Friday Free-for-all
It’s open topic time! Every Friday we do a round up of recent economic and housing related news stories and discuss these topics through the weekend. Here are a few stories I’ve noticed lately to kick off the discussion:
- A Canadian CMHC driven housing bubble?
- Canadian Gov now the biggest subprime lender?
- The growth of Canadian mortgage debt loads
- BOC expresses ’some concern’ over housing boom
- Canadians would sacrifice vacations to buy home
- US commercial real estate bust looming?
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So what are you seeing out there? Post your news links, thoughts and anecdotes here and have an excellent weekend!
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browntown Says:
October 22nd, 2009 at 9:55 pm
oh yeeah nutslaps! fastin your’ helmut for next leg up! your tax dollhairs at work
“AT The CMHC”
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kansai_92 Says:
October 22nd, 2009 at 9:57 pm
Higher taxes here we come!
METRO VANCOUVER – Metro Vancouver homeowners may face higher rates for sewer, water and garbage pickup in the future, but in return they will get some of the best services in the world, regional directors say.
http://www.vancouversun.com/te.....story.html
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logic Says:
October 22nd, 2009 at 10:14 pm
best services in the world?
pull the other one, it’s got bells on it….
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No Longer Looking Says:
October 22nd, 2009 at 10:24 pm
@kansai_92: Another argument for remaining a renter. Landlords have to suck up the tax increases in a weak rental market.
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Drachen Says:
October 22nd, 2009 at 10:28 pm
Well there you go Dave, are you still unclear on how the CMHC has been propping up the market?
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observer Says:
October 22nd, 2009 at 10:31 pm
Here’s a thought blog. Suppose you knew there was going to be a housing crash and it was going to begin in a few months time. Would you write it on this blog and get word out for the greater good or would you keep it secret so there would be fewer buyers to compete with when the time came. Would you even try to promote RE like a bull to suck even more FTB into the vortex?
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domus Says:
October 22nd, 2009 at 10:45 pm
Is it me, or are there more and more critical articles about the CMHC? Is public opinion and MSM waking up to this big scam?
Maybe, only maybe, we are getting a whiff of genuine discontent over this absurd subsidization from tax payers to home buyers?
Please report any more articles on the big CMHC scam and write to your MPs. Even a few complaints can trigger an avalanche.
People have to know what is going on, they have to know that the RE market in Canada is being propeed up with tax payers money, they have to know that this cannot last.
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poster Says:
October 22nd, 2009 at 11:15 pm
Bad News, $5.4 billion dollar complex in New York is on the rocks:
http://www.nytimes.com/2009/10.....wn.html?em
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patriotzed Says:
October 22nd, 2009 at 11:19 pm
@observer:
The idiots who have been buying here have been ignoring the massive (and well-reported) RE bust going on just south of Zero Ave for the last few years, so what makes you think they would pay attention to anything anyone says in a blog? They certainly haven’t paid attention to anything on this one or its counterparts.
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gvrdpropertyowner Says:
October 22nd, 2009 at 11:28 pm
I have often told people that government programs— such as CMHC’s mortgage underwriting— merely inflate markets, while promising affordability.
Abolish the CMHC tomorrow and Vancouver real estate price drop 50% in one day. Why? Because banks would start requiring 25% down payments.
However, if you try to explain this to most Vancouverites, they will stare at you with a dumbfounded blank look that suggests they don’t possess the cognitive resources to comprehend such a complex argument. So I just wish them luck with their 35 year mortgages and move on.
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Anonymous Says:
October 22nd, 2009 at 11:35 pm
To partially offset the pain of higher property taxes, the City of Vancouver will be offering free blowjobs to anyone living west of Main street. Condo developer Bob Rennie loves the plan, exclaiming “Oh Yeeeeaaaaaah!”. “Unfortunately there are not enough resources to offer blowjobs to everybody”, said Mayor Gregor Robertson. Residents east of Main street will have to make do with free police beatings instead.
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patriotzed Says:
October 23rd, 2009 at 12:07 am
@gvrdpropertyowner:
More like 50% down payments I would say (although legally they would have to require just 20%). The banks aren’t dumb at all, they know how risky RE lending in Vancouver is right now and they’re only keeping the party going because the taxpayers, not them, are going to get the hangover.
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No Longer Looking Says:
October 23rd, 2009 at 4:28 am
Easy sleazy lending lures tenants out of public housing
http://www.straight.com/articl.....s-vacating
Demand is almost done.
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asp Says:
October 23rd, 2009 at 4:52 am
@observer:
Applied to myself, as a happy renter, what would I gain by not sharing my knowledge?
@No Longer Looking:
Property taxes are hidden in the rent. As well, resident owners get a refund from the provincial government, so renters land up paying more tax than owners.
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No Longer Looking Says:
October 23rd, 2009 at 4:59 am
@asp: I don’t agree. Rents are set by the market not the landlord’s expenses. If landlords could pass on all their expenses, rents would be double or triple what they are now.
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No Longer Looking Says:
October 23rd, 2009 at 5:16 am
@No Longer Looking: Rather than “would” I should say “could”. Obviously, not all landlords have massive mortgages on their properties.
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vreaa Says:
October 23rd, 2009 at 6:38 am
Rates So Low Renters Forgoing Subsidized Housing To Buy
23 October 2009
http://vreaa.wordpress.com/
When low income individuals are forgoing subsidized rentals to buy, how far can a market be from a top? These excerpts from an article that ran in the Georgia Straight 22 Oct 2009, by Carlito Pablo -
The Metro Vancouver Housing Corporation [mandated to supply affordable rental to families with low to moderate income] is losing many of its moderate-income tenants to the housing market. With variable mortgage rates going as low as 2.25 percent, plus incentives being offered by sellers, families are buying homes and moving out of affordable rental properties operated by the public housing body, according to a report by regional housing manager Don Littleford. The housing body has seen two consecutive quarters of increasing vacancy in its properties. “With the efforts of the Bank of Canada and the chartered banks to create economic activity, they’re offering very low-cost money on everything.” — “the next several rental quarters are expected to be challenging until mortgage and consumer-borrowing interest rates return to more normal levels”.
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Boombust Says:
October 23rd, 2009 at 6:49 am
Garth has written an excellent post on this CMHC nonsense just today.
However, as Patriotized has said, the masses still won’t get it.
Dumb is as dumb does.
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Dave Says:
October 23rd, 2009 at 7:06 am
@vreaa:
Or put another way, real estate is still affordable to lower income groups.
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Anonymous Says:
October 23rd, 2009 at 7:53 am
This will be way worse than a bust. Atleast in a bust you are at rock bottom and you can only go up. This will be a slow decline for 5 years after the Olympics, more like a depression with negative growth
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vreaa Says:
October 23rd, 2009 at 7:53 am
@Dave: Affordable?
Lenders, backed by CMHC, are allowing people from lower income groups to put nooses around their necks based on criminally-low free-money teaser variable rates based purely on monthly carrying costs that’ll only apply for about the next 6 months. Then they are definitely going to rise, BOC has told us so.
Do you think that these low income buyers, many of whom are financially illiterate, are heeding Carney’s hopeful cautions about “prudence from Canadians” and his specific warning that “borrowing is for the period you are going to borrow, not just for the moment you take out the loan.”? (Gee — I wonder what that means?).
So, yes, affordable — IF THEY CONTINUE TO RENT.
If they buy, they’ll end up a very early statistic (and go back to renting).
