Friday Free-for-all!

Alright!  The end of the week means it’s time to do our weekly economic news roundup and open topic discussion.  Here are a few recent stories I’ve noticed:

New mortgage rules to create short term boom?
Danielle Park on new mortgage rules (video)
Record household debt not a crisis
Your bubble is my debt burden
Canada not immune to downward housing pressure
Inflation rate jumps to 1.9% in January
US Jobless claims unexpectedly jump
Interest rates still headed higher

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

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patriotz
Member
6 years 2 months ago
"Your bubble is my debt burden" Ottawa’s new plan to save us from our own bad house-buying decisions is a three-pronged approach. McNair's article is ridiculous. He's talking as though Flaherty's minor tightening of qualifications for CMHC insurance represents interference in the mortgage market, when in fact it's the opposite – a reduction in government, i.e. CMHC, interference in the market. There are no restrictions whatsoever on mortgage lending by non-bank, non-insured institutions. So how come such institutions are getting out of the business? How come the truly free market doesn't want to get involved in mortgage lending? All in… Read more »
Wreckonomics
Guest
Wreckonomics
6 years 2 months ago

Those vancouver sun editorials are getting more and more rediculous (debt not a crisis). They say that comparing household debt to income is meaningless and debt should be compared to household assets. That works great unless your highly leveraged on an overpriced asset – house or condo in this case, since it's actually your income that is going to have to pay off that debt.

Love the irony of a bankrupt publisher (canwest) telling people debt is no problem. These guys are obviously financial wizards.

patriotz
Member
6 years 2 months ago

@Wreckonomics:

They say that comparing household debt to income is meaningless and debt should be compared to household assets.

That's entirely correct, as long as you use the fundamental value of the assets, i.e. based on the income which they produce (which in the case of a house is its rental value), not the market price, which is unrealizable by owners in aggregate. Because the interest on the debt has to be paid from income, which does include income from assets.

And what do you get when you do it that way? People are underwater, big time.

patriotz
Member
6 years 2 months ago

@patriotz:

BTW that's not a meant as a correction to the previous post, I'm just saying the same thing in a more analytical way.

arit
Member
6 years 2 months ago
That Vancouver Sun article is wrong in so many ways I don't know where to start. It's propaganda, and like their other propaganda, it has no name on it it and no comments section. "Debt is OK, nothing to see here….", " As long as you can afford the monthly payments, why worry?", "Let's take an example of governments metrics, as they are the golden standard of metrics". I like what wreckonomics said, it is so true: "Love the irony of a bankrupt publisher (canwest) telling people debt is no problem. These guys are obviously financial wizards." So this is… Read more »
Drachen
Member
6 years 2 months ago

@Dave:

Yeah, the 'offshore' component of the local real estate market could go from 1.5% to 1.6 or even 1.7%! That extra .2% could really boost the market!

Get off it Dave.

domus
Guest
domus
6 years 2 months ago
@patriotz: Completely agree with you, Patriotz! McNair is very mistaken in suggesting that the government is introducing more regulation. In fact, it is reducing distortion by (marginally) restricting access to the mother of all distortions: the CMHC! It really is unnerving how most commentators consider limits to what can be borrowed through the CMHC as regulatory distortion! As if the CMHC was a private market participant, pricing risk according to standard private practices. The CMHC is the distortions. Limiting access to it removes the distortions. The CMHC is the purest form of government meddling with free markets. Anything restricting this… Read more »
BB
Guest
BB
6 years 2 months ago

@Dave:

If the weather stays like this, there just might be an uptick in foreign purchases of condos.

********

I hope so! I'd love to see them buy then find out how crappy the weather really is here. It will only increase the overall discount when they sell during the crash.

Dave
Member
6 years 2 months ago

@Drachen:

I never claimed it would boost the market. Why don't you get off it?

Anybody know how long the waits are for the zip line?

vreaa
Member
6 years 2 months ago
Alternative Investments To RE – Canadians Know Less Than Monkeys About TFSAs http://wp.me/pcq1o-wM Results of a Dec 2009 poll, from 'Canadians fail TFSA test', The Globe and Mail, 18 Feb 2010: http://www.theglobeandmail.com/globe-investor/per… A Mackenzie Investments TFSA test, conducted in December by Leger Marketing, asked 1,506 adult Canadians five basic true or false questions about Canada's newest investment account. Of those polled, 44 per cent answered three or more correctly, 8 per cent answered all five questions correctly and 28 per cent got them all wrong. … 68 per cent of respondents haven't opened a TFSA. When asked why, 59 per… Read more »
Drachen
Member
6 years 2 months ago

@Dave:

"I never claimed it would boost the market. Why don’t you get off it?"

No? Then why did you bring it up at all if it's not relevant to the discussion?

Get serious, you were implying it would boost the market, then when you realized you'd been busted in an untenable position you disowned your weak-ass argument.

space889
Guest
space889
6 years 2 months ago
The only reason government loves to use debt to GDP over debt to income or interest to income or similar measures is because GDP used to be a much larger number which helped to make the ratio look small. It made deficit spending and taking on extra debt more palatable to the general masses who just can't seem to get past we want lower taxes, don't cut any services that I use, and surplus is bad/over taxation! Unfortunately government debt has been exploding and debt to GDP ratio no longer looked small like it used to be. Pretty soon we… Read more »
Crash
Guest
Crash
6 years 2 months ago

Some Real Estate agents are using the new CMHC regs as another lure for FTBs. This from an ad I saw on Craigslist:

"Hurry on this awesome home New Banking Regulations through CMHC coming into effect April 19, 2010."

Phew, anything to make a sale…

40 Year Amortization
Guest
40 Year Amortization
6 years 2 months ago

I don't know why everyone assumes the new mortgage requirements will result in a short term boom. Everyone, including the experts and economists, thought the elimination of 0 down /40 year amortizations in October 2008 would lead to a crazy rush to buy.

However, the "big rush" never materialized. Granted, we were heading into the recession, but buyers had about 6 months notice of the impending tightening regulation, unlike the 2 months notice for these changes.

Not much of a name...
Member
Not much of a name...
6 years 2 months ago

@Dave:

"I never claimed it would boost the market. Why don’t you get off it?"

Talk about f'ing semantics. You brought the issue up with the possibility of an uptick.

SD92129
Guest
SD92129
6 years 2 months ago
@40 Year Amortization Bust: Its all marketing spin. Why would someone buy now if they new there was going to be an even greater chance of lower prices after April 19th. Sometimes it works, sometimes it doesnt. Works better on the ignorant and scared. But people are getting so tapped out and so much future demand has been used up, especially in YVR, most of us would bet that a mini-boom wont happen. I would put these new rules in the same category as the elimination of the 0/40 in the sense that it applies mostly to those that are… Read more »
patriotz
Member
6 years 2 months ago

@SD92129:

Why would someone buy now if they new there was going to be an even greater chance of lower prices after April 19th.

People who can figure that out wouldn't be buying anyway. The realtors are just trying to rope in as many fools as they can before the rope gets shorter.

There will probably be a small rush to buy before prices go down, excuse me, before mortgages become harder to get. And then we can get on with the bust.

White Payer
Guest
White Payer
6 years 2 months ago
I find it funny, that if you live elsewhere in Canada, these "new rules" really aren't all that restrictive. I mean, if you want to buy a house in Ottawa, I'm pretty sure you will qualify for the "new" mortgage just as easily as you would today, provided you earn a regular salary and have a decent credit rating. It's just here in this strange microcosm of ours where theses small changes mean a difference between financial life or death for so many. We are but a speck of dust on the map of the universe and you can be… Read more »
Anonymous
Guest
Anonymous
6 years 2 months ago

White Payer:

Good point. And to go a bit further, if you cannot afford an average home with 10% down for 30 years on a 5 year term in Ottawa you definitely have no business getting into real estate at all, beacause you're either unemployed or really, really bad with money.

40 Year Amortization
Guest
40 Year Amortization
6 years 2 months ago
#22 The measures were not designed to target the rest of Canada. They were openly designed, in part, to target speculation in the big bubble cities. As for "bullish" measures that could be implemented, do not think for one moment that the feds and province have used up all their ammunition. Did you see the interest rate cuts coming? The change in FTB RRSP withdrawals? How about the renovation credit? Or the recent provincial property tax deferral program? Did any of the bears? If we are following the US, do you not foresee first time buyer credits? Do you not… Read more »
Wwhite Payer
Guest
Wwhite Payer
6 years 2 months ago

@40 Year Amortization Bust:

"If we are following the US, do you not foresee first time buyer credits? Do you not see banks providing mortgage relief to prevent foreclosures?"

Still, none of the above were able to prevent the monumental RE collapse down south…

White Payer
Guest
White Payer
6 years 2 months ago

Oh, and BTW, I'm not waiting for anything. Merely looking forward to enjoying the upcoming horror show.

domus
Guest
domus
6 years 2 months ago

#24: "ou could be waiting another decade before fundamentals” align with prices."

You mean 10 years of underperformance of RE relative to other ways to save your money. Good outlook…

Aleks
Guest
Aleks
6 years 2 months ago
In defense of Flahertey's contention that there is no RE bubble in Canada, he's right. There's really no such thing as a national RE bubble because there isn't a national market. Even in the US, what you had was a lot of local bubbles all fueled in part by the global credit bubble and the lack of regulation on lending and securitization. But the individual markets were all independent, and huge areas of the country never experienced a real bubble. In Canada, we have the exact same situation. Places like Toronto and Calgary are in a bit of a bubble,… Read more »
patriotz
Member
6 years 2 months ago
@40 Year Amortization Bust: The measures were not designed to target the rest of Canada. They were openly designed, in part, to target speculation in the big bubble cities. You sound a bit confused. Second sentence seems to contradict the first. Only one big bubble city here. The rest are in Alberta and Ontario. Anyway as I have said before, IMHO this measure is ALL about capping the price increases in the Greater Toronto Area. If they were allowed to get any higher the region would inevitably correct in a bust comparable to (or bigger than) that of the early… Read more »
domus
Guest
domus
6 years 2 months ago
Some of you might have read the headlines about deflation, or contained inflation, in the US reported this morning as evidence that an accomodative monetary policy is granted and should be pursued. Governments seem nervous about the public perceiving fast price rises. Politicized economists like Krugman even go so far to claim we should not worry about inflation even if it went up a lot. Well, chatter online seems to suggest that a very strange mistake is behind the very low inflation numbers reported today by the BLS and Feds. Here is the MTGM blog take on it: A math… Read more »
Drachen
Member
6 years 2 months ago
@Aleks: "In defense of Flahertey’s contention that there is no RE bubble in Canada, he’s right. There’s really no such thing as a national RE bubble because there isn’t a national market. " No, if your analysis is correct (and I believe it is) he's still wrong, but now he gets it wrong twice! First, his grammar is terrible or he's intentionally misleading Canadians, if you are correct, the proper expression should be "there are no Real Estate bubbles" Secondly by saying, "..there is no real estate bubble…", he's certainly implying that the market is fine. No looming crashes to… Read more »
domus
Guest
domus
6 years 2 months ago

Flaherty knows how things really are. He cannot afford to put it in plain English. This government is largely responsible for the mess the RE market is in. They are market manipulators, despite their free-market credentials.

Abolish the CMHC!

domus
Guest
domus
6 years 2 months ago

If you have doubts about my previous post (conservatives as market manipulators and regulators) here is some more evidence just off the press from the Wall Street Journal:

* FEBRUARY 19, 2010, 10:41 A.M. ET

CMHC Buys C$1.4B Of Mortgages Friday

http://online.wsj.com/article/BT-CO-20100219-7088

Apparently, this "…reverse auction is part of a Canadian government program to ease credit conditions."

Some free market, uh? Binding the hands of the CMHC is equivalent to removing government intervention.

The CMHC is root cause of this big mess, the mother of all distortions!

Dave
Member
6 years 2 months ago

@Drachen:

This is a real estate blog is it not? It will be interesting to see to what extent the Olympics boost foreign sales. Tens of millions of people are seeing our city every night. If only a fraction become interested, it will lead to higher sales. Will it be at such a level that it brings significant upside to our market? I don't think so, but we shall see.

patriotz
Member
6 years 2 months ago
@domus: Governments seem nervous about the public perceiving fast price rises. What's getting more expensive in the US these days, other than oil (which is still way below peak), and health insurance (which is driven by factors completely unrelated to the macro economy)? Note that by far the biggest component in US CPI (as it is here) is rent, and that's falling in nominal terms in many US markets. Both the Fed and the bond markets seem to be expecting inflation to go up by a point or two. Now you may not trust the Fed, but the bond market… Read more »
domus
Guest
domus
6 years 2 months ago
@patriotz: Well, that's one take. The other take is that prices tend to be affected by volatile items like energy and food. This might play tricks on both governments and bond traders. That's why there is so much fear about resource prices picking up. I don't know where things are heading, I just find it funny that, in a time of exceptional monetary stimulus and priting of paper money, people can argue that all this liquidity will not result in higher prices down the line. I guess we disagree on the final outcome? In any case, the BLS still seems… Read more »
patriotz
Member
6 years 2 months ago

@40 Year Amortization Bust:

If anything, Canada has has an opportunity to see what works and what doesn’t around the world.

And the results are in:

What works: nothing.

What doesn't: everything.

Drachen
Member
6 years 2 months ago

@Dave:

"I never claimed it would boost the market. Why don’t you get off it?"

So you're saying you never claimed it would boost the market before…

"Will it be at such a level that it brings significant upside to our market? I don’t think so, but we shall see."

And now you're saying well maybe it will boost the market?

No wonder you can't come up with a rational bull argument. You can't even agree with yourself!

pricedoutfornