamentals, even if they have neither the jargon nor the detailed understanding. You can tell how sound something is – in real terms – by its performance.
So. Who cares? Specifically, some care about the jargon, and others care about the performance.
March 24th, 2009 at 3:27 pm
Ah, and Dave, who’s here tends to be people talking about the system. So. Like doctors speak medical jargon, lawyers speak legal, and software engineers worry about algorithms, people here are suggesting that IN REAL TERMS the homeowner who doesn’t break even is suffering an economic effect, which he or she may only observe through symptoms like having to spend more on credit to maintain the same standard of living, which in turn has a systemwide effect.
You may not use those terms, and that’s fine. You may only notice the symptoms. Or maybe you don’t have that particular symptom. That’s fine. Did you notice there was a bit of a churn in the markets?
March 24th, 2009 at 3:28 pm
I noticed that Dave is asking great questions but people are giving him the red arrow. Goes to show you here that the bears don’t want to listen to his questions and they’re very one-sided.
March 24th, 2009 at 3:28 pm
Arwen:
Nice speech, but it doesn’t address my question.
March 24th, 2009 at 3:36 pm
In the 81-82 recession, the Dow fell 24% from top to bottom. Vancouver’s real estate fell 33% from peak to trough. Unemployment in BC went from 6.7% almost doubled to 12.2%.
In this current 08-09 recession, the Dow fell 54% from its peak. I think it has already priced in a depression when it fell to 6500 and shot right back up when depression is off the table. Vancouver’s RE has fallen so far 15.3% from peak. Unemployment in BC went from 4.5% to 6.7%.
No two recessions are exactly alike, so it’s not very useful to compare the two. The 81-82 recession was triggered by monetary policy to reign in inflation, so as interest rates soar, the prices of RE plunged.
This recession is unprecedented, with the governments doing the opposite, dropping interest rates near zero. Certainly RE prices will fall due to increasing unemployment, but as you can see, BC’s unemployment ain’t that bad compared to 81-82. Even if it surges to 8% or the worst case scenario 10%, you’ll see some impact to RE prices, but the low interest will mitigate that. I think that’s why Vancouver’s RE hasn’t fallen as fast as it should have.
According to this chart: http://www.canadian-housing-pr....._chart.htm , we should be at 2005’s prices in April 2010. I think that’ll be the bottom.
March 24th, 2009 at 3:45 pm
“I noticed that Dave is asking great questions but people are giving him the red arrow. Goes to show you here that the bears don’t want to listen to his questions and they’re very one-sided.”
Pessimists high-five themselves and each other, call folks with contrarian views trolls and vote them down. I’m not surprised if it’s just one or two folks signing off and on multiple times just to click the ‘red arrow’.
March 24th, 2009 at 3:51 pm
Raven:
I think a lot of the pessimists are experiencing ‘group think’. I mentioned that on Friday but most post vanished.
I find it interesting that some people find it OK to attack contrarians (e.g. scullboy above) but then demonstrate indignation when a contrarian responds in kind.
March 24th, 2009 at 3:51 pm
Dave, then you’re not asking the question very well.
March 24th, 2009 at 3:56 pm
If the question is:
Don asked me when our imaginary homeowner broke even on a ‘real dollar’ basis. I said, who cares? I have yet to hear an answer
Answers, in order of explicit dependence on real dollar answers;
1) Me.
2) My homeowning friends.
3) My bearish friends.
4) My economist friends.
5) The economy as a whole.
6) Every person who wonders why their dollar goes less far and wishes they had an answer as to why that was the case.
March 24th, 2009 at 3:59 pm
Arwen:
I thought I clarified my question fairly well. I can’t simplify it anymore.
Your response seems to suggest that you believe these ‘magical real dollars’ cause the theoretical homeowner (again, we are talking about the guy who bought before the 81 peak) to suffer some type of economic consequence up to the point their home appreciates back to real dollars. Please explain this.
March 24th, 2009 at 4:05 pm
Arwen:
And your response confirms my suspicion that you don’t get it. Do you understand that his mortgage remained in constant dollars? Do you understand that his salary went up over time in nominal dollars? Why in the world do you think this person is somehow worse-off? Why would his dollar go, as you say, ‘less far’?
March 24th, 2009 at 4:17 pm
Bigger question is why, with credit so cheap, are RE prices not skyrocketing? Worst news for the economy is not out yet and interest rates have been artificially pushed down (U.S. gov’t purchase of treasuries – if you don’t understand why please read about price/yield relationship of long bonds and effects on mortgage rates). Please tell me what happens when crisis is averted and economy normalizes or worse yet when inflation bogey reappears. Remember unless you plan on paying off your mortgage within the fixed term your playing with a variable rate mortgage. How many people with a mortgage could afford to increase their payment 25%-50%-100%+ it’s happened before please don’t tell me it’s different this time.
ps I need some of that weed MAC mkting dept smokes “passing savings along to the consumer” – Wow, Cannonball coming!
March 24th, 2009 at 4:24 pm
Doses of pessimism is fine, but prolonged pessimism leads to self-fulfilling prophecy.
I got a chuckle from Dan’s post:
“A lot of people reading this blog watched real estate go up over the past few years, will watch it go down over the next few, and then will watch it go back up again. Some people will always be waiting for the perfect time to buy.”
Indeed.
I’m reminded of my uneducated, subprime borrowing parents who bought a house for $265K in 1997 when all the economic indicators (including price/rent ratio)in BC were bad. Then of course, RE fell slightly and didn’t budge for 6 years. They probably would have avoided people like Ella (“SEE! I TOLD you so!”). Then in 2005, turned around and sold it for $122,000 over it’s inflation value.
The economy makes us all fools at one time.
March 24th, 2009 at 4:33 pm
Raven
Your not entirely correct on the 1980’s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.
The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more. Fundamentals ALWAYS win in the end. This crash started before all the layoffs were widely reported, in fact the average Joe is still oblivious to what is about to happen. Once the bad economy is in full effect in BC, Realestate will be a dirty word.
This market has AT LEAST another 30% to go down…
March 24th, 2009 at 4:43 pm
Arwen,
“Amyway, I don’t want to argue the point too hard”
Yeah.
I guess, I find it a disingenuous argument on the part of realtors because it takes advantage of the fact that people are pretty comfortable with the idea of risk, when the risk isn’t present.
For example, many people enter the stock market imagining they will be tough and buy-and-hold. But when things go sour, they panic and want out. Someone buying during a run-up thinks that they are OK with the risk. But you don’t know if you are really comfortable until you are actually having trouble selling, or see people get comps for less than you.
10 years ago, when real estate wasn’t fashionable, everyone seemed capable of being happy and proud of their homes without owning. Now the trend is reversed. When the trend swings back, how many will really feel like it was worth it not to wait a few years? And I’ve only just begun to hear homeowners refer to eachother as having bought “before the crash”. Oops, there goes that pride of ownership.
March 24th, 2009 at 4:47 pm
“Real Estate can only crash when interest rates are 18%”
-guy who never heard of Japan.
wow. I’m jealous of your ability to get to the point in 6 words.
March 24th, 2009 at 5:01 pm
“Someone buying during a run-up thinks that they are OK with the risk”
Uh-huh. And is someone waiting out a market correction similarly OK with the risk that the correction won’t be as rapid or as severe as they think?
March 24th, 2009 at 5:46 pm
Life is like that sometimes…there are economic ebbs and flows.
So what? Ride out this ‘bad time’ and enjoy during ‘good times’.
There, problem solved.
March 24th, 2009 at 5:49 pm
“Uh-huh. And is someone waiting out a market correction similarly OK with the risk that the correction won’t be as rapid or as severe as they think?”
In my opinion, yes. But it’s subjective.
To me, there is a difference in experience being priced in or priced out. Priced out only means you can’t own. You can have a place to live that’s nice (and despite what people say I’ve painted, had pets and gardened while renting), and you can still invest your money in something else. It may be frustrating, but there are options open.
Priced in (if your house falls below market value) means you have to stay put until the market corrects. Your money is tied up indefinitely. In Canada, where many mortgages are 5-year, I would add living in fear of interest rates to that priced in feeling. UNLESS you can rent for about even. That’s a different story. But if you bought later in the run-up you can’t do that either.
If I had to pick between priced in and priced out, I would choose priced out. But as they on the internets YMMV.
March 24th, 2009 at 5:52 pm
Let’s play with numbers… Here are some NOMINAL made up numbers:
Year 0 – Income $25k, House $100k
Year 5 – Income $50k, House $150k
Using 100% inflation, in ‘REAL’ terms:
Year 0 – Income $25k, House $100k
Year 5 – Income $25k, House $75k
Now let’s compare two buyers: the first in Year 0; and, the second in Year 5. Who is better off?
March 24th, 2009 at 5:52 pm
“then demonstrate indignation when a contrarian responds in kind.”
Maybe it’s nothing, but I think it’s interesting that Dave and Raven both refer to themselves as “contrarian”.
Just a note.
March 24th, 2009 at 5:54 pm
“Let’s play with numbers… ”
What a lovely idea.
Tell you what, you take those numbers over to your place, and we’ll be over in a couple of minutes. Honest, we’re right behind you…
March 24th, 2009 at 5:55 pm
“Raven Your not entirely correct on the 1980’s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.”
Please provide your sources. Here’s mine:
INTEREST RATES: http://www.mississauga4sale.co.....ically.jpg
Pg 7 chart from Real Estate Board of Vancouver: http://www.scribd.com/doc/1162.....nuary-2009
Have a look–Does it not look like the interest rates were 10.5% when the RE market peaked in 1980? Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%?
“The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more.”
Prices were high because inflation ran up. Then the gov’t reigned it in by increasing interest rates, triggering a global recession.
March 24th, 2009 at 5:56 pm
“Raven
Your not entirely correct on the 1980’s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.”
Please provide your sources. Here’s mine:
INTEREST RATES: http://www.mississauga4sale.co.....ically.jpg
Pg 7 chart from Real Estate Board of Vancouver: http://www.scribd.com/doc/1162.....nuary-2009
Have a look–Does it not look like the interest rates were 10.5% when the RE market peaked in 1980? Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%?
“The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more.”
Prices were high because inflation ran up. Then the gov’t reigned it in by increasing interest rates, triggering a global recession.
March 24th, 2009 at 5:57 pm
What’s wrong with being ‘contrarian’?
March 24th, 2009 at 5:59 pm
“Your not entirely correct on the 1980’s and interest rates. If you check the rates with the prices you will find that in fact RE was going up as the interest rates were going up and the crash was in full force as the rates were in fact going down.”
Nope. Interest rates were 10.5% when the RE market peaked in 1980. Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%.
“The crash happened for the basic reason that started this one. Prices are way too high and affordability is a joke caused by specualtive excess. Nothing more.”
Prices were high because inflation ran up. Then the gov’t reigned it in by increasing interest rates, triggering a global recession.
March 24th, 2009 at 6:01 pm
Dave Says:
March 24th, 2009 at 3:51 pm
Raven:
I find it interesting that some people find it OK to attack contrarians (e.g. scullboy above) but then demonstrate indignation when a contrarian responds in kind.
hmm
Raven Says:
March 23rd, 2009 at 12:07 pm
“…I take offense to people quick to define me because I offer up a contrarian but highly relevant view. And when the likes of you criticize my investment decisions and question my intelligence, I am put in the position to stand up for myself.
March 24th, 2009 at 6:04 pm
“What’s wrong with being ‘contrarian’?”
Nothing. I think most of the people on here are contrarian.
How often do you hear people call themselves contrarian?
It’s just a thought.
March 24th, 2009 at 6:05 pm
What’s your point, Ella?
March 24th, 2009 at 6:07 pm
Ella, seriously? About as often as i hear others complain about folks referring to themselves as contrarian.
Screw it…let ‘em call themselves whatever they choose…as you will call yourself whatever you choose.
Hell, agree to disagree.
March 24th, 2009 at 6:07 pm
What, did someone copyrighted “contrarian” specifically for RE bears?
March 24th, 2009 at 6:20 pm
There is an update on CMHC in CNBC:
http://www.cnbc.com/id/29862849
“UPDATE 2-Canada mortgage purchase plan may wind down – CMHC”
The program — which began with plans to buy C$25 billion in insured mortgage pools and was later expanded — aims to provide stable funding to banks so that they can lend more freely. Kinsley said talks with financial institutions indicated that credit flows have improved due to CMHC’s purchases of insured mortgage pools, which now total about C$55 billion. “We believe at this point in time there is a fair amount of liquidity in the system,” she said. “I don’t think we would say that the program isn’t going to be taken up as we go forward but I think that given the pace that we’ve been operating at, we’re probably going to want to slow it down a a bit given the needs that lenders have at the moment.” In the auction on Tuesday, CMHC offered to purchase up to C$4 billion in the mortgage assets, but weak demand resulted in it buying only C$1.6 billion.
March 24th, 2009 at 6:24 pm
#18 If you want a safe inflation protected investment, get some Canadian government Real Return Bonds.
March 24th, 2009 at 6:39 pm
“#18 If you want a safe inflation protected investment, get some Canadian government Real Return Bonds.”
Thanks, asp.
I found some information about them here:
http://www.bylo.org/rrbs.html
I have always found bonds the most confusing investing area. I don’t know why. I had to read the chapter on bonds twice in my Benjamin Graham.
March 24th, 2009 at 6:40 pm
“What’s wrong with being ‘contrarian’?”
you aren’t a “contrarian” if you are doing the koolaid enema trick….
but at least you aren’t talking with your mouth full…..
March 24th, 2009 at 7:21 pm
In terms of your REAL vs. NOMINAL, the buyer in both scenarios will not see a difference.
But compare him to the investor in GICs or bonds or a simple savings account, whose investment is stable and non-depreciating.
Plus, this scenario is sort of the opposite of what’s happened – it’s been more like year 0, 100K, year 5, 600K. Ownership hyperinflated vs. the yield/rental income of the investment and the real wage increases.
Rental incomes on a property are tied to wages; people have to spend on stuff other than their housing. And the economy needs all those people in rentals to spend money on things other than houses, so the discussion affects the economy two ways.
Which means your buyer who buys at the peak is more vulnerable given his/her total net worth, at least until he’s returned in real terms to what he paid — and then he still might be behind the ball depending how long it goes and how desperate rents vs. mortgages are.
To make it absurd but obvious, if I’m paying $3- to rent, or $100 to mortgage per month, then as a renter I can put $97-/month into investments that maintain value in real terms. That difference is the risk margin.
Plus there’s the vulnerability of needing to leave/buy elsewhere. If your hypothetical owner doesn’t need to move, or get divorced, or decide he hates the place, or need to retire before he’s gotten back to zero, he’s might not notice. But if he has to sell, he’s taken a hit, for the great joy of being responsible for the roof.
I think it makes sense for people to buy in any scenario that makes sense. If they’ve found a place they like and the numbers work – mohican bought and his numbers are solid, right? Plus there are the intangibles; if it’s something you love and in a location you like and you’re able to pay it and it doesn’t make you house poor (you can invest in other places), then it’s all good. But knowing that real estate has taken some time to rebound in real terms in our market is a good bit of information to have … if you’re not infinitely rich and retirement savings or education funds or what gets given to the kids is something you want to consider.
March 24th, 2009 at 7:24 pm
“you aren’t a “contrarian” if you are doing the koolaid enema trick….”
Special definition from blueskies’s dicktionary.
March 24th, 2009 at 7:32 pm
Arwen:
Yes there is a difference.
Buyer 1 has a much smaller mortgage in nominal terms in Year 5 than Buyer 2 and has built $50k of equity. He also happens to have more disposable income than Buyer 2 at Year 5 because he has a smaller mortgage.
Yet, your analysis using REAL dollars wouldn’t conclude this now would it? You would conclude that buying at the ‘REAL’ bottom is better.
March 24th, 2009 at 8:02 pm
Raven:
Nope. Interest rates were 10.5% when the RE market peaked in 1980. Then RE prices fell 33% in two years, the same time interest rocket up passed 20.5%.
Wrong.
5 year mortgage rates passed 10.75% at the beginning of 1979, before the start of the bubble. They continued rising as prices increased in 1979 and 1980.
The peak of the RE market was end of 1Q81. Rates at that time were 15.75%. Rates rose to 21.3% at the end of 4Q81, then fell to 17.5% at the nominal bottom at the end of 4Q82, and continued falling to 12.4% at the real bottom at the beginning of 1985.
Source: Bank of Canada, AVERAGE RESIDENTIAL MORTGAGE LENDING RATE – 5 YEAR.
March 24th, 2009 at 8:02 pm
Yes there is a difference.
Buyer 1 has a much smaller mortgage in nominal terms in Year 5 than Buyer 2 and has built $50k of equity. He also happens to have more disposable income than Buyer 2 at Year 5 because he has a smaller mortgage.
Sorry I’m a little slow today, perhaps you could add a more more details (like mortgage payments, interest rates, inflation rate) to your example so we can follow more easily. It’s easy to get confused in these type of examples if one is not clear about things (not saying you are, could be me).
How did Buyer 1 who bought in year 0 build up 50K of equity? Do you mean the amount owing on the loan was reduced by 50K through the mortgage payments (seems a bit much) or do you mean that the house price has risen 50K in nominal terms so if he sold he would make a 50K profit. If you mean 50K profit, the 50K is really worth 25K in terms of purchasing power, right?
March 24th, 2009 at 8:12 pm
Another thing that is confusing me is that if buyer 1 bought at 100K then sold at 150K in nominal terms, it seems like he made a profit of 50K or 25K in real terms (year 0 dollars). But in year 0 dollars, he bought at 100K and sold at 75K, so he lost money. Dave, can you help point out the error?
March 24th, 2009 at 8:23 pm
observer:
Assume constant payments, interest rates and constant inflation. Inflation has been exaggerated to make my point. The $50k I referred to was only the increase in nominal value of the home.
observer:
He doesn’t sell because he isn’t a speculator. He renews at Year 5 under the same conditions as Buyer 2.
No he doesn’t lose money. He made $50k in nominal dollars and has a small mortgage than Buyer 2. He also finishes his mortgage five years earlier.
And you made my point… it’s silly to imply he lost money. That’s why I prefer to stick with nominal dollars.
March 24th, 2009 at 8:32 pm
If you buy a house today, and at some point in the future you can buy a substantially identical house for less money, you have lost money. Period.
You can’t tap dance your way around that.
Dave was doing similar tap dances on this board after the first couple months of price drops last year. We’re down over 10% since then. Keep dancing Dave.
March 24th, 2009 at 8:35 pm
“5 year mortgage rates passed 10.75% at the beginning of 1979, before the start of the bubble. They continued rising as prices increased in 1979 and 1980.”
Yes, then it FELL to 10.50% in 1980. I have a link to the chart from Bank of Canada which for some reason this blog won’t let me post it.
“Rates rose to 21.3% at the end of 4Q81, then fell to 17.5% at the nominal bottom at the end of 4Q82, and continued falling to 12.4% at the real bottom at the beginning of 1985.””
See pg 7 from Real Estate Board of Vancouver: http://www.scribd.com/doc/1162.....nuary-2009
Rates look like they peaked at 82, right where the bottom is. 1985 does show a 12.4% rate but RE prices is higher than the 82 bottom.
So either you are right, you without sources or I’m right, with my two different charts.
March 24th, 2009 at 8:40 pm
“If I had to pick between priced in and priced out, I would choose priced out. But as they on the internets YMMV.”
Yup, fair enough, me too. Most other folks, apparently, not so much.
March 24th, 2009 at 8:46 pm
patriotz:
This isn’t complicated. Either you get it or you don’t. No need for dancing.
If you go back to the start of my posting here, you will see that I expected a price drop and even said up to 10%.
March 24th, 2009 at 8:53 pm
“If you go back to the start of my posting here, you will see that I expected a price drop and even said up to 10%.”
I’m hoping for another 20% drop, which brings it to 2005 levels.
March 24th, 2009 at 8:55 pm
Raven:
Rates look like they peaked at 82, right where the bottom is.
That is just flat out wrong. Peak rate was 21.5% in September 1981, just 6 months after the market top. Rates fell for the rest of 1981 and through 1982, which saw the largest price declines for any calendar year ever.
http://www.bank-banque-canada......page53.pdf
March 24th, 2009 at 8:59 pm
Dave:
If you go back to the start of my posting here, you will see that I expected a price drop and even said up to 10%.
Which means you’ve already been proven wrong, and you’re going to be proven a lot more wrong.
So why should anyone take you seriously about anything?
March 24th, 2009 at 9:04 pm
patriotz:
Wow, 5% wrong so far. We have yet to see how wrong you are.
It’s premature to make any conclusions.
March 24th, 2009 at 9:17 pm
Well said #14 Scullboy!
March 24th, 2009 at 9:18 pm
Dave:
Wow, 5% wrong so far. We have yet to see how wrong you are.
That’s a snarky way of admitting I’m right.
March 24th, 2009 at 9:20 pm
“That is just flat out wrong. Peak rate was 21.5% in September 1981, just 6 months after the market top. Rates fell for the rest of 1981 and through 1982, which saw the largest price declines for any calendar year ever.”
Okay, I stand corrected. Interest peaked in September. Good. Thanks for providing the table–it’s much clearer than the chart that I had.
March 24th, 2009 at 9:22 pm
Patriotz, when you sold your house in 1987 that was a mistake. Dave is a credible poster, we are fortunate for his participation here.
March 24th, 2009 at 9:28 pm
Thanks Dave. This retard bear guy at work keep laughing at me because I bought three Onni condo in Richmond last April and now Onni just sold their remaining units at 40% less than my purchase price. I will show stupid him your theory to prove in five years time I am a head of you stupid bear who wait and buy same unit in five years probably for 60% less than I buy. Thanks you Dave. You are smart cookie and should be president of this wonderful county. It is different here, economic do not apply in Vancouver and what happen in US does not matter here. Thank you wise one.
March 24th, 2009 at 9:34 pm
My understanding is that the effect of interest rates are felt some time afterwards (lagging). As a monetary policy, when the government raise/drop the interest rates, the desired impact of RE prices will materialize afterwards, ie. in the case of 81-82 recession, aproximately six months afterwards.
March 24th, 2009 at 9:36 pm
Okay, there are several things going on here.
It would help to deal with each one separately using some other examples.
You buy A for 100K in year 0.
You sell A for 150K in year 5.
Are you saying you make a profit of 50K?
If your definition of profit is increase in nominal dollars, then yes. But is that a good way to measure profit?
As you say, inflation could be extreme and the value of your dollar might be halved in terms of purchasing power.
Concretely in this example.
You buy A for 100K in year 0. That 100K could have allowed you to buy 20,000 lattes in year 0.
You sell A for 150K in year 5. You now have 150K, but it only buys you 15,000 lattes in year 5.
You made 50K in nominal terms, but you lost the ability to buy 5,000 lattes by holding down A for five years.
Of course nobody cares about losing the ability to buy 5,000 less lattes (or maybe not). But replace lattes by your child’s college fund and you start to see that it matters.
Notice I have taken away the extra complication of financing mortgage and interest rates from the example because it doesn’t matter. The point is to illustrate what nominal/real values/gains mean.
The other comment I don’t understand is you seem to imply that the 50K nominal gain in market value of the home can be realized without selling and reduces your mortgage amount at renewal time. If buy 1 borrowed 100K originally, and paid down 20K principal, at the time of renewal he needs to take out another 80K loan. The 50K gain can’t be used towards reducing his mortgage unless he sells.
I do agree with you however that doing calculations with nominal values is better. But interpreting them in real terms is also necessary and vital.
March 24th, 2009 at 9:40 pm
I just want to say that I’m much more impressed with the level of discussion that is happening here than what was going on a month or two back when the comment threads were being seriously trolled. This is a breath of fresh air.
People are even occasionally admitting to not being correct about something. Are the Internetz are broken? I must just be dreaming, I don’t think anyone has admitted to more than a spelling mistake since ‘98 or so.
March 24th, 2009 at 9:41 pm
patriotz:
Huh?
We got a long ways to go before you are right. I am closer to being right at this point in time than you are.
March 24th, 2009 at 9:44 pm
“If buy 1 borrowed 100K originally, and paid down 20K principal, at the time of renewal he needs to take out another 80K loan. The 50K gain can’t be used towards reducing his mortgage unless he sells.”
That is true. That’s how we were able to pay down our mortgage quickly when we upgraded.
“I do agree with you however that doing calculations with nominal values is better. But interpreting them in real terms is also necessary and vital.”
Interpreting in real terms is probably useful to nobody but the economist and the advance investor.
March 24th, 2009 at 9:45 pm
Dave and Raven, perhaps some reflection on the concept of pleonasm may help you both.
March 24th, 2009 at 9:50 pm
observer:
Forget the lattes. We’re talking about houses. You have a house in Year 0 and also in Year 5, or forever for that matter.
The $50k gain is only a paper gain. I use it to illustrate that the second person must take out a mortgage for $150k in contrast to the first buyer who renews for less than $100k.
Although Person 2 buys a cheaper home in REAL terms, his house is still more expensive in nominal terms. Person 1 is clearly better off. He has the same income but smaller mortgage payments and total debt, more equity and more disposal income.
See my point?
March 24th, 2009 at 9:50 pm
“People are even occasionally admitting to not being correct about something. Are the Internetz are broken? I must just be dreaming, I don’t think anyone has admitted to more than a spelling mistake since ‘98 or so.”
I’m not immune to admitting my mistakes, so long as people provide credible sources or good rationale to correct my error in thinking. I’m here to listen to a different perspective so my views on RE is balanced. I think Patriotz so far was the only one who proved me wrong on ONE point with the Bank of Canda table. Other than that, most here just offer up baseless opinions.
March 24th, 2009 at 9:52 pm
ple·o·nasm (plē’ə-nāz’əm) Pronunciation Key
n.
The use of more words than are required to express an idea; redundancy.
An instance of pleonasm.
A superfluous word or phrase.
[Late Latin pleonasmus, from Greek pleonasmos, from pleonazein, to be excessive, from pleōn, more; see pelə-1 in Indo-European roots.]
ple’o·nas’tic (-nās’tĭk) adj., ple’o·nas’ti·cal·ly adv.
March 24th, 2009 at 9:55 pm
“Dave and Raven, perhaps some reflection on the concept of pleonasm may help you both.”
Why? Things aren’t clear for you the first time around?
March 24th, 2009 at 9:56 pm
I’m with Mr. Bear on his observation, the recent threads are a decent conversation compared to before. Used to be doom and gloomers, trolls, troll baiters, and a few jokers.
March 24th, 2009 at 9:58 pm
“I’m with Mr. Bear on his observation, the recent threads are a decent conversation compared to before. Used to be doom and gloomers, trolls, troll baiters, and a few jokers.”
Well THAT is a 180 degree change in perception from just days ago.
I thought the rants of a “troll” like myself are boring and tiring.
March 24th, 2009 at 9:59 pm
Dave
Please don’t disappear again … I realise you’ve been wrong on every prediction you’ve made since I’ve been participating in this blog but at least your consistent.
Any chance you would like to honour us with some more predictions on # of listings (I choose date!!!!) and or price appreciation/declines!?
March 24th, 2009 at 10:01 pm
“The $50k gain is only a paper gain. I use it to illustrate that the second person must take out a mortgage for $150k in contrast to the first buyer who renews for less than $100k.
Although Person 2 buys a cheaper home in REAL terms, his house is still more expensive in nominal terms. Person 1 is clearly better off. He has the same income but smaller mortgage payments and total debt, more equity and more disposal income.”
Good point. Pay yesteryear’s mortgage with tomorrow’s inflated dollar. A good way to reduce debt faster, hence the Fed’s strategy to flood the market with money supply AND reduce interest rates.
March 24th, 2009 at 10:07 pm
Cash is King, Dave made a prediction a couple days ago on this blog. Oh, it’s you’re, not your.
March 24th, 2009 at 10:09 pm
Quantitatively easing everyone time as Helicopter Ben lifts off with barrels of money to pour on china. Happy time if you own bond or condo in Vancouver! Interest rate low bond price kept high good time to trade with china for condo. You give them money and they give you more junk. They don’t know the money come from nowhere yet! Great time to buy more condo!!!
March 24th, 2009 at 10:13 pm
Raven:
Bingo.
I am glad I am not the only one who gets it.
March 24th, 2009 at 10:13 pm
Dave:
We got a long ways to go before you are right.
Right about what? What prediction or recommendation have I made that I am not right about yet?
You appeared on this board after it became clear that the market had turned in 2008, with a laundry list of reasons why people should buy. You have been wrong about everything the whole time you’ve been on this board.
Look at this doozer for example:
Dave Says:Reply to this comment
August 1st, 2008 at 9:08 am
I’m not sure how credible a group of mathematicians are in predicting real estate markets. Are you sure they are not economists?
In any case, I don’t think many bears here will take solace in that assessment. If anything, most bears here would consider that to be a bullish prediction.
It’s pretty similar to my outlook in that I think we will have slightly declining prices this Fall (say 5%) followed by a flat market. I differ in their assessment in that it is likely the flat market would continue for longer than one or two years, which I base on past trends (i.e. a flat market typically exists for 6 to 7 years).
http://vancouvercondo.info/200.....l#comments
March 24th, 2009 at 10:16 pm
Raven: Good point. Pay yesteryear’s mortgage with tomorrow’s inflated dollar. A good way to reduce debt faster, hence the Fed’s strategy to flood the market with money supply AND reduce interest rates.
Do you think it is plausible that we could get inflated dollars with low interest rates for an extended period of time? If you had a down payment kicking around for another house/condo investment property, would you rely on those conditions continuing and buy something, or hold off, or buy regardless of expectations and risks?
March 24th, 2009 at 10:16 pm
Actually Raven that was me that found this boring, still do. I do find it refreshing that you are trying to back up your argument with numbers not just catch phrases. But I get where you are coming from. Don’t agree its a good time to buy or was in the last few years. Lets move on.
March 24th, 2009 at 10:23 pm
Forget the lattes. We’re talking about houses. You have a house in Year 0 and also in Year 5, or forever for that matter.
The $50k gain is only a paper gain. I use it to illustrate that the second person must take out a mortgage for $150k in contrast to the first buyer who renews for less than $100k.
Although Person 2 buys a cheaper home in REAL terms, his house is still more expensive in nominal terms. Person 1 is clearly better off. He has the same income but smaller mortgage payments and total debt, more equity and more disposal income.
See my point?
Sorry you didn’t care for the latte example. Yes, I realized what you were getting at in your example after my first reply but wasn’t completely sure from the way you were replying. Raven has pointed it out. You borrow the 100K in nominal dollars and only need to pay it back in nominal dollars but that is halving in true value after five years.
You must ask yourself why would anyone lend you 100K in nominal dollars and require that you only pay it back in nominal dollars. The answer is nobody. That’s why banks charge interest on the money you borrow. So if you have 100% inflation, you can be sure that your interest rate will be high enough to recoup the loss (i.e. if inflation rate is 20% per year, interest rates will be higher than 20% per year).
The only way you can make money on paying yesteryear’s mortgage with tomorrow’s inflated dollar is if real interest rates = interest rate minus inflation rate is negative.
And Raven does have a point, that is a possibility. But it is very risky for countries to allow that and they wouldn’t be allowing it unless they wanted to prevent something bad.
March 24th, 2009 at 10:36 pm
P.S. If let inflation be 20% per year in your example and assume banks will be charging at least 25% per year interest to make a profit on their loan, your example won’t work out anymore because buyer 1 will have to service interest payments which are large relative to the original principal.
March 24th, 2009 at 10:40 pm
“Do you think it is plausible that we could get inflated dollars with low interest rates for an extended period of time?”
For the short-term, like one, maybe two years. Then recovery is inevitable and inflation has to be tamed.
“If you had a down payment kicking around for another house/condo investment property, would you rely on those conditions continuing and buy something, or hold off, or buy regardless of expectations and risks?”
I’m expecting 2005 prices to arrive within 1-2 years, so regardless of interest rates (assuming they remain 4-6%), I’m in the market for another SFH.
March 24th, 2009 at 10:52 pm
Okay, let me take the time to make your example more realistic. Assume inflation rate is 20% per year and mortgage rate is 25% per year.
In your original example, Buyer 1 buys a home at 100K in year 0. Let’s assume he borrows 100K for this purchase and doesn’t even pay down any principal so at the end of the five years he owes 100K.
You say that Buyer 1 better off because he needs to pay 150K. That is correct from the example you have given, but the example lacks enough details to make a sound assessment.
In reality, if inflation is 20% per year and mortgage rate is 25% per year, this is what happens to buyer 1.
Buyer 1 buys a home for 100K in year 0. Just for the sake of argument, let’s say that he also doesn’t pay down any principal (the example can be modified to be more realistic – it doesn’t change the key ideas). He needs to pay 25K a year to service the mortgage. After five years, he has paid a total of 75K in interest payments which buyer 2 didn’t have to pay.
Wait a minute you say, buyer 1 is getting a principal residence or he can rent out the home he bought. So the 25K a year isn’t really down the toilette. True. But what if the rent he can get is much less than the 25K. Then you would have a problem saying buyer 1 clearly has the better deal. These numbers are not realistic of course, current home prices are much more than 100K whereas 25K might be in the ball park for annual rent.
So you see we have come full circle. Price to rent ratios matter and real interest rates matter
March 24th, 2009 at 10:54 pm
(sorry I meant “You say that Buyer 1 better off because he needs to take out a loan for 100K at renewal whereas buyer 2 needs to take out a loan for 150K”).
March 24th, 2009 at 11:14 pm
And with substantially higher mortgage payments than rent payments, you have to add in the loss of your other investment opportunities, which for the risk adverse can even mean just a savings account.
Even if you feel like inflation is making your housing costs go down as a part of your incoming paycheque – which, historically, has been true on a monthly basis, which is why renters in the aggregate historically pay more of their incomes to housing than owners – that doesn’t mean you’ll be richer in the end. No one is arguing that often (although NOT with 40 year mortgages, and in a destabilized fashion in housing bubbles and greater worker movement)… often your average homeowner gets to a place of No Mortgage Payment at All, and only upkeep and taxes – and housing drops to 10%, even 5% of income, or lower, depending on the construction and heating needs of the place.
But that’s dependent on the variables going in, and what opportunities are being lost. It doesn’t mean that the homeowner necessarily has more MONEY, always and forever, no matter what happens, which is the point. Less and less have the equations favored home ownership as a way of having more MONEY.
Because in a bubble the strategy of home ownership (even at the peak) “works” if prices don’t go down, or people don’t get divorced, sick, injured, out of work, lose a partner, or get transferred – and/or they wouldn’t save anything if they didn’t pay your mortgage. As enforced savings for spendthrifts, maybe this is the best strategy, and for some locations in some places it still might be a solid wealth building strategy that doesn’t have risky downside potential.
But. I’ve got friends upside down on mortgage in nominal terms, now, and they’re trapped in a place too small and jobs transferred to a huge commute away, which has meant increased transport costs; even if they weren’t upside down, they would have lost all their equity and then some with falling prices. So they’re in rather rough straits. And even WITHOUT falling, even if their houses had been appreciating (in nominal terms), the market around them (ie: their move up options) would also be doing so. Which is why the latte reference matters. Because of SELLING, and because of how money buys other things.
You want to buy a place and stay there, and have enough money to save in other ways foe other needs, and/or your housing needs are guaranteed never to change, and you’re absolutely right. Eventually you’ll pay off that mortgage, and all those still renting will still be shelling out their (in 2009 dollars) $1800/month.
The question is, for what they’re getting, were they investing the $1000/month that they’re NOT paying for a similar place – ignoring having to pour money into the actual building, which is a whole ‘nother layer of expense. So, were they pouring that $1000/month in a stable and appreciating investment? Like a *savings account*?
And by the miracle of compound interest…
So, you will be slowly dropping the portion of your cheque to housing over the years, and they’ll be compound interesting in the bank. And some point, in 25 years, they’ll be the suckas still shelling out the $1800-.
BUT.
If the *fundamentals* in real dollars aren’t going your way, they’ll have 25 years of $12000 (at least) per year growing in real terms, and you’ll have a depreciated asset.
They’ll have more MONEY, in other words. But you’ll have “free” housing. But if the market is at a trough, maybe they’ll by their smaller retirement condo outright, and also have free rent.
It all depends on the equations going in.
March 24th, 2009 at 11:15 pm
If you haven’t had a chance to read it, you’ve got to check out this article that Fish has posted at his new site.
http://tinyurl.com/cv3me8
Here is Fish’s new site:
http://fishyre.blogspot.com/
The article is absolutely astounding!!
March 24th, 2009 at 11:21 pm
… Or in other words, in real terms, 25 years from now, the renters putting away the difference between renting and owning when the gap is this big will have 300K in 2009 dollars (& I just wiped any interest right out there), and you’ll still have your 150K house. In real dollars.
And hey. I don’t put away the difference between renting and owning because owning the place I live would be WAY too steep for my blood – my monthly payments would look to be 4 or 5 times what I’m paying, obliterating my income entirely.
But I am living and with sacrifices both paying down debt (student loans) and saving, and eventually – when the numbers are right – I’ll buy.
March 24th, 2009 at 11:23 pm
Friend of mine works for a glazing co. they just laid off over 30% of their workforce last week. Sounds like its the first round and more are coming. He figures the company may last until May.
Maybe the bulls can go tell him he should stop worrying and buy some condos. Get your heads out of your ass already.
March 24th, 2009 at 11:27 pm
…Ah, and since rents and incomes are tied, in my above frictionless universe example for the very simple math we’re assuming the renters’ incomes and their spending on housing holds so that they can keep investing (in real dollars) the same $1000.
Which actually, is quite an assumption when there are bubbles in the air.
March 24th, 2009 at 11:38 pm
“But I am living and with sacrifices both paying down debt (student loans) and saving, and eventually – when the numbers are right – I’ll buy.”
Good for you. I did this.
When I walked up to the teller to give him my last lump sum payment, he couldn’t believe it (he was about my age).
It’s the best feeling in the world paying off that evil monkey student loan.
March 24th, 2009 at 11:44 pm
GM, are you referring to this foreclosure story?
“The original owners paid $432 K for it 11.5 years ago
The current mortgage on it is apparently over $1 m, due to equity withdrawals”
March 25th, 2009 at 12:29 am
I didn’t want to get involved in Dave & Observer & Arwen’s debate at first, because truthfully, I find real dollars generally a useless information.
Dave asked the question: “What is the purpose of correcting nominal dollars from the perspective of an individual homeowner?” His position was “Who cares?”
But Observer and Arwen argue otherwise, and a hypothetical scenario was introduced, which confused me, because there’s too many arbritary numbers and unrealist assumptions.
So I’m going to use a real-life example to prove how useless real inflation-adjusted numbers are useless.
OK, ready? Here goes:
March 25th, 2009 at 12:39 am
Scenario:
My dad bought a house for $265,000. At that time, 25% downpayment was required ($66,250), amortization was 25 yrs and the interest rate my dad got was 9%. For the sake of simplicity, assume this interest rate was fixed for the the next 8 years. His monthly mortgage payments was $1392/month. At the end of the 8 years (2005), his principle balance was $173,453.
My dad sells the house in 2005 for $422,000. Average inflation rate is 2.02% (Assume 2002 is base year, 1997 is 90.1 and 2005 is 105.7) For help, use the inflation calculator from Bank of Canada: http://www.bankofcanada.ca/en/....._calc.html
The question is, what profit did he make? Answer in nominal dollars and real dollars, and make your observation.
March 25th, 2009 at 1:14 am
Taking your numbers at face value:
In 1997, your dad had $66,250 in cash. He converted that into a home which he held for 8 years. At the end of the 8 years, he converted the home back to cash by selling it for $422,000 but he owed the bank $173,453 so he then has $248,547 cash in 2005 after all is said and done. His net worth (assuming he has no other assets relevant to this example) has gone from $66,250 to $248,547 for an increase of $182,297 in nominal terms.
In real terms (all adjusted to 2002 dollars), his net worth in 1997 was $73,529, and in 2005 after the sale his net worth was $235,143, for an increase of $161,614 (in 2002 dollars)
Let me know if I am making any mistakes (it’s late and I won’t be able to reply until later tomorrow).
What was the point you are trying to make again?
March 25th, 2009 at 1:14 am
ANALYSIS
Nominal Profit:
Proceeds: $422,000
Less: Remaining mtg 173,450
Less: Downpayment 66,250
Profit: S182,300
Real Profit:
Proceeds: in ‘97$’s $359,720
Less: Remaining mtg ‘97$’s 147,850
Less: Downpayment 66,250
Profit: S145,620
Conclusion: Dad ends up with $182,300 nominal profit or $145,620 real profit. At this point, all Dad knows and cares about is he’s got $182,300 profit. Is it useful for him to know his profit is $145,620 in real dollars? I can attest that he won’t care–he made money.
March 25th, 2009 at 1:17 am
Dave and Raven both don’t have it together.
March 25th, 2009 at 1:21 am
“What was the point you are trying to make again?”
The point was that the above exercise to convert my dad’s profit to real dollars (in this case, I set it to 1997 dollars) was a useless exercise. The information didn’t offer any value.
I’m proving Dave’s point: “What is the purpose of correcting nominal dollars from the perspective of an individual homeowner?” He said: “Who cares?”
And I agree.
March 25th, 2009 at 1:21 am
Why do bulls bother to argue? The R/E is on a free fall. Mac marketing is coming out with more 40% off condos. Do you think developers with a bunch of analsis and accountings will discount their price if the market is turning around anytime soon? NO!!!!!
They are discounting now because if they don’t sell it now, the have to sell it for less later.
March 25th, 2009 at 1:38 am
Raven:
That depends what you mean by “profit”.
If you mean capital gain, that’s 422K-265K = 157K, minus sales costs.
If you mean total return, you have to add the present value at time of sale of the operating income of the property. That is the net rental income, i.e. the rental value minus all costs, including opportunity cost on down payment, mortgage interest, taxes, insurance and maintenance. This has to be compounded at 9% annually because that was your cost of capital. I will use 5% for the opportunity cost on the down payment.
9% of $198.750 is $17,877.5, annually. 5% of $66,250 is $3312.5 . Total $21,200. Let’s say expenses are $500/month or 6K. If the rental value was 1K a month, that’s 12K a year for a loss of $15,200. Present value of time of sale is -167K.
So your total return was -10K.
I didn’t allow for increase in rental value or expenses, that will make the loss smaller but not by much. Adding sales costs will increase the loss. Feel free to adjust rental value or expenses if you have better numbers.
That is all nominal of course, it’s easy enough to figure out real.
March 25th, 2009 at 1:41 am
Hey Yves, are you some kind of window licker too? What the hell was in my post that made you think I’m a racist? I’m a crappy typer.
Christ, the window washers in this town must have to work some pretty brutal hours to keep up with you lot.
March 25th, 2009 at 1:45 am
I think at the end of the day, and despite the voluminous postings by Raven and Dave, here’s the point:
It’s a bad time to buy property in Vancouver. Even if the prices in Vancouver weren’t laughably insane the only sensible strategy to get through the next couple of years is to place your money in some kind of vehicle where the risk is minimal, the returns secure (if conservative) and liquidity is guaranteed.
Everything else on this thread is just static.
March 25th, 2009 at 3:47 am
Hear hear!
March 25th, 2009 at 8:21 am
America’s abandoned cities – house price zero:
http://globaleconomicanalysis......ities.html
BC’s abandoned cities:
House price 100K to 390K
It’s the best place on earth you know.
March 25th, 2009 at 8:49 am
Wading into the real vs nominal debate…
If the question is “should people care about real dollars” then the answer is yes, for large amounts of cash and long periods of time, e.g. real estate.
As for “do they care about real dollars,” I’m guessing the most common answer by a long shot is “sadly, no.” Seeing all the crap people were getting themselves into while the bubble inflated, how could you make a case for rational decision making of any sort? Unconditional offers without home inspections? Presale purchases at crazy valuations years in advance? There’s no basic risk assessment happening there, I don’t see anything but fear, greed and hope.
March 25th, 2009 at 9:02 am
Let’s use real numbers then. 1983 vs 1988
1983 (Buyer 1):
Nominal – $159k
Real – $282k
CPI – 100
1988 (Buyer 2):
Nominal – $186k
Real – $277k
CPI – 123
Using ‘Real’ dollars, Buyer 2 paid less money. On that basis, many here would suggest that buying in 1988 is better than 1983 because ‘Real’ prices are lower.
Using Nominal dollars, Buyer 1 paid a smaller amount for the identical house and has reduced his principle. Buyer 1 would have approximately $140k outstanding in his mortgage vs. Buyer 2 who would owe $186k. Assuming equal incomes and interest rates, Buyer 1 is in a better position because he has a smaller mortgage and more disposable income. He also happens to pay off his mortgage 5 years earlier.
To make up the difference, Buyer 2 would have to save an extra $10k per year (~$800/month) in rent vs. mortgage payments. Seems pretty unlikely that would have been the case in the early 80’s.
March 25th, 2009 at 9:33 am
Patriotz, I’m not getting the same answer as you are. By the way, $500/month expenses is overstated. I will use $250/mponth (property tax & insurance. Utilities was not included in the rent value, so for the sake of simplicity, I ignored it):
Capital Gain: $157,000
NPV:
Initial cash: -$66,250
Interest: 9%
Cashflow year 1-8: -$12,200
NPV: -$133,800
So total return was $157,000-133,800= $23,200.
March 25th, 2009 at 9:39 am
Is it real or nominal when the developer drops prices 30% below where you purchased a year before?
Also, as I don’t read these blogs on a daily basis could someone please refresh me on Dave’s new predictions? And for the person who corrected my grammar earlier in the thread get a life! I will never proof read on a blog DWI.
March 25th, 2009 at 9:39 am
Dave:
Repeat after me:
Now is a really BAD
time to buy real estate
Raven:
Repeat after me:
Now is a really BAD
time to buy real estate
scullboy: you go squeegee!!
March 25th, 2009 at 9:44 am
Ella, although the forclosure story was very interesting, this article is far more astounding and relevant. Seriously, after you have read it, you’ll wish you had Obama’s email address to pass it along! The ridiculous thing is that it is from Rollingstone magazine, of all places! Have a read and tell me if you think that makes it any less credible!
http://www.rollingstone.com/po.....over/print
March 25th, 2009 at 9:45 am
“If the question is “should people care about real dollars” then the answer is yes, for large amounts of cash and long periods of time, e.g. real estate.”
Why? What value do you get out of knowing that $100 today is worth $85.06 in 2001 (other than knowing that your money is eroding and you need to invest in an inflation hedge?)
March 25th, 2009 at 9:48 am
blueskies, reading is FUNDAMENTAL. If you even follow this thread at all, you would know I’m waiting for another 20% drop before I buy. No where did I advocate that now is good time to buy. Now get back on the short bus and be on your way.
March 25th, 2009 at 9:52 am
Raven:
I will use $250/mponth (property tax & insurance). Utilities was not included in the rent value, so for the sake of simplicity, I ignored it
For a SFH utilities should be ignored because they are paid by the tenant.
But you are ignoring maintenance. There has to be some maintenance cost over a 8 year period.
So total return was $157,000-133,800= $23,200.
Same ballpark, different magnitude. But you are not including sales fees. Throw those in and I think you end up about zero.
March 25th, 2009 at 9:55 am
“Same ballpark, different magnitude. But you are not including sales fees. Throw those in and I think you end up about zero.”
Alright, break-even. So did my Dad walk away with $157K capital gains, tax-free or not?
March 25th, 2009 at 9:56 am
Wow some people are really reaching. I don’t know if Dave is an agent, surely he must be, but it’s patently obvious that a buyer who is looking to buy will be way better off waiting 2-3 years. I don’t give a sh!t what they are paying for rent. Most people don’t even know if they will have a job in 2 years. Do people not look at the economy as well as the housing market? Why would a FTB go out and buy a condo when everyday people are losing their jobs and developers are slashing their prices by up to 40% off? And it’s only just started…
March 25th, 2009 at 9:59 am
Raven: Why? What value do you get out of knowing that $100 today is worth $85.06 in 2001 (other than knowing that your money is eroding and you need to invest in an inflation hedge?)
That basically is my point, yes.
March 25th, 2009 at 10:03 am
Let’s put it another way. SFH in Vancouver is about $665K. Using 2000 as CPI base, that SFH is worth $549,881. How is knowing this help you make your decision to buy or not to buy?
March 25th, 2009 at 10:12 am
Raven:
Alright, break-even. So did my Dad walk away with $157K capital gains, tax-free or not?
Yes, and he also walked away with a non-deductible operating loss of about the same amount.
BTW if he had been renting the house out, he would have made money after taxes, because the operating loss is fully deductible against income, but only 1/2 of capital gains are taxable.
The non-taxability of personal residences works both ways.
March 25th, 2009 at 10:14 am
“BTW if he had been renting the house out, he would have made money after taxes, because the operating loss is fully deductible against income, but only 1/2 of capital gains are taxable.”
But we would be out on the streets…hmmm
March 25th, 2009 at 10:16 am
Before someone brings it up, the landlord situation might (or might not) be subject to Cumulative Net Operating Loss provisions, but of course its all hypothetical.
March 25th, 2009 at 10:18 am
Patriotz, let’s go with my Dad breaking even. In your opinion then, was he better of renting? Price/rent was 265 and you said it was 150 back in 1997.
March 25th, 2009 at 10:18 am
Raven:
But we would be out on the streets…hmmm
Don’t be silly. How many landlords live on the street? They just live somewhere else – sometimes even in rentals.
March 25th, 2009 at 10:21 am
Raven:
Patriotz, let’s go with my Dad breaking even. In your opinion then, was he better of renting?
It was a break even with respect to renting, as we have already noted. But it was only a break even because a greater fool bought the property. And the greater fools ran out in May, 2008.
March 25th, 2009 at 10:35 am
dingus:
Uh-huh. And is someone waiting out a market correction similarly OK with the risk that the correction won’t be as rapid or as severe as they think?
There is no risk in not buying a house, any more than there is a risk in not buying stocks. Only holders of assets incur risk on that asset.
You do not have to buy a house to have a place to live. You can rent, and rents cannot rise faster than incomes. Even if you never buy a house, you haven’t lost anything.
March 25th, 2009 at 11:03 am
You can rent, and rents cannot rise faster than incomes.
In the short or medium run they can. Rents haven’t kept up with income growth over the last 20 years. That suggests there is room for rent to appreciate faster than inflation to catch up to the long term trend.
March 25th, 2009 at 11:14 am
Dave:
Rents haven’t kept up with income growth over the last 20 years.
The gap is not very big. Real rents have been declining but so have real incomes. Also, the underutilization of housing stock today compared to decades ago is not favourable for increasing real rents in the near future.
March 25th, 2009 at 11:19 am
patriotz:
What do you mean by underutilization? Surely you can’t be referring to vacancy rates which are extremely low.
Real incomes have been steady or marginally up. You can pick and choose your dates to show otherwise but the long term trend supports my position.
March 25th, 2009 at 11:23 am
It was break even with respect to renting, as we have already noted. But it was only a break even because a greater fool bought the property. And the greater fools ran out in May, 2008.
No, it was only break even ON PAPER because we held down expense and rent as constant.
Our analysis ignores that over the 8 years, rent went from $1000/month to $1875/mo. Assume rent increased a constant $125 every year. Also, the mortgage principle is being paid down over that time so interest costs also went incremently down. Expenses (property taxes & insurance) went incremently up with inflation. Also, after 5 years, the mortgage was renewed with interest at 6%. Opportunity cost also fell to 3%.
Recalculated NPV:
Initial cash: -$66,250
Interest: 7.9% (average)
Cashflow year 1: -$12,380
Cashflow year 2: -$10,710
Cashflow year 3: -$9,000
Cashflow year 4: -$7,350
Cashflow year 5: -$5,680
Cashflow year 6: +$4,190
Cashflow year 7: +$5,850
Cashflow year 8: +$7,650
NPV: -$93,140
Adjusted for factors that actually happened over 8 years, the total return was $157,000-93,140= $63,860 (not considering selling costs).
The point of this: NO ONE knows until hindsight whether and investing in a property is going to be profitable or not. We cannot predict where interest, inflation, migration, supply and demand are gonna go over the longterm. Unless you are sure of what your cashflows are over 25 years, your NPV is going to be WAY off.
March 25th, 2009 at 11:28 am
“There is no risk in not buying a house, any more than there is a risk in not buying stocks. Only holders of assets incur risk on that asset.”
Your risk is inflation.
March 25th, 2009 at 11:43 am
“Don’t be silly. How many landlords live on the street? They just live somewhere else – sometimes even in rentals.”
My dad’s reason to buy the house was to put a roof over our heads without the fear of increasing rents and problematic landlords. He did not look at this as an investment and certainly he was no where close to service the house as a rental property while it initially cashflowed negative while paying rent somewhere else.
March 25th, 2009 at 12:22 pm
Reference:#115
“It’s pretty similar to my outlook in that I think we will have slightly declining prices this Fall (say 5%) followed by a flat market. I differ in their assessment in that it is likely the flat market would continue for longer than one or two years, which I base on past trends (i.e. a flat market typically exists for 6 to 7 years).”-Dave.
Dave was right in his prediction
The Teranet National Bank index measures prices from the sales of homes that have traded at least twice. In January, Metro Vancouver’s index measure, after falling from June’s peak, was 4.16 per cent below its measure in the same month a year ago.Congratulations Dave.
March 25th, 2009 at 12:41 pm
Raven:
“There is no risk in not buying a house, any more than there is a risk in not buying stocks. Only holders of assets incur risk on that asset.”
Your risk is inflation.
That’s a living cost risk, not a risk of not owning a house. The risk of an asset is uncertainty of return. If you don’t own an asset you have no uncertainly of return on it.
Owning a house can hedge the risk of rental costs, but it carries its own inflation risks as well, not least of which is rising interest rates. Especially right now.
March 25th, 2009 at 12:43 pm
Thanks Anon. I haven’t seen that index before and I don’t know how reflective their methodology is of reality, but it mirrors the same trend as HPI.
My original prediction of a 5% correction was the middle of a range of between -10% and 0%. Your link would say I was correct (at least to date), while the HPI would say I missed the mark by 5% (again, to date).
The market has been flat the last couple of months and it wouldn’t surprise me to see that continue at least until the summer (or even a bounce). Given current global economic conditions, I am now more bearish than I was last summer and I think there is still room to go on the downside. We shall see.
March 25th, 2009 at 12:48 pm
Anonymous:
In January, Metro Vancouver’s index measure, after falling from June’s peak, was 4.16 per cent below its measure in the same month a year ago.Congratulations Dave.
Dave’s prediction of a 5% fall followed by flat prices was made in August 2008, not January 2008. Prices have fallen 10% since then, Mr. “Anonymous”.
March 25th, 2009 at 12:50 pm
Raven:
#107 Raving, I realised that I may be speaking over your head, but that was kind of the point and you still didn’t get it. Not surprisingly you don’t have ‘pleonasm’ in your vocabulary nor do you own a dictionary to find out what it means it would appear. Providing a reflection of your limitation was being kind.
You said
“Why? Things aren’t clear for you the first time around?” The word ‘Pleonasm’ does not refer to or infer clarity dumbass.
I would suggest a night school English class if simple words in common use deter you from having an intelligent conversation.
Your arguments here have been juvenile , boring, circular, simple minded and redundant with excessive rhetorical tautology. You seem to grasp only the perimeter of rudamentary concepts as if learned around a dining room table of an cunning illiterate bumpkin.
At least try to add something of interest to the conversation instead of parroting the childish nonsensicle claptrap you have written thus far on this board.
Quite a few posters have been quite kind and very patient with your snivelling repetative rhetoric, you missed that too.
March 25th, 2009 at 1:10 pm
truthin-advertising,
Oooh, can I big words so I can sound intelligent like you? I have yet to hear you make your case why you disagree with me.
Polysyllabic TROGLODYTE!
March 25th, 2009 at 1:13 pm
Dave:
What do you mean by underutilization? Surely you can’t be referring to vacancy rates which are extremely low.
That’s just the official vacancy rate for purpose built rentals, not all the others. If you take a look at Craigslist you will find a huge number of empty condos for rent, which is part of the underutilization I’m talking about. There are also many more that are not for rent right now, but will be soon when their owners give up trying to sell them and rent them out, or sell them to someone who will.
The other part, which is really much larger, is all the houses that are underoccupied by their owners, either by design – owner-occupied speculation – or because of maturing children leaving. Economic forces will push the utilization of these properties higher in the future – as there will not be nearly enough new buyers able to afford their current low utilization – which means a large pent-up supply which is not found in any statistics.
March 25th, 2009 at 1:32 pm
Dave:
Given current global economic conditions, I am now more bearish than I was last summer and I think there is still room to go on the downside.
In other words, you were wrong last summer. And don’t use “global economic conditions” as an excuse, as though they were something external to the housing market, rather than a direct result of its collapse. The whole point of investment analysis is to anticipate and incorporate contingencies, not to make excuses for missing them.
http://vancouvercondo.info/200.....l#comments
March 25th, 2009 at 1:42 pm
“If you take a look at Craigslist you will find a huge number of empty condos for rent, which is part of the underutilization I’m talking about.”
There’s also alot of scams on there too about renting out condos, which inflates the perception of the number of units that are available for rent. The story is that the owners have some incredible reason not to live in their condo (“got promoted and now work at WHO in the UK”), so send the security deposit and they’ll send you the keys.
March 25th, 2009 at 1:54 pm
Raven Says:Reply to this comment
March 25th, 2009 at 1:10 pm
truthin-advertising,
Oooh, can I big words so I can sound intelligent like you? I have yet to hear you make your case why you disagree with me.
Polysyllabic TROGLODYTE!
—————–
Lol. I don’t think he actually lives in a cave. Then again, rent on caves is probably cheap!
March 25th, 2009 at 2:12 pm
“Prices have fallen 10% since then, Mr. “Anonymous”.”
that’s equal to relators commission nope? That’s why Daman is getting disappointed he wants prices to fall atleast 30% so dumbass can re-enter!!!!!Anyway patriotz:Uncle Please take no offence,All these indexes has nothing to do with home ownership.There is no comparision to buy or rent,There is no comparison between investing the difference in other markets.Owning and Renting is a choice not any comparision as Raven said My dad’s reason to buy the house was to put a roof over our heads.There is a point Observer did not come to get it,Dave wants the owner to renew his mortgage but Observer is making him sell after 5 year.I believe Observer should wait for the owner to pay off his mortgage then lots of latte over latte ever after.Why i am telling you all this? Because buyers on the fences are runining out of time,if you guys wanted to rent let the buyers enter in because home prices will cross $800.000 mark this time before April 2010 I believe rebgv or gerth turner would never come forward to compensate the priced out bears as a bloggers posters you can easily disappear do you have money to compensate anyone? If someone believe prices going to stable for while still the owner can enjoy equity that does not exist,Learn something from Daman he knows indexes are different than reality,He is getting desperate to lower down mortgage instead of paying rent.
March 25th, 2009 at 2:13 pm
Raven does know what its talking about. Owning real estate is very high risk.
March 25th, 2009 at 2:26 pm
Heres a good read from someone who doesn’t live in thier parents bsmt.
“BM: When Americans who are losing their houses, cars, pensions and their jobs realize what these fools have done, they’re going to be very angry. $11.6 trillion is just a staggering number, and while the people in the banking system are busy stealing from the taxpayers, Obama doesn’t realize it—he’s destroying the country.
TGR: Do you think the people actually will realize this? How will they find out? The media isn’t talking about it.
BM: Funny thing you mentioned that. That’s exactly what scares me so much. A lot more people realize it. Peter Schiff (economics commentator) does, Gerald Celente (Trends Research Institute) does. Lots of people do. They write about it in British newspapers; they write about things they wouldn’t dare to here. There will be riots in the United States in three to six months; there’s going to be civil disorder. The government knows it; the military knows it; the police know it, and sooner or later the American public will know it. I think people are waking up. We are in a depression; this is not a recession. This is not something the world’s ever gone through before. Interestingly enough, a get-together of 50,000 people in New York City—government employees who did not want government spending cuts—almost turned into a riot.
TGR: Bernanke and Obama say this is a worldwide problem, so it calls for a worldwide stimulus package. Does the world go along with that?
BM: Governments always want to expand power. That’s why they clipped coinage back in Roman times. That’s why they use inflation to increase government spending. Governments always believe the solution to every problem is more government. The net situation—the cause was too much government; therefore, the solution cannot be more government. The only thing these guys know how to do is open the taps. But where’s the money going to come from? I’ll tell you something mathematically: the amount of cash that Bernanke, Geithner and Obama are talking about spending, there isn’t that much free savings in the world. The programs simply cannot exist because there isn’t enough money.
Interest rates and inflation are about to shoot through the roof. Geopolitical tensions are increasing at a staggering rate. A couple of weekends ago, we had a spy boat 70 miles off China, and it came to a confrontation. What’s going on with Israel and Iran, and what’s going on between Pakistan and India, are heading for confrontations. We have a very dangerous, unstable world. The only solution is less government and an honest money system. Until we get that, the problems will just increase. Very easily, we could be looking at World War III.”
March 25th, 2009 at 2:40 pm
Raven:
#173 Raving , I would have to ascertain a medium of communication. At present I don’t have any children to practice on except you and you haven’t said anything worth commenting on except this stupid whining. Is ‘trogodyte’ a word which has made such a gravid impression on you that you trot it out when mummy spanks you? How about we start you off with a ‘word of the day ‘ program?
Ravings word of the day is ” DUH”.
March 25th, 2009 at 2:44 pm
realpaul:
Realpaul, presumably you endorse and agree with that article.
How do you reconcile it with you not owning real-estate? If you believe the hyperinflation scenario put forth by Bob, then you should load up on debt now because it will get massively devalued. Personally, I can’t wait until I can pay my mortgage off with a loaf of bread.
March 25th, 2009 at 2:49 pm
“Your arguments here have been juvenile , boring, circular, simple minded and redundant with excessive rhetorical tautology. You seem to grasp only the perimeter of rudamentary concepts as if learned around a dining room table of an cunning illiterate bumpkin.”
RIGHT….Your protomorphic troglodyte azz should easily dispute me, yet you remain obmutescence, only to emerge under a gabbro to show that you can use a reverse online dictionary?! Climb back into your orifice and die a slow financial death, you impecunious simian!
March 25th, 2009 at 2:56 pm
“The only solution is less government and an honest money system. Until we get that, the problems will just increase. Very easily, we could be looking at World War III.”
Damn republicans still not admitting that what got us into this mess was less government.
March 25th, 2009 at 3:05 pm
“Heres a good read from someone who doesn’t live in thier parents bsmt.”
sorry, who are these people?
“Governments always believe the solution to every problem is more government.”
Oh, brother. I am so sick of this argument. This was the breakthrough set of talking points that ushered Reagan into power almost 30 years ago.
All this means is “let’s let the market sort this out” which turns into “let’s get the government to hire private contractors since the market is more efficient”. But, it isn’t.
Blackwater and KBR are not more efficient than the US army. Private health insurance is not more efficient than private insurers. There are always middle men and a need for profit margins. Private contractors are not electable, and they will not operate at cost.
The problem isn’t too much government. It’s bad, corrupted government, and especially bad, corrupted government that know it’s more about rich donors and power brokers than constituents when it is election time. The way we’ll get better government is to get involved in government ourselves and/or to support media streams that ask tough, impartial questions.
We all know what a super-great job the media did warning us about this financial crisis. We all know how objective they were about the housing run-up. Ask yourself why. The answer isn’t too much government.
Reagan and Thatcher had their revolution and it just ended. I don’t know what’s next, but I’m not going backwards. Next, please.
March 25th, 2009 at 3:06 pm
“You can’t make a blanket recommendation for everybody to not enter the market.”
That’s a valid point. Not everybody has to sell at the same time. Not everybody gets unemployed at the same time.
If you bought your house for cash and under no conceivable scenario could you fail to pay your municipal taxes, your utilities and your maintenance, why would you not buy a house if that’s what you wanted to do?
Buying a house does not boil down to “investing” for most people. Even though the bears like to think that’s what motivates everyone to move out of their parents’ basement. Some people seek to buy their own home for a variety of non-monetary reasons. That’s just the way it is. Right or wrong.
I commend the perma-bears for their foresight. And for calling “shenanigans” on the vested interests. But too many of you people are stuck in neutral, trying to make the world be what you think it should be, not as it is.
In short, you’re guilty of the same thing the perma-bulls are: spinning your story to confirm to your own worldview.
That makes you either:
1. deluded
2. dishonest.
March 25th, 2009 at 3:06 pm
“Private health insurance is not more efficient than private insurers.”
should read: than universal health coverage.
March 25th, 2009 at 3:10 pm
“I commend the perma-bears for their foresight.”
“perma-bear” and “perma-bull” are ridiculous terms. You either think a market is good value or you don’t.
“perma-bears” wouldn’t have foresight, since they would never buy. Bloggers like mohican and Ben Jones and Paul B have done well in real estate before, and intend to again.
If you would like to believe that everyone who thought the market was overvalued in 2005 always did and always will that is fine. Just don’t expect to be taken that seriously in the discussion when you’re holding a straw man in your lap the whole time.
March 25th, 2009 at 3:13 pm
HUGE GDP BOMBSHELL DROPPED
Canada’s budget officer sees 8.5% drop in GDP
OTTAWA — Canada’s independent parliamentary budget officer on Wednesday forecast the economy would deteriorate far faster than the government had expected when it produced its budget in late January.
The budget officer, Kevin Page, said gross domestic product figures and unemployment levels would prove much worse than the minority Conservative government predicted on Jan 26.
Mr. Page told the House of Commons finance committee that based on private-sector forecasts and his own assessments, he expected GDP to contract by about 8.5% in the first quarter of 2009 and by 3.5% in the second quarter.
In the budget, the government cited private-sector forecasters as saying GDP would shrink by 0.8% in 2009 as a whole.
“Recent economic data and the parliamentary budget office’s updated survey of private-sector forecasters suggest a further significant deterioration in the outlook for the Canadian economy relative to Budget 2009’s fiscal planning assumptions,” Mr. Page said.
He also forecast nominal GDP would contract by 15% in the first quarter and by 4% in the second quarter. The budget cited forecasts that nominal GDP would fall by 1.2% in 2009.
http://www.financialpost.com/story.html?id=1427431
This is real bad news for the bulls. Someone earlier had pointed out that the developers and other eal estate whores would not be wildly discounting and desperate to get out of the market if in fact they believed thier own bullshit that the market would be improving anytime soon.
March 25th, 2009 at 3:18 pm
Looks like “Raving” has been outed, nice one TA. She’s screaming like a lunatic, too funny. Whadda fooooooooooooooooool…LOLOLOLOLOLOLOL
March 25th, 2009 at 3:21 pm
Reality bites the bulls
Home price drop sharpest in Calgary: report
OTTAWA — Canadian home prices continued to slide in January, falling at an annual pace of 2.4% and continuing a retreat in value that started in February 2008, the Teranet-National Bank composite house price index shows.
Price declines were sharpest in Calgary, down 8.2% year-over-year, while Vancouver was off 4.2% per cent.
“This reading extends and deepens the home-price disinflation that began last February. It confirms that in early 2009, after more than five years of seller’s market conditions, Canadian housing as a whole was a buyer’s market,” the report said. “January was also the fifth straight month in which the composite index was down from the month before, extending the first run of consecutive monthly declines since March 2007.”
March 25th, 2009 at 3:29 pm
“Looks like “Raving” has been outed, nice one TA. She’s screaming like a lunatic, too funny. Whadda fooooooooooooooooool…LOLOLOLOLOLOLOL”
Outed by TA? LMAO. Nope, try again.
March 25th, 2009 at 3:30 pm
Ella, you’re the one engaging in semantics now, not I.
I stand by my point: perma-bulls want everyone to believe that all the time is “a good time to buy real estate.” The perma-bears want everyone to believe “you’d be nuts to buy real estate right now.”
Yes, there are current bears who are cautious right now. But there are perma-bears on this site you will permanently reside in their parents’ basement.
Patriotz can’t even recognize inflation risk, even when he/she’s been exposed by Raven. But the perma-bears don’t want to engage Raven (or Dave). Easier to hand out a minus than to debate.
My point is illustrated by how the scoring gets dished out by the readers of these comments:
Confirm your bearish world view: +30
Argue something less than a bearish world view: relentlessly minus until the comment disappears.
March 25th, 2009 at 3:31 pm
Big Brother is here. Thinking about travel to the US? Something to consider.
Immigrant detention system ensnares American citizens
Our view: Process leaves detainees in cruel netherworld, cries out for reform.
Hector Veloz, 37, is a U.S. citizen. His father is a decorated Vietnam War veteran. Yet for more than a year, until last summer, Veloz experienced what can only be described as a Kafkaesque nightmare. He was swept up into the U.S. immigration detention system and held in a prison in Arizona, far from his California home, as officials tried to deport him.
A unique case? Unfortunately not. The bursting-at-the-seams U.S. immigration detention system is all too often an arbitrary and cruel netherworld where normal U.S. justice standards don’t apply.
Immigration officials detained about 378,000 people last year, at least three times the number detained a decade ago. On any given day, about 33,400 people are held in some 350 facilities, including in regular prisons among criminals.
March 25th, 2009 at 3:36 pm
realpaul: I think the opinions on that article are kind of extreme. Firstable, the average american cant understand what just happened to them and they probably never will unless they go through 12 years of proper schooling. Second, Israel and the arab countries, as well as India and Pakistan, have been in conflict for hundreds of years. Their conflicts mostly affect their region but have not real influence in the western world.
Yes there will be inflation, protests and a wider gap between rich and poor like the US has never seen before. But it has happened before in other countries which have recuperated from it and that are doing fine now. Look at Argentina, Chile, Brasil, etc. IMHO what this world conflict will bring is redistribution of wealth among the world which from my point of view would be a positive thing if developing countries would take a bigger share of that wealth instead of any of the 1st world countries. However, given the circumstances you would need a crystal ball to determine what future lies ahead.
March 25th, 2009 at 3:59 pm
Local newspapers are not adjusting themselves to the reality of economic opinion. It appears that optimism is a local phenomena but as news from elsewhere bores in Vancouver will increasingly become mired in the fact that we have entered a serious recession. Personally , I think we have three factors pushing the “don’t worry be happy news stream” in the local rags. One is advertising from the developers desperate to bail, second is the provincial election as advertised by the cash rich Liberals, third, Olympic sponsors contractually bound to advertise the ‘good news’. These three factors will go down one by one in succession and will result in a longer, delayed and more serious recession that most people realise.
“Seven in 10 Canadians believe the economy is getting weaker, which is one of the highest levels since Environics started tracking this question in 1986. In Greece, 78 per cent think the economy is worsening.
Half of Canadians believe their economy is already in recession, while 91 per cent of Japanese think theirs is.
Fifty-six per cent of Canadians say the current economic climate is the worst in their lifetimes, which puts Canada in the middle of the global pack on the issue. By comparison, nearly 89 per cent of Americans feel this way, while only 29 per cent in China do.
Twenty-nine per cent of Canadians believe the U.S. and former president George W. Bush are to blame for the economic situation, while 45 per cent of Japanese think so and only 17 per cent of Americans do. Globally, national governments were blamed most often for the crisis.
After the U.S./Bush, 14 per cent of Canadians feel their federal government is to blame for the crisis, followed by the financial industry (six per cent) and corporate greed (six per cent).
Consumer confidence has weakened globally, with negative sentiment ranging from 20 per cent in China and Germany to 83 per cent in South Korea. Half of Canadians say this is a bad time to buy, putting Canada in the middle of the pack.
Three in 10 Canadians are worried about losing their jobs, a level that is well below other countries. In Russia, for example, 71 per cent are very concerned or somewhat concerned about job loss. ”
From the looks of it, Canadians are just catching up on the bad news which has been prevalent throughout the world for many months. It’s getting worse out there and it’s going to get a lot worse there. And I agree with the hypothesis that someone posited ” Why would developers desperatly discount now if they thought it was going to get better and be able to get full price or more by this fall”. The fact is they know it’s getting worse and they’re trying to get out now by finding the last dregs of the Greater Fools out there.
March 25th, 2009 at 4:00 pm
“Ella, you’re the one engaging in semantics now, not I.”
No, I’m just speaking English.You commended perma-bulls for their foresight. By your definition a perma-bull could not have foresight. It’s a completely pointless argument.
But you only came on here to insult people anyway, not for a real discussion.
March 25th, 2009 at 4:18 pm
Depression is a word the sticks in every politicians craw even when the facts are staring them in the face.
Why this recession is so bad
First things first: Even though it may seem obvious to most that this is the worst downturn since the Great Depression, the economy has experienced other serious recessions in the past, particularly in the mid-1970s and early 1980s.
But this recession dwarfs those two for several reasons.
In terms of length, the longest post-Depression economic decline was 16 months, which occurred in both the 1973-75 and 1981-82 recessions. This recession began in December 2007, which means that it will enter its 17th month next Wednesday.
The current recession is also more widespread than any other since the Depression. The Federal Reserve’s readings show that 86% of industries have cut back production since November, the most widespread reduction in the 42 years the Fed has tracked this figure.
http://money.cnn.com/2009/03/2.....2009032517
The only thing thats differant is the social safety net which delays total collapse. The economic numbers are in fact worse than the Great Depression and eventually even the spin doctors will have to come out of the ‘happy closet’ and admit it. That will only happen when they have lost thier own jobs and htey no longer hold a maandate to lie.
March 25th, 2009 at 4:25 pm
grindingtoahalt:
The odds of a depression scenario have dropped considerly from the perception 6 months ago.
If we enter a depression, it will have little resemblence to the one in the 30’s. So many things have changed since then that comparisons are simply wild guesses. If anything a modern depression will look like Japan in the 90s.
March 25th, 2009 at 4:25 pm
Huge layoffs still ripping through the economy. Good news from local bullshit media. Ozzie Jurock has a new ‘how to ‘ book out.
IBM to cut 5,000 jobs in U.S.March 25, 2009 4:51 PM ET advertisement
Article tools E-mail this article Print-friendly version Discuss this articleStocks mentioned in this articleInternational Business Machines Corp (IBM) Stock Quote, Chart, News, Add to WatchlistSun Microsystems Inc (JAVA) Stock Quote, Chart, News, Add to WatchlistRelated newsBusiness HighlightsWall Street gives up some ground after huge gainsHospira, Carnival, Walt Disney are big moversGold prices fall on move out of safe-haven assetsOil rallies to near $54 a barrel
All Thomson Reuters newsNEW YORK (Reuters) – IBM will cut about 5,000 jobs in the United States, adding to similarly large cuts in the past few months, sources with knowledge of the matter told Reuters on Wednesday.
The job cuts will account for over 4 percent of IBM’s U.S. workforce, which totaled around 115,000 at the end of 2008. The sources, who were not authorized to speak publicly on the issue, said the cuts will mostly be in IBM’s global services business, which includes outsourcing and consulting services.
I know Nokia has also added another 1000 layoffs to the list in addition to the previous announcements.
Anyone thinking that just because it hasn’t been announced on CKNW doesn’t mean it’s not happening
March 25th, 2009 at 4:31 pm
“However, given the circumstances you would need a crystal ball to determine what future lies ahead.”
Looking at world events right now: we’ve got China trying to shift its relationship with the US; the existing military and financial superpower is insolvent and we’re facing a global downturn.
All those factors lead me to believe that in some way or another, we are more likely to go through a period of volatility and violence. If a soothsayer told me we would go through WW3 I wouldn’t find it implausible (except that I don’t believe in soothsayers).
However…
There is nothing I can do about it. And, unless a more specific, clear threat emerges, there is nothing I will do about it. Ie, I will keep my investment strategy, keep saving and when the time is right, I intend to buy a home (just because I want one, not to get rich).
There is a big difference between the following:
DOOM & GLOOM: GENERAL BEAR STYLE
information considered : many financial institutions are facing insolvency, non-FIRE related production has fallen in N. America; savings have fallen; real incomes have been almost flat awhile; many markets have been overvalued (stock, real estate, art, etc.)
prediction : overvalued markets will fall, joblessness will increase etc. UNTIL we’ve gathered some savings again and begin a new cycle of production.
solution make sure you have savings, keep your risk low, don’t take on too much debt, keep an eye on your job and network in case you lose job
and
DOOM & GLOOM: LIBERTARIAN STYLE
- information considered general global political gongshow. Iceland is insolvent, people are freaked out
prediction : (this is a real prediction, taken from Glenn Beck’s “War Room” on Fox News) The cities are going to look like Dodge City. They’re going to be uncontrollable. You’re going to have gangs in control, motorcycle marauders. You’re not going to have enough police or federales, just like Mexico, to control the situation.
solution panic, don’t trust anyone, buy a lot of gold, get a gun, invest in a bunker
There’s a difference, is what I’m sayin’
March 25th, 2009 at 4:37 pm
Dave:
#199 Dave , so, when all these people who are going onto EI now ( around the world as well as CDA) and industry is still deteriorating ( as stated by the budget office this am) where will they hide them so as to avoid using the term Depression? This is a very differant situation from Japan in the 90’s . In the 90’s Japan had an in-country specific event and was able to pour money into bad banks to shore up a weakened industrial base while keeping the yen down for export growth. That is not the case today where irregardless how much yen they print they cannot create market share. Like here, Japans unemployment is skyrocketing. When the social safety net dries up look for a rapid deterioration in ‘news quality’.
You can be correct if the recession is over before all of these people run out of EI benefits. Whats that ? 6 mo’s from now? You are cutting in kind of close Dave. Most global economists and even our local apologists in Ottawa don’t agree with you if thats what you’ll need to happen to make your prediction come true.
March 25th, 2009 at 4:49 pm
More on the Japan – Depression comments from Newsweek
Risk of a Japan-Like Scenario
The real worry is that the U.S. economy could do even worse. The parallels between the U.S. today and Japan at the beginning of the 1990s are too clear for comfort. In both cases, heavy capital losses resulting from property loans constrained the banking system. In Japan, that led to a decade of stagnation, with growth averaging 0.8% from 1992 through 2002. Home prices remain 25% below their peak, and the Nikkei stock index is still trading at one-third its level of 20 years ago. Although there are differences, the risk of the U.S. falling into a Japan-like scenario is frighteningly real.
The U.S. reliance on foreign capital adds more risk. America’s current account deficit reached a record of 6.4% of GDP in third-quarter 2006, but it was a still-high 4.7% in 2008. Private money was almost entirely financing it—at very low interest rates.
Now, foreign investors have lost confidence in most U.S. securities, and money is not so easy to come by. With markets likely to remain tight, we expect the current account deficit to narrow to 2.1% of GDP in 2009. However, for now at least, increased risks abroad have investors sending money into the U.S. and into the safe haven of Treasuries, strengthening the U.S. dollar and bringing 10-year Treasury yields down to 2.83% on Mar. 5, up from the 54-year low of 2.08% on Dec. 18. A rising dollar cuts into U.S. exports and supports the trade surpluses of other U.S. trading partners. But shrinking trade flows also add the risk of protectionist action, which would hurt global growth.
We expect investor fears outside the U.S. about the risk of a dollar decline and credit risk to increase, so the result could be both a sharp drop in the dollar and a sharp rise in U.S. interest rates, extending the recession.
March 25th, 2009 at 4:55 pm
“If we enter a depression, it will have little resemblence to the one in the 30’s. So many things have changed since then that comparisons are simply wild guesses.”
That’s not entirely true. There are some specific similarities. For example, bankers hadn’t made this much in earning (since 1929), and that has to do with the amount of risk they were allowed to take on. Loose credit allowed for massive Real Estate bubbles across the US, including Florida in the 20s. We’ve got the return of Hoovervilles, now called shantytowns sprining up (see front cover of new York Times). And then there is this, from NPR:
Alex Blumberg: I talked to a guy who has something to say to people who want to pin this whole thing on banks. I talked to David Beim at Columbia Business School. He’s in his office showing me a graph showing how much debt we the citizens of America are in — how much we all owe on our mortgages and credit cards compared to the economy as a whole, the GDP. For most of American history it was below 50%. And then…
David Beim: From 2000 to 2008, it goes like almost a hockey stick. It goes dramatically upward like a rocket. It’s 100% of GDP. That is to say, currently consumers owe $13 trillion when the GDP is $13 trillion. That 100% of GDP owed by individuals. That is a ton.
Alex Blumberg: I’m going to ask you a leading question because I’m looking at the graph right now. Tell me, professor, has there ever been a time in history when we’ve owed that much before?
David Beim: I’m glad you asked me that. And guess what! The earlier peak way off on the left part of the chart is 100% of GDP in 1929. This is a map of twin peaks. One in 1929. One in 2007.
http://www.democraticundergrou.....id=5161059
Our government debt in Canada is better, but the savings rate in BC is -8%, and our economy won’t escape a US Depression unscathed.
If anything a modern depression will look like Japan in the 90s.
Well, Paul Krugman and I think you might be right.
Given what happened to the Japanese Real Estate market in the ’90s, I’m surprised to see you acknowledge that. But you are a wriggly fish, and love to flip and love to flop, don’t you?
March 25th, 2009 at 4:57 pm
(line broke strangely: BC savings rate was – (negative) 8% running up to this)
March 25th, 2009 at 4:58 pm
hmm, I’m having formatting problems. Let’s try that last bit again:
If anything a modern depression will look like Japan in the 90s.
Well, Paul Krugman and I think you might be right.
Given what happened to the Japanese Real Estate market in the ’90s, I’m surprised to see you acknowledge that. But you are a wriggly fish, and love to flip and love to flop, don’t you?
(You don’t mind if I snap at you twice, right
)
March 25th, 2009 at 5:27 pm
Forest & Marine , BC’s largest financier of forestry and marine related industries suddenly filed for bankruptcy today. This is the main source of financing and payroll for basic industry in BC. The payroll of thousands of workers at 40 large BC industrial companies and groups is immediatley affected as they are OUT OF CASH and cannot make debt payments or payroll.
This will affect the workers ability to make mortgage paymnets and all other debt issues, not to mention food on the table.
At the same time it is estimated that a majority of forestry workers currently laid off are running out of EI benefits. There is nothing but forced sales and then welfare ahead for many as there has been no announcement from any level of government to provide further assistance.
I guess it’s too early to tell these guys and girls that condo’s are cheap and intrest rates are at record lows? If another 10,000 forestry wworkers go down how many more peripheral buisnesses and ancilliary jobs dissapear with them?
March 25th, 2009 at 5:49 pm
New York is a smart city, it makes Vancouver look like smudge in a public toilet by comparison. New York is in trouble and people have been in denial, until now.
“Economic dirty bomb goes off in New York
By Tom Engelhardt
http://www.atimes.com/atimes/G.....6Dj01.html
Theres a new catch phrase created here for BC – Before the Collapse. We’ll see it soon enough.
March 25th, 2009 at 5:54 pm
Mish hits the nail on the head
Banks are far more interested in reinflating the price of $500,000 homes now fallen to $300,000 than taking care of urban blight. However, reinflating home prices cannot work because home prices needs to fall to levels that are affordable.
Homes in Flint and other such areas, have indeed fallen to their true value (less than zero). No one wants them at any price. Moreover there’s little incentive for anyone to do anything about this. Thus the discussion involves “shutting down portions of Flint, officially abandoning them and cutting off police and fire service.”
Our throw-away society has effectively reached a new level of efficiency: the throw-away city.
Did you just think ‘Whalley’ ? , so did I.
http://globaleconomicanalysis......ities.html
March 25th, 2009 at 6:27 pm
From Garths blog today. Reality catching up with Vancouvers elite as it has with average Vancouverites long priced out of the market. Canadas most unaffordable city settles in for a long downturn. Global Tv’s real estate story today was about the growth in the number of ‘average’ people showing up at homeless shelters for the first time in thier life. I’ll bet a lot of people wished they could curl up in thier parents basement.
“A few blocks away, the condos are so thick they blot out the sun. But looking up into the maze there are scores of units staring blankly back without curtains or occupants. Everyone here is so aware of the collapse of the giant $500-million Ritz project, and now the desperation sales of unsold units in half-built buildings.
Turned out the floor manager in the hotel I spoke at was a Toronto refugee, here for more than a decade. The recession, he confides, is a monster. Hotel business has plunged all across the city. The complex across the road, in the heart of Van’s most fashionable shopping district – Louis Vitton, Hermes — has found it necessary to close off an entire tower as occupancy rates crash.
The group I spoke to was uniformly professional, serious money managers, investment bankers, specialty corporate lawyers and accountants, the kind of folks who regularly flit around the continent on business. The conversations inevitably turned to real estate, as they all do in the Lower Mainland. I don’t think anyone liked the words coming from my lips. The declines here, I said, have just begun. And don’t even think about the aftermath of the 2010 games…”
March 25th, 2009 at 6:40 pm
The point was that the above exercise to convert my dad’s profit to real dollars (in this case, I set it to 1997 dollars) was a useless exercise. The information didn’t offer any value.
I’m proving Dave’s point: “What is the purpose of correcting nominal dollars from the perspective of an individual homeowner?” He said: “Who cares?”
First off, apologies if this was covered in a previous post. A couple of hours off this blog and I am so far behind.
My answer to your post above is that the utility of converting to real dollars is to allow comparisons of values and profits made at different points in time in terms of purchasing power. For instance, you might like to know if the $1 profit you made in 1900 was good compared to the $1 profit you made yesterday. Or if you sold now versus in five years, you might like to know how much value the transaction produces in terms of purchasing power. That’s all.
I’ll have to read over the voluminous shell fire which went on … but on another note, anyone notice the mom from teranet from dec-jan declined as opposed to increased every so slightly using mls benchmark (overall it seems the two are within range of each other though).
March 25th, 2009 at 8:10 pm
islander:
I stand by my point: perma-bulls want everyone to believe that all the time is “a good time to buy real estate.” The perma-bears want everyone to believe “you’d be nuts to buy real estate right now.”
Hey Islander, do you ever use the preview button to look at your post before you submit it?
“Perma” stands for permanent which means “all the time”. Not “right now”. For everyone. Bulls and bears.
I couldn’t make stuff like that up.
March 25th, 2009 at 9:26 pm
Anyone know that Mac Bulk are flogging off Cora in Coquitlam? Saw the sign off No. 1 today. All that is happening here is that the developer is passing on their savings to the public, these units are priced well below market value!
March 25th, 2009 at 9:50 pm
RennieWhereRU?:
market value is way way down from here. C’mon… a 2 bedrm concrete coffin for 1/2 mill in Coquitlam Bwahahahahahahahahahahahahah x 2. You’d really have to be stupid x 10
March 25th, 2009 at 11:10 pm
Hey blueskies,
C’mon over here and let me introduce you to my little friends, the Shun sisters. No matter how bad things get, people will always pay for a cook. That alone will see me through this economic situation. We’ll see how many IT people, marketers, real estate gurus and overextended landlords will be able to say the same thing.
Sucker.