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Dave Says:
October 23rd, 2009 at 8:54 am
@vreaa:
Affordable and risk are two different animals. I am simply pointing out is that real estate is still affordable.
I agree that there is a risk that interest rates will go up. We can debate how much, when and who it may affect, but that is a separate discussion. To claim that the whole market will come crashing down due to possible interest rate rises is far too simplistic.
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logic Says:
October 23rd, 2009 at 9:02 am
Dave,
When something is a certainty, it can not be described as “risk”.
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Anonymous Says:
October 23rd, 2009 at 9:30 am
“To claim that the whole market will come crashing down due to possible interest rate rises is far too simplistic.”
really? but don’t today’s buyers sort of reduce the buying decision to the simple terms of “howmuchamonth”? As in, they don’t want to bother with complex issues such as “howmuchamonthwhenihavetorenew”?
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domus Says:
October 23rd, 2009 at 10:19 am
One more damning piece against the CMHC, just out to press today.
“It’s that simple”
http://tinyurl.com/yf43ak3
Some excerpts below:
It’d be hard to make this stuff up.
* One of Canada’s biggest banks is slapped with a debt review and a likely credit downgrade.
* The country’s biggest province says half its business taxes vanished, and doubles its deficit. It, too, gets a debt downgrade.
* And it’s taken a mere 12 months for Ontario and Canada itself to pile $83 billion more in debt on taxpayers’ shoulders. In fact Ontario alone figures new debt will hit $70 billion over the next three years, while the national government heaps on $200 billion.
The reason government finances have fallen off a cliff, along with those of carmakers, resource companies, steelmakers, tool and die companies, casinos, exporters and a host of other folks is simple. The economy sucks. People are out of work. Businesses losing money don’t pay taxes.
But meanwhile, two things are booming: Real estate and lending money. House sales are up by a third nationally. The average price is ahead 11% on average. Mortgage loans have hit an all-time high – rising an estimated 12% in 2009 alone. Consumer credit has soared 9% during the recession. And we now owe more, per head, than the Yanks. Household debt in Canada is 140% of income. Down south, it’s 132%.
So why do we have a real estate boom, when they are still wallowing in their bust?
Simply because CMHC, a federal government agency, backs all high-risk mortgages with taxpayer dough. By removing all risk from the banks, it lets them lend to people without money and little prospect of paying their loans off. It allows them to give the cheapest, lowest rate to those with the highest default risk. In case that sounds familiar, we used to call them ’subprime.’
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oneangryslav2 Says:
October 23rd, 2009 at 11:00 am
@Dave:
In the middle of a debate I often cause it to stop dead in its tracks by saying something like “Shiggateer is a direct consequence of the flistaslack being too low.” The point being that there is no way anybody can assess the veracity or the logical consistency of my statement if they don’t know what the terms shiggateer and flistaslack mean.
So, Dave, what is your definition of “affordability” as it applies to residential real estate?
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observer Says:
October 23rd, 2009 at 11:00 am
@vreaa: A subprime by any other name is a subprime.
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Not much of a name Says:
October 23rd, 2009 at 11:14 am
@oneangryslav2:
I was thinking the same thing. Isn’t “affordability” a rather nebulous term?
I find it rather ironic how prices of RE can keep increasing, yet “affordability” is improving. I guess to most people, it all boils down to what are my monthly payments today. Never mind what my payments will be in 5 years when my mortgage is up for renewal and the interest rates will be much higher than today.
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anonymous Says:
October 23rd, 2009 at 11:21 am
Here’s an anecdote for you. A couple years ago when we applied for a mortgage pre-approval from Scotiabank, based solely on my income (not the wife’s) we were approved for a mortgage of $450K (and probably could have asked for more if so inclined). A couple months ago, we applied for a mortgage pre-approval from ING, based on our combined household income (approx. $40K more than our income two years ago) and were only approved for a mortgage of $375K. At first I thought this was an indication that ING is a more cautious lender than Scotiabank but it just occurred to me that our application two years ago was with an assumed 5% downpayment, thus insured by CMHC, and our application two months ago was with an assumed downpayment of 20% without any CMHC backing. So I’m now thinking that banks are just more reckless with their lending provided the CMHC is providing insurance on the loan. Ironically, this would mean the less you put down, the more you could borrow.
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domus Says:
October 23rd, 2009 at 11:32 am
@anonymous: crazy stuff indeed. I think you might be right. At the end of the day, you are riskier to a bank if you have a 20% downpayment, as you are off the CMHC books.
Put this evidence together with the fact that low income people (who qualify for housing assistance, that is, they cannot afford market rents) are flocking to buy RE at subsidized 2.25% and you have substantial evidence that we are in a colossal bubble.
The BoC is being reckless by allowing this craze to go on unabated. This is obviously an unsustainable state of affairs. The only thing which could avoid a crash in the next 24 months is a bout of high inflation, resetting all debts to more manageable levels. Is that the BoC plan?
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No Longer Looking Says:
October 23rd, 2009 at 11:40 am
@vreaa: BTW that article also said there’s a 3% vacancy rate in public housing. I strongly suspect the rate for private rentals must be higher. I’ve heard of long waiting lists for public housing in the past, indicating a 0% vacancy rate. I would have to guess that we could see the overall vacancy rate of 4 or 5% for Metro Vancouver this year, and increasing.
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No Longer Looking Says:
October 23rd, 2009 at 11:44 am
That is, the CMHC official vacancy rate will be 4 or 5% for purpose-built rentals. Obviously much higher for new condos (we can only guess at that).
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vreaa Says:
October 23rd, 2009 at 11:46 am
@anonymous: This exact paradox has occurred to me, as I’m sure it has to others here: Rare citizens who may currently have large downpayments will ironically be seen by the banks as higher risk borrowers. The banks will actually be stricter with them, because, in this case, they’re not playing with other people’s money.
Great anecdote, especially if you have one extra piece of information:
Did you ask ING if the amount would have been higher with a lower downpayment?
I suppose we could ask any borrower about this now.
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logic Says:
October 23rd, 2009 at 11:47 am
re rents, and thus down down down go rents… more pressure on :loan-lords:.
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!(EconomicsDegree) Says:
October 23rd, 2009 at 12:08 pm
@No Longer Looking: I strongly suspect the rate for private rentals must be higher.
According to Michael Geller, property managers operating in Vancouver agree that the rental vacancy rate is between 5% and 7%. At that rate there will be little upwards pressure on rents. AND NO RENTAL SHORTAGE.
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Drachen Says:
October 23rd, 2009 at 12:09 pm
Just for kicks I thought I’d check how many rentals there are on Craigslist. I know it’s getting more popular and some of the advertisements are for Olympic rentals which are in high swing right now… There’s 475 rentals available so far today. And it’s just noon.
It’s been a few months since I checked but there wasn’t even a full page (of 100) then.
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Drachen Says:
October 23rd, 2009 at 12:11 pm
Upon random sampling it appears that about 10% are for the olympics, which was actually much less than I’d initially thought.
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Drachen Says:
October 23rd, 2009 at 12:13 pm
Heh, in the 4 minutes since I checked Craigslist the first time there have been 12 new postings.
Ok, 3 in a row is too many, I’m stopping here
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Realista Says:
October 23rd, 2009 at 12:19 pm
Hi what was combined household income when approved for a mortgage of $375K if not a secret. This numbers are sort of making some sense. Thanks.
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Realista Says:
October 23rd, 2009 at 12:21 pm
Oh sorry, my question for anonymous anecdote.
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anonymous Says:
October 23rd, 2009 at 12:32 pm
@@Realista:
The numbers were as follows:
2 years ago: Income (single) = $80K, Downpayment = $25K, Loan approved for $450K
Recently: Income (household) = $120K, Downpayment = $90K, Loan approved for $375K
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Starving Artist Says:
October 23rd, 2009 at 12:33 pm
Surely this must be a mistake?
http://www.6717000.com/mls/V79.....on-st.html
A quarter million dollars for 329 sqft???
Plus of course $180/mo strata fees
————
In other news, Alberta’s finances not looking so rosy. Nat gas still quite low, can’t see them going up any time soon in the face of the shale gas discoveries and strong loonie.
http://www.calgaryherald.com/b.....story.html
Not to mention…
Wide swings in oil prices are difficult for industries to manage costs and the U. S. government is concerned about another price spike like the one that sent prices soaring to $147 last summer, Chu told an energy summit. “Even $80 is making me nervous,” Reuters reported him saying.
I would bet on the US curbing energy speculation sooner rather than later.
This house of cards is teetering more and more every day.
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anonymous Says:
October 23rd, 2009 at 12:34 pm
@vreaa:
No I didn’t ask ING if the amount would have been higher with a lower downpayment because it really didn’t occur to me until all this talk about the CMHC recently.
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Play By The Rules Says:
October 23rd, 2009 at 1:13 pm
The more I read about the backing of the feds to the CMHC, the more I realize the rules have changed, the more I realize that being financial prudent was and is the wrong move.
This recession and housing bubble has taught me that individuals that engage in “risky” practices will be bailed out “somehow” either by the banks (e.g. mortgage relief) or by joe taxpayer through the CMHC.
It is exactly this type of moral hazard which makes more and more “play by the rules” Canadians lose faith in their government, which creates a greater degree of alienation, and eventually a compromised normative order.
I told our director of finance that if individuals who lived beyond their means and threw caution to the wind via excesses debt loads did not get “penalized” during this recession, then all I learned is that I need to take out as much free money as possible and speculate in every sector where bubbles can form.
I will be the eternal optimist from this point forward, knowing that there will never be any repercussions…aaahhh….you have to love this country
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Supported By The Taxpayer Says:
October 23rd, 2009 at 1:15 pm
Who cares if the CMHC backstops more and more mortgages. The taxpayer will fund everything, so no need to be worried.
Can anyone actually give a reason why they should be worried? Logically, this “could” end badly, whatever that means. Logically, the market should not have ballooned during a recession, but that does not stop market realities.
Getting a house cheaply has never been easier, whether you are a six figure banker or a 5 figure waiter. If all of us are going to pay for this “eventually” why not all benefit by owning our own houses now.
You can be a smart renter sitting on the sidelines with a big cash down payment, but you are still going to have to pay for this “mess” as a taxpayer if things go sideways, or you still have to sit and watch prices go up if it doesn’t go sideways and continues for years and years and years.
And if that happens, well then, that would have been a 10 year bubble, which makes me think that maybe it was not a bubble.
Either way, you are not any better off than the “greaterfools” jumping in today or in the last six months. Sorry.
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Drachen Says:
October 23rd, 2009 at 1:16 pm
@Starving Artist:
Sure it’s a quarter million for 329 square feet but it comes with a “LARGE STORAGE LOCKER”.
I work in that building, the offices are quite small so I totally believe the size, in fact it would be hard to build an apartment much larger in those spaces, have a look at it sometime it’s a very thin building. It’s just across Burrard from the church (don’t know it’s name) just north of St Paul’s.
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nonymouse Says:
October 23rd, 2009 at 1:21 pm
@Play By The Rules:
http://www.youtube.com/watch?v=Q5im0Ssyyus
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realpaul Says:
October 23rd, 2009 at 1:56 pm
@Anonymous:
How dows a death in a house affect its value in this day and age. Many years ago there was a ‘ghost house’ on the corner of Cambie and 25th. It was so popular that bus tours from HK and Korea used to do a drive by. Tje house say empty and vacant for years until it was eventually torn down. Appaprently a house maid had been murdered and buried in the back yard. Now, I don’t know even if the story was true but it affected that property and the property around it negagtively even in the are boom of the late 80’s.
We currently have many houses where viol;ent death and murder are taking place like this one.
http://www.theprovince.com/new.....story.html
With the the shootings by cops alone there are dozens of properties every year tainted ny this ‘ghostly’ phenomena. I know from my contacts that Oriental people won’t buy a ‘death house’ for any money. What about the rest of these properties?
I know of a great many police killings locations alone. There are at least several every week reported in the papers.The number of these properties must go back on the market after police bullets put them on the market.
Do cops buy them and consider them ‘prizes’? Who buys them is the question. With number of this category of killing grounds coming on the market is there a disclosure line item like “Previuos owner had his head blown off in the living room”, as a latent defect?
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observer Says:
October 23rd, 2009 at 2:00 pm
@Supported By The Taxpayer: The worry isn’t that you have to pay as a taxpayer. The problem is that you will have to pay as a homeowner whose property has lost half its value and rates have doubled while at the same time your income has deteriorated or run dry. In other words, the worry is that you are essentially transferring your wealth to the sellers of the overvalued property that you buy.
If you believe housing prices will not drop and interest rates will stay low for a long time, then yes, it may not entirely irrational to buy, depending on the circumstance. Personally, I think there is a lot of risk to one or both conditions not being met and that we will see evidence of this very shortly.
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oneangryslav2 Says:
October 23rd, 2009 at 2:16 pm
@Supported By The Taxpayer:
This couldn’t be further from the truth. Yes, my taxes will have to bail out the CMHC, but so will the homeowners’ taxes. I’m currently renting an apartment. If I “owned” the same place my current housing costs would be about double. I’m saving the difference.
If the shit hits the fan as we all–save Dave–think it will, then I’m in a much better position to withstand the inevitable hike in income taxes and economic deterioration than a home owner who has bought in the last 5 years or so.
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fallingaxe Says:
October 23rd, 2009 at 2:40 pm
@vreaa:
17 The poor being moved into ownership because of a temporary negative interest rate, ya thats smart. Will their incomes go up as fast as the interest rates will?
we’re in solid bubble territory,
“Roubini: I could make a similar argument for other commodity prices. In my view, rising commodity prices are not justified by the fundamentals.
There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before.”
http://www.indexuniverse.com/s.....l?Itemid=5
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we're # 1 ( at fucking up) Says:
October 23rd, 2009 at 2:48 pm
“But meanwhile, two things are booming: Real estate and lending money. House sales are up by a third nationally. The average price is ahead 11% on average. Mortgage loans have hit an all-time high – rising an estimated 12% in 2009 alone. Consumer credit has soared 9% during the recession. And we now owe more, per head, than the Yanks. Household debt in Canada is 140% of income. Down south, it’s 132%.”
http://www.howestreet.com/arti.....e_id=11240
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we're # 1 ( at fucking up) Says:
October 23rd, 2009 at 2:53 pm
@Starving Artist:
#42 the 329 sq ft place at th eElectra was also built in 9999, very futuristic.
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Anonymous Says:
October 23rd, 2009 at 2:56 pm
#45 @Supported By The Taxpayer: We may all have to pay for this, but we won’t have to pay equally. People with mortgages *need* to maintain a high income, especially if they become trapped by falling house values in a crash scenario. They will bear the brunt of the taxes, while people with substantial savings may be able to buy a modest dwelling with cash and over the next few decades, work less and have more time for family and friends. The difference in “quality of life” could be incredible.
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pricedoutfornow Says:
October 23rd, 2009 at 3:21 pm
So if we understand that the banks have a vested interest in lending to those who have LESS than a 20% downpayment, has anyone encountered a situation where the banks actively encourage people to put down less than 20%?
Then again…with prices this high, I’d say it’s pretty difficult for most to put down any more than 20%.
Sad.
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rp Says:
October 23rd, 2009 at 3:27 pm
On another note, there is a debt-cycle in the economy where people alternately get ahead by either taking on more debt or by having no debt. For example, in the 1970’s currencies were inflated away so someone who borrowed to purchase assets early in the cycle made out like a bandit. People who tried to replicate that strategy in the early 1980’s were crushed. The inflection points are always brutal for the debt-holders because their position can’t easily be changed. A saver can always purchase assets at the beginning of a credit expansion though.
So where are we now? We’ve seen a continuous 15 year expansion of credit since the early 1990’s recession, and the US has clearly passed an inflection point. Look at this:
http://market-ticker.org/archi.....rning.html
Anyone with a Citibank credit card are being charged 30% interest! It’s the same rate whether or not you are in default! Other banks are starting following suit, and anybody in debt is basically screwed. People who think this can’t happen here are delusional. The big banks will charge you whatever they can, and if people start defaulting on their mortgages (blowing up the CMHC) you can bet they will max out their credit cards and default on those first. My advice to everybody is to stay out of debt at all costs, the wind is changing.
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frugal chipmunk Says:
October 23rd, 2009 at 3:28 pm
#12:
Is that the provincial tax payers or national?
B/c I am thinking about skipping the province. (Pardon my french, but to the hell with those who are irresponsible, they are the ones that should sleep in their ugly bed, not me).
It is unfrugal to pay for others stupidity, and frugal is my mantra. I really dont care what others do, big house, fancy car or whatever, it is their load to carry. I did not aquire any of those things therefore I dont pay for it.
SIMPLE. I dont go with the expectation that anybody else is going to pay for my groceries when I go to the grocery store, nor do I pay for anybody elses either. What you put into your basket is up to you, and paying for it is up to you too. SIMPLE.
SQUEAK!!!!!! i just had to purge..back to collecting some walnuts for the winter..
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realpaul Says:
October 23rd, 2009 at 3:37 pm
Does anyone wonder why the government was willing to put 600 ++ billion into buying mortgages and another 200 Billion in outright debt as the deficit numbers are showing (and the year isn’t over ) and zero money into any other consumer produces? Why wasn’t there any incentive programs like Cash For Clunkers to revive the auto industry in S. Ont. The program was very effective in Britian, Japan and the US. What else could have been done for buildings hospitals, seniors homes, low income housing and assistance. training programs etc? Why did they blow the entire nut on house buying?
In BC we’ve seen a 6 Billion ++ blow out for the Olympic fiasco with nothing to show for it and no legacy beyond sinking buildings and duplicated facilities that no one in the sports world knows what to do with after the 21 days of use. I think people are going to look back and say ‘what the fuck happened to all that money?’ Post Olympics of course the stricks will start and the ‘happy face’ ad revenue will have shifted to London or Rio. We’ll be left with questions and not a pot to piss in.
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Milton Friedman Says:
October 23rd, 2009 at 3:39 pm
Hey All,
Don’t forget about the permanent income hypothesis. In a standard two period model, borrowing today can maximize overall utility if you expect to be able to pay back what you borrow tommorrow. This is just standard undergraduate Economics. Unless most of you armchair economics gurus don’t know what you’re talking about.
http://en.wikipedia.org/wiki/P.....hypothesis
What might extrapolate that they don’t have bright prospects for future income.
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No Where To Go But Up Says:
October 23rd, 2009 at 3:48 pm
59
From your link : “In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations”
I am an uneducated staffer at Safeway making $16 bucks, but I EXPECT (insert the word hope) to make $100 an hour at the same job down the road, so I am sure that giving me a $500,000 mortgage is the right thing to do…
I like that hypothesis…it makes me feel good about my home purchase. Oh wait, didn’t I hear that same hypothesis from my realtor about ever rising incomes ….
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pseudoeruditebullshit Says:
October 23rd, 2009 at 3:58 pm
@Milton Friedman:
Ya great, the futures so bright I gotta wear shades. The basis of the model is based on expectation within the macro enviornment in which it resides. Apply the theory to Detroit why don’cha?
Vancouver for example has no permanent tax base per se. 80% of the Board of Trade representatives are buisnesses employing less than 50 people. Small business and single family homeowners are transient by definition.
The Shitty Council of Vancouver has as its head a guy who bottles ’several thousand bottles of juice per week’ that coming from the Happy Planet webpage.
The city is temporary and smalltime. Expectations are that that the facade is temporary and without industrial foundation to suggest permanence and thus has no basis on which to base Freidmans Theory.
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oneangryslav2 Says:
October 23rd, 2009 at 4:13 pm
@Milton Friedman: How the hell are you maximizing expected utility if you’re paying 2 or 3 times as much for housing than if you rented it instead?
Taking on debt can be rational–in the sense of maximizing expected utility–at times. Taking on housing debt in Canada right now is not rational.
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Boombust Says:
October 23rd, 2009 at 5:14 pm
I e-mailed a letter today to the “Chairman, CMHC” about their reckless and wanton ways.
Not too difficult. Just go to their website.
Think I’ll receive a scripted reply about their mandate to create “affordable” housing for all Canadians?
Hmm…we’ll see.
I’ll keep you posted!
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domus Says:
October 23rd, 2009 at 5:45 pm
@Boombust: Brilliant! I shall do the same! In fact, if the Pope wants to prepare a common format, I could just wait and send the same letter that everyone else will send. It would be cool to have a ‘class’ letter from all people reading this blog and agreeing on its contents.
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(un)realpaul Says:
October 23rd, 2009 at 5:53 pm
How about?
Dear Government Running Dog,
Stop your evil abusive conspirocy – which sees you in league with the RCMP, Communists, the KKK and Satan – and set us freee from you meddling.
If you do not I will come over as part of my latest world trip and kill you with a stick. Because I can.
Signed
(un) RP
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domus Says:
October 23rd, 2009 at 6:01 pm
Who’s face in the new $1 million bill?
This is a really interesting article from Bloomberg.
http://tinyurl.com/yzjws6g
“Forty years ago, the U.S. government said the $100 bill would be the highest-denomination note. With the Federal Reserve now trying to print its way out of the financial crisis, it may be time to revisit that decision.”
I don’t know what the governments will do about the huge amounts of debt they are issuing or guaranteeing. If they were to actually pay them, taxes should raise a lot (!) and services should be cut. Any politicians around who are serious enough for that?
There is an alternative, though. Printing paper money over the years and dilute the debt. I wonder whether that is a given already, or maybe I am just been cynical.
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what do I know? Says:
October 23rd, 2009 at 6:55 pm
You guys get it all wrong. BC bud will save this country. Yes people are getting in debt, but sofar everyone seems to be paying their morgage. Where is the money comming from? The basement morgage helper is transformed into a grow up cash cow. as long as this continues, real estate is going to be stable at worst or go up at best. Stop looking for other explanations. BC Bud is the name of the game. People dont know that in a small aera of 80sqft in their basement they can get close to 20 000 cad each 6 weeks with minimum hussle. And that is cash money, no taxes paid!!! And I keep working 9 to 5 making 50k a year and still giving 20k to goverment in taxes. Life sucks…
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FORREST Says:
October 23rd, 2009 at 7:04 pm
Let CMHC go bust. No tax payer bailout. Let the banks (participants in crime) take the hit.
This would only happen in a society where people had brains if their own.
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!(EconomicsDegree) Says:
October 23rd, 2009 at 7:15 pm
The whole future income argument is fine but investors do the same. Investors compete head-on with owner occupiers. By that measure it’s future rents not incomes that determine the price. Last I checked rents were rising very slowly. And rents don’t get promotions.
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PorkyFlu Says:
October 23rd, 2009 at 8:12 pm
What do you think the impact of the HST will be? Some say that resale homes will be more desirable than new builds. Will the housing market go splat after the HST is implemented?
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patriotzed Says:
October 23rd, 2009 at 9:51 pm
@domus:
Wrongo, because rising inflation inevitably results in rising interest rates. That is exactly why we had double digit interest rates in the 70’s and 80’s.
You are also implicitly assuming that wage inflation would keep up with price inflation. How likely would that be?
There is no way out of this bubble except a price bust.
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patriotzed Says:
October 23rd, 2009 at 10:02 pm
@Drachen:
This is course is the former BC Hydro (originally BC Electric) head office, hence the name “Electra”. The reason the condos are so small is that they used to be offices.
When it was converted to condos in 1995 it heralded the start of the head office flight from downtown Vancouver, although I think few realized it at the time.
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domus Says:
October 23rd, 2009 at 10:08 pm
@patriotzed: I disagree. What i am saying is not that homes will be more affordable, because I am well aware that there will be an interest rate ‘hurdle’ which will make the repayments hard from the very outset of the loan. What I am saying goes beyond RE and has to do with the general level of prices: inflation will distort incentive, labor supply, it will reduce the real purchasing power of salaries and wage, it will surely make credit harder to come by. However it will definitely also provide a much needed reset of a vast amount of nominal loans, including loans to firms and companies. It would be a (very unfair) way to kick-start the economy and throw out the ballast and dead wood of past.
Of course, this could be implemented in a stealth way: like, for example, increasing the target inflation rate to 5% (claiming some external shock or other excuse). Over a 3 years period they could run inflation rate closer to 6% or 7%, without exceeding their bounds and virtually erasing big chunks of existing liabilities.
They could do it. It would mess up credit markets, mortgage origination would collapse and the dark days of decreasing purchasing power and distorted labor markets would be back. But, let’s be realistic, do you think they really mean all this new debt to be genuinely repaid? Will they raise taxes to repay all this government debt? Will they not bailout unwise borrowers again?
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flip_this Says:
October 23rd, 2009 at 10:11 pm
I’ve been a bear on Vancouver housing market for a long time, but recently my views have been changing somewhat… I am still quite confident that housing in Vancouver is overpriced, and will at some point get in line with the fundamentals. I am still convinced that this price adjustment will take place, at least in real terms. By the real terms I mean against a basket of commodities and against a unit of labour, i.e. if historically price of the house was equivalent to let’s say 4000 hours of labour, then this is the average historical price housing market will eventually come back to.
Now, I am not so sure about the nominal, or money denominated prices. On that score I have to give the due credit to Dave, who was pointing out on many occasions that for a mortgage holder, price drop in real terms is actually beneficial, and the price drop in nominal terms is not. Whether the drop in nominal terms will occur will depend on the supply of paper or fiat currency. The defining variables in this equation are the government and the central bank, and their respective fiscal and monetary policies. The questions is just how much money are they going to create? The usual amount per annum or slightly more, or much more?
I noticed that many housing bears have an interesting contradiction in their arguments: on one hand they exhibit a mistrust in the ability of the government to “regulate” or to interfere in the markets (CHMC), but on the other hand there is implicit trust in the paper money, which above mentioned government has full control of. The government can create and does create paper money at will. So, to say that real estate prices will fall in nominal terms is to believe that the value of the pieces of paper with the dollar signs on them will at some point inevitably rise against the real assets, such as houses. And in principal I would not dispute that such appreciation of paper against housing can happen (USA, Japan). But it will happen only if there is political will for this to happen. And this is a big IF. It seems to me that with the low rates they pushed themselves into the corner, any significant raise in the lending rates will cause mortgage defaults, and there will be a political pressure to do something (most politicians want to get reelected). In my opinion, it all will end up in a nationalization of mortgages, Government of Canada owns them indirectly anyways. So, at some point they would just freeze the payments on the all of the existing mortgages…
In conclusion, I think that, in the long run, the people with the biggest mortgage possible will win the most, because their mortgages will be inflated away. I am not going to buy however. I still think that buying right now is risky. There will be a brief period when interest rates will rise but mortgage payments are not frozen by the government yet. In the USA it is a no brainer: with a 5% mortgage locked in for 30 years one simply can not go wrong… Here in Canada with maximum 10 year lock-in period getting a big mortgage is not such a sure thing.
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patriotzed Says:
October 23rd, 2009 at 10:13 pm
@realpaul:
Because the great majority of cars sold in Canada are imported. Conversely, the majority of cars produced in Canada are exported to the US. Therefore, the “Cash for Clunkers” program in the US actually supports more Canadian jobs than a similar program in Canada would. Or to put it in economic language, the auto market in Canada is too open for local producers to benefit from consumer subsidies.
A program of subsidies to purchasers of Canadian-made cars only would be both ineffective (because of the fraction of models made in Canada) and violate NAFTA.
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patriotzed Says:
October 23rd, 2009 at 10:22 pm
@domus:
No it won’t, because interest rates will rise to compensate for the inflation. In other words, real interest rates will remain the same, or even increase, because lenders will become increasingly uncertain about the real value of the principal when repaid.
Believe me, if consumer price inflation ever gets north of 2% (the BoC target), you will see a big jump in interest rates, pronto. You think a 6% prime would be good for business?
And before someone chimes in “the government won’t allow rates to go up” the bond market is a lot bigger than any government. Ask George Soros.
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vreaa Says:
October 23rd, 2009 at 10:25 pm
@flip_this: “I noticed that many housing bears have an interesting contradiction in their arguments: on one hand they exhibit a mistrust in the ability of the government to “regulate” or to interfere in the markets (CHMC), but on the other hand there is implicit trust in the paper money”
—
That doesn’t follow — I don’t see the ‘implicit’ link being present in the bear arguments or positions. How do you draw that conclusion?
Plenty of RE bears are concerned about inflation of the fiat money supply and are hedging their invested down-payments against inflation.
Future inflation may help RE somewhat, but it would have to be profound to prevent a crash of RE prices in Vancouver.
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Anonymous Says:
October 23rd, 2009 at 10:31 pm
@patriotzed: No again, I must disagree. It is true that interest rates for companies (and consumers) will hit the sky again, no question there. However the politicos have a short term view: they don’t care about reigniting inflation and letting the genie back out of the bottle. Re-election for them means that it is a prioriy to avoid the crisis which would follow a major adjustment (downward) in nominal prices of assets. They have just shown us that they won’t accept that. If you think they will, just give me a chronology of events as you see them happening.
By the way, I wish i was wrong: prove me so and make my day (but make it ‘incentive compatible’ for policy makers).
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domus Says:
October 23rd, 2009 at 10:33 pm
78 was me, forgot to sign.
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vreaa Says:
October 23rd, 2009 at 10:42 pm
vreaa: I don’t see the ‘implicit’ link being present in the bear arguments or positions. How do you draw that conclusion?
What I meant is that many people talk about a drop in nominal prices. An the nominal price is nothing more pieces of paper issued by Government of Canada per house. So, what on earth can stop Canadian government to issue more pices of paper? Political will?
It seems to me that the mortgage credit is a bit like a separate currency: where else in the economy a person with an average income can get a 1/2 million dollars in credit? Once the mortgage credit being created, very little of it leaves the housing market. Very few people just sell their houses, take cash, and go back to renting. Governemnt of Canada effectively has a monopoly on creating the mortgage credit, and it can keep issuing more of it.
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patriotzed Says:
October 23rd, 2009 at 10:45 pm
@Anonymous:
As I said before, any indication of a significant rise in consumer price inflation would mean a prompt and significant rise in interest rates, i.e. a crash in the bond markets. This would have a major and immediate negative impact on business earnings and consumer spending, as well as on other asset prices (i.e. stocks and RE).
The BoC (and other central banks) are all too aware of this and they are not going to let consumer price inflation get out of hand.
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flip_this Says:
October 23rd, 2009 at 10:50 pm
Sorry, I signed my preovious message as vreaa by accident. It should be flip_this.
vreaa: I don’t see the ‘implicit’ link being present in the bear arguments or positions. How do you draw that conclusion?
What I meant is that many people talk about a drop in nominal prices. An the nominal price is nothing more pieces of paper issued by Government of Canada per house. So, what on earth can stop Canadian government to issue more pices of paper? Political will?
It seems to me that the mortgage credit is a bit like a separate currency: where else in the economy a person with an average income can get a 1/2 million dollars in credit? Once the mortgage credit being created, very little of it leaves the housing market. Very few people just sell their houses, take cash, and go back to renting. Governemnt of Canada effectively has a monopoly on creating the mortgage credit, and it can keep issuing more of it.
Sorry I signed my preovious message wrong.
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flip_this Says:
October 23rd, 2009 at 11:03 pm
patriotzed: The BoC (and other central banks) are all too aware of this and they are not going to let consumer price inflation get out of hand.
I am sure that the central bank in Argentina was aware of inflation as well. If a government is going broke, because they not sustain their debt payments, which would they choose: increasing taxes and cutting expenses, or inflating their debts away? It appears, that the US government if they remain on their present course is going to be bankrupt at some point in not too distant future. It seems doubtfull that they will be able to pay their obligations through rising taxes, so they are printing money. In the 70’s, the inflation in US was exported to Canada. I don’t see why it will be different this time around.
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domus Says:
October 23rd, 2009 at 11:03 pm
@patriotzed:
I agree with you about what WOULD happen if inflation took hold.
I disagree with you that institutions will do what they can to avoid that inflation takes hold.
It seems to me that some politicians/bureaucrats might just do what is good in the short term for themselves. This might include some price inflation.
You must be an optimistic type and trust institutions more than I do. Hope you are right.
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stagnate Says:
October 23rd, 2009 at 11:31 pm
indeed the deflation senario is a real longshot. deflation is the most moral/ethical means of dealing with debt but currently the levels of debt are way to high to be resolved with deflation. japan and u.s. allowed deflation and their problems are bigger than ever. the u.s. should have started quantitative easing three years ago. history has shown that governments only have fully independant bond markets when it is in their interests to do so. i don’t expect governments to be caught flat footed again but you never known.
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VHB Says:
October 23rd, 2009 at 11:40 pm
CMHC is part of the problem? Hoocoodanode!!!
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Realista Says:
October 23rd, 2009 at 11:57 pm
@anonymous: Anonymous, thanks for the information. That’s exactly how I understand/see entire RE buying experience in high priced market/city.
Your numbers are exactly something that only folks (like maybe 15% of Canada’s families) with solid/high income could afford if they chose to buy something above aware (say luxury) or pick decent 2 BR condo (1180 SF) in the downtown for 170K – 200K instead. These are exactly numbers I can understand, digest and possibly accept to pay in order to become an owner. I make 6 figures and wife is going to get back to work soon and I seriously think that I can’t afford a bachelor apartment in some of the older buildings in Lower Mainland.
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other ted Says:
October 24th, 2009 at 1:09 am
Talking with my parents. My father is a realtor apparently he had clients looking at home caught in bidding wars. One last week had 9 offer(sic) and was listed at 639 yet went over 700k. What is wrong with vancouverites. Everyone in the city is insane.
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other ted Says:
October 24th, 2009 at 1:10 am
Talking with my parents. My father is a realtor apparently he had clients looking at home caught in bidding wars. One last week had 9 offers(sic) and was listed at 639 yet went over 700k. What is wrong with vancouverites. Everyone in the city is insane.
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l Says:
October 24th, 2009 at 1:44 am
“u.s. allowed deflation”- 85
They did no such thing. The US tried to fight it, but failed. Deflation is the worst nightmare for those in debt.
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patriotzed Says:
October 24th, 2009 at 2:18 am
@flip_this:
Canada’s debt/GDP ratio today is less than half than it was when the Liberals took office in 1993. Was the debt situation unmanageable then? Did Paul Martin resort to hyperinflation to get rid of the debt burden?
Despite the past few years of Conservative mismanagement, we are nowhere near the situation that we were in at end of the Mulroney government, never mind Argentina. We also don’t have an ill-conceived currency peg to the USD that was the root cause of Argentina’s most recent crisis. We also produce a lot of oil (Argentina doesn’t), which counts for a lot.
I get the feeling many posters on this board don’t have much feel for Canada’s economic history of the last few decades.
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Dave Says:
October 24th, 2009 at 7:05 am
@patriotzed:
Good post. The cost of debt servicing is also lower now that it was in 1993.
I agree with the tax cutting done by the Conservatives, but I don’t agree with how they let the federal government grow faster than GDP. The demographic shift is a good opportunity to rightsize government. I would like to see a ten year plan for rightsizing.
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observer Says:
October 24th, 2009 at 7:10 am
@patriotzed: An interesting turning point is coming up soon because the YOY decreases in oil will start to get smaller as we are approaching the time last year when they crashed. So one would expect a temporary uptick in headline inflation numbers starting with the next cpi report. The question is whether this is going to be a blip and the trend is still downwards (because of overcapacity, delays in incorporating the deflation in energy prices, and our currency appreciation) or it marks a return to BofC targets.
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Anonymous Says:
October 24th, 2009 at 7:45 am
@patriotzed::
Canada’s debt/GDP ratio today is less than half than it was when the Liberals took office in 1993. Was the debt situation unmanageable then? Did Paul Martin resort to hyperinflation to get rid of the debt burden?
Despite the past few years of Conservative mismanagement, we are nowhere near the situation that we were in at end of the Mulroney government, never mind Argentina. We also don’t have an ill-conceived currency peg to the USD that was the root cause of Argentina’s most recent crisis. We also produce a lot of oil (Argentina doesn’t), which counts for a lot.
I get the feeling many posters on this board don’t have much feel for Canada’s economic history of the last few decades.
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flip_this Says:
October 24th, 2009 at 8:09 am
@patriotzed::
I would agree that the federal debt situation in Canada is manageable, with the mortgage debt I am not so sure. The debt situation in the US however, is really getting out of hand. Do you think there is a high probability of inflation in the US? If so, inflation in the US is going to be exported to Canada, because to keep Canadian dollar from rising against USD, BoC will have to keep their rates low. Artificially low rates are known to cause inflation, especially in the asset markets. And it did happen before: in the 70s both countries had inflation simultaneously.
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stagnate Says:
October 24th, 2009 at 9:44 am
flip, the debt levels of all governments in canada is getting pretty bad and worsening. in the 90’s they had discreet monetization and u.i. reforms, etc; i’m not so sure they have quite the same options this time. hyperinflation is a long shot but i think low “real” interest rates regardless of the inflation level is what they will be interested in.
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Drachen Says:
October 24th, 2009 at 9:53 am
No, the CMHC even if it does implode and in a worst case scenario loses about 1/4 of the 600 billion it can currently insure won’t bankrupt the country, we’re 800 billion in debt now, it would just push the debt clock back a decade.
Still, a decade of paying off debt cancelled out by a few years of fiscal mismanagement from a so called “conservative” government is nothing to sneeze at. I could find a better use for 150 billion dollars other than propping up a market that will inevitably collapse and will only cause more damage the longer it goes on. Healthcare, education, daycare subsidies…
It’s beside the point that it won’t kill the Canadian economy, it’s grossly irresponsible behaviour that hurts Canadians for the sake of short term political gain.
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domus Says:
October 24th, 2009 at 11:10 am
patriotzed:
I am with flip on the inflation problem. This is not just going to be a question about Canada, but a question about the value of the C$ and trade with the US.
You are mighty optimistic about our politicians. I think it is clear by now that the US will inflate prices to some extent. Canada can play tough and get a loonie above 1.10 US$, with all its consequences. Or it can follow suite.
Following suite means also lower unemployment and pain in the short term, say next 3 years. Why wouldn’t they do it? Are they so honest? Do we have check and balances that could prevent that?
If the US will do it, so will Canada.
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Anonymous Says:
October 24th, 2009 at 11:22 am
One small comment: I don’t care about politics much, and am not Liberal nor Conservative. To be honest I have limited trust in both parties, but that is my problem.
I must admit, however, that the handling of the economic crisis by the Conservative party is absolutely horrible.
- excessive lending is the cause of the problem? Let’s lend some more through government-insured CMHC loans!
- excessive government intervention in the economy? Let’s spend some more through an economic action plan which allows people to fix their patios… (that’s some productive investment, isn’t it?)
- fiscal conservatism and careful debt management? Let’s generate a massive current account deficit and additional increase in debt which adds one third to the existing load (part of it stealth-debt, through liabilities and guarantees due to CMHC, which will be there for decades to come!).
- free markets and economic freedoms? Let’s intervene on exchange rate markets to limit the ascent of the C$; let’s mess around with taxation of housing, income, resources; let’s provide huge subsidies (and I mean huge!!!) to declining sectors (see auto, forestry);
These guys have no credibility, probably less than the ones before them. they will hopefully be wiped out at the next elections.
And this is without even starting to talk about the provincial politicians, like Mr Campbell. Let’s not get there.
If the real quality of people becomes evident during crises, i think we know how our elected officials score.
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domus Says:
October 24th, 2009 at 12:35 pm
This is from the G&M:
Thursday, October 22, 2009 11:38 AM
Dollar over housing
David Berman
The Bank of Canada released its quarterly monetary policy report on Thursday morning, two days after it caused turbulence in currency markets when the bank reiterated its commitment to keeping interest rates unchanged until at least next June.
The report provided some more information about that commitment, making specific references to the Canadian housing market, which has been picking up lately – to the point where some observers believe it is being fed by low rates.
Here’s what Eric Lascelles, chief economics and rates strategist at TD Securities, said in a note: “A telling message that continues to be sent is that the strength of the Canadian dollar is the more important factor than housing market strength,” he said.
“In fairness, the housing market did receive more ink than it did on Tuesday, but the references were still quite calm. Recent strength was characterized as being primarily due to ‘pent-up demand for housing,’ and the overall assessment was still fairly blasé: ‘the housing sector appears to have bottomed out, and some firming in house prices is evident.’ There is nothing to suggest the Bank of Canada has any desire to go on the warpath against rising home prices, despite Governor Carney’s earlier sympathetic comments towards leaning into asset bubbles.”
Madness, dear friends, madness…Carney is so wrong, but we will all have to apy for his misplaced judgment. Wait a few more months and then we can start evaluating the new inflation figures.
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domus Says:
October 24th, 2009 at 1:17 pm
Talking about governments, debt, future inflation and subsidization. This is what is going on in the US. of course, in Canada we are whiter than snow…we just do things without letting people know (see CMHC, all done under the radar).
“Soros calls Wall St profits ‘gifts’ from state”
http://tinyurl.com/yfn8k8d
Some excerpts:
he big profits made by some of Wall Street’s leading banks are “hidden gifts” from the state, and taxpayer resentment of such companies is “justified”, George Soros, the fund manager, said in an interview with the Financial Times.
“Those earnings are not the achievement of risk-takers,” Mr Soros said. “These are gifts, hidden gifts, from the government, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.”
Mr Soros joins a transatlantic chorus calling for limits on risk, leverage and compensation at big banks….
“There is a general lack of confidence in currencies and a move away from currencies into real assets,” he said. “There is a push in gold, there’s a strength in oil and that is a flight from currencies.”
Future inflation, anyone???
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realpaul Says:
October 24th, 2009 at 2:07 pm
@patriotzed:
#74 P, Nafta, OMG how could we forget to be fair to the Americans? You’re right on that issue of course. I guess I was having a simplistic ‘Bambis Mom grazing in the forest moment’ when I was thinking about the possibility of what other programs that may have been initiated to support Canadian industry with the same ratio’s of money going into pumped up popcorn shacks in the valley. Of course we all know what happened to Bambi’s mom in the movie.
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domus Says:
October 24th, 2009 at 3:48 pm
These are interesting times!
“Hong Kong real estate requires 40% down”
http://tinyurl.com/yhek9k7
Some excerpts:
Concerns about a growing bubble in Hong Kong’s high-end property market pushed central bankers here to increase the required down payment on luxury homes to 40%, from the current 30%.
While property prices in much of the rest of the world (NOT IN CANADA, though!!) continue to languish, prices in traditionally volatile Hong Kong have been on a tear this year, thanks in large part to low interest rates and a wave of liquidity from mainland China, where Beijing last year unleashed a four trillion-yuan (US$585.6 billion) stimulus.
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realpaul Says:
October 24th, 2009 at 5:37 pm
@domus:
#103, the major differance is that the Chinese made the money available to commercial ventures ie the factories to spur growth and get people back to work en masse. That money fed directly into profits and jobs rather than debt backed give aways as we have seen here. The factory is a growing profitable enterprise money and job spinner whereas the single family house market is a one shot debt pit and non job spinner. It would seem like the Chinese have us beat where the rubber hits the road in the smarts race.
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realpaul Says:
October 24th, 2009 at 5:44 pm
Stephen harper should take another read of Marcus Aurelias and take direction from Warren Harding.
“We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity…it will be an example to stimulate thrift and economy in private life.
“Let us call…for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic.””
http://dailyreckoning.com/macro-for-dummies/
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realpaul Says:
October 24th, 2009 at 5:54 pm
@(un)realpaul:
#65 U, Dude/ette, are you that anal over your inability to understand whats being said? Are you soooo jealous and covetous over my ability to travel vs yours or anybody elses? Do you hate the guy with the better car, the girlfriend, who got the promotion when you’re so sure it should have been you? You sound like the road rage mentality where you think that making payments you can’t really afford gives you the right to be ‘first in line’. Do you get mad at people because they seem smarter than you? Did you buy a pick up truck to make yourself feel bigger and hide that very small wee wee of yours? Get a life pal or do a flyer. Clown.
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(un)realpaul Says:
October 24th, 2009 at 5:57 pm
bwahaa. It’s all about yoo RP, all about you.
Ego much?
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ReductiMat Says:
October 24th, 2009 at 8:18 pm
Is Warren Harding the dude who had the KKK ceremony in the White House?
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squidly77 Says:
October 24th, 2009 at 8:19 pm
some interesting CMHC numbers
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Drachen Says:
October 24th, 2009 at 9:01 pm
@squidly77:
Wait a minute, I went through to the PDF linked at the Alberta bubble site you linked to Squidly and all the numbers for CMHC loans start in 1987.
Now I’ve been saying for YEARS that in my estimation 1987 is when things started to go off track and prices should fall back to around 1986 levels (adjusted) when the dust settles. Dave has been complaining that it’s not possible for a bubble to last longer than mortgages (I never could figure out the logic in that myself) but maybe the precipitating factor in the current mega-bubble is the CMHC? It would totally make sense to me. Anyone else see that in the graphs? Prices here just suddenly and irrationally took off in the late ’80s and haven’t returned to reality since.
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!(EconomicsDegree) Says:
October 24th, 2009 at 9:14 pm
@domus: Whoa 40%, is that low or high by HK standards? When someone in HK buys a house where does the money collected by the seller flow? US Treasuries? ING? They aren’t “spending” the money from what I can tell, which is exactly what the government wants NOT to happen.
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other ted Says:
October 24th, 2009 at 9:46 pm
Drachen its interesting point that this is a mulit decade bubble. Well in terms of real estate it was not a bubble in most cities in Canada until a few years ago. But in vancouver the madness has been going on for a while. I think in Vancouver it wasn’t just a real estate bubble but a decrease in the overall standard of living that took place. Fundamentals were out of whack because salaries in real terms have been decreasing for most people. Real estate just didn’t go down to adjust to fundamentals as most people bought years before. Now what has been going on the last few years is a real estat bubble on top of other problems in Vancouver. So in Vancouver we have a compounded problem. Vancouver is more like California in that the problem isn’t just real estate but the destruction of the whole economy. I think most of Canada will correct to early 2000 levels Vancouver I just don’t know. Its more than just a real estate bubble. Unless we build a real economy things will be bad for a long time.
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No Longer Looking Says:
October 25th, 2009 at 12:31 am
I found this rumour on Greater Fool:
http://www.greaterfool.ca/2009...../#comments
#104 OttawaMike on 10.24.09 at 7:48 pm
Rumour heard today from one of my R.E. broker buddies:
The feds are mulling an end to the capital gains tax exemption on profits from sale of principal residence.
She told me it may also just be a modification to the one year rule, where the owner may have to occupy a property longer in future to be tax exempt.
Could this be a way of tempering the bubble?
I think a modification is quite possible.
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patriotzed Says:
October 25th, 2009 at 12:56 am
@Dave:
I don’t. In particular, the cut in the GST from 7% to 5%, at a time of record low savings and low unemployment, was one of the most ill-advised fiscal moves ever made by a Canadian government. It was tailor made to induce an unsustainable surge in consumer spending and increase consumer debt even more, and greatly weakened the fiscal capability of the government to deal with the current recession.
They should have INCREASED the GST, and then they would have had some room to cut it, or better to cut income taxes, NOW when we need the stimulus.
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domus Says:
October 25th, 2009 at 12:57 am
@No Longer Looking: That’s peanuts, even if true. The only way to go back to sanity is to force banks to carry GENUINE risk of lending. They must be in a position to lose money from bad loans. Otherwise the circus will go on and tax payers will foot the final (huge) bill.
Any politician brave enough to say this loud?
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domus Says:
October 25th, 2009 at 12:59 am
@patriotzed: Patriotzed, how very right you are. My exact same thought: completely wrong move on their side, and the timing was almost ironic! These guys should have to revert the error and apologize.
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RVW_0824 Says:
October 25th, 2009 at 12:09 pm
Check out the CMHC’s website under Corporate Governance. It’s scary. 90% of these people including the CEO are lacking the formal training to run or govern an organization that is moving towards being the largest bank in Canada (over even on 1/10 of its size). Give me a break….look at the bio’s of some of these people. A bunch of senior management folks from real estate companies or government lackies. And look at the Minister responsible for it. Zero background to be overseeing something of the CMHC’s size and importance. This might have been OK when they had under $100B of mortgages on the books but as we are now over $1 trillion…yes that $1 trillion once you add in what all of the tranches they back (included backstopped securitized, insured, etc.) – it is now 10x the size of what it was less than 5 years ago. Unfortunately we are all going to pay the price as taxpayers.
Very interesting comments above on how counterintuitive it is that banks will lend you less if you put more down and are not CMHC insured but makes perfect sense…can you say Moral Hazard.
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Anonymous Says:
October 25th, 2009 at 12:10 pm
“Bill Frank, a Detroit realtor trying to buy a small house for a just-married friend, found himself repeatedly outbid.
“Speculators are often not good for a city and, from my experience, they are going to lose a fortune,” he said. “But there are no easy answers. It’s a declining city.”"
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Drachen Says:
October 25th, 2009 at 12:59 pm
The “conservatives” have been betraying their fiscal roots since before they got in office. Theoretically they are the party of fiscal responsibility, and I think everyone knows that if you’re fiscally responsible you work to pay down your debts before you go on a spending spree but they were ELECTED on the promise to cut the surplus from the national budget. How crazy is that? Only short term thinkers like Dave could possibly see the benefit in that, it’s a political gimmick give the people something they want now and who cares if it leaves the country worse off than they found it?
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observer Says:
October 25th, 2009 at 1:16 pm
I have a hunch that weakness in the housing market will rear its head via the rental market (witness listings on craigslist). There is an oversupply of units but many are trying to hang on by renting out. When this fails, we may see a second wave of inventory rises, possibly as soon as the holiday break.
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pricedoutfornow Says:
October 25th, 2009 at 8:57 pm
I think people have been able to hang on due to low interest rates. But you’re right, lots of listings on craigslist ($10,000 to rent a townhouse during the Olympics in New West, anyone? what a steal!) possibly those who think things will turn around after the Olympics.
If I had a dime for everytime I heard the phrase “We’ll sell after the Olympics” I wouldn’t be spending my time on blogs, I’d be retired on a beach somewhere. ;p
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realpaul Says:
October 25th, 2009 at 10:43 pm
#124 Anon, I caught that too, a petulant come back and a nasty slap at the homosexuals. Apparently ‘lady boi’ is the baddest swear word this chimp can muster, pathetic. Whats next? Grrrrrrrr I just hate realpaul, he hert mi feeeeeeeeeeeeeeeeeeeeeeelings wahhhhhhhhhhhhhhhhhhhhhhhh !!!
#116 NLL, the current capital gains tax statute is somewhat nebulous. Although the intention was that residence of a specified was a must, I have heard from lawyers that this isn’t the case. One lawyer insisted he had played this one out in court and was found successful in an alternative interpretation. So, what would the ‘exemption’ actually manifest itself as through the CRA? Case by case?
I would hope that the Conservatives would overturn the capital gains exemption on all real estate holdings no matter what the situation. It would wake the population up and we’d have some genuinely interesting political times in this country for a change. A cash grab like that would have to be done at gunpoint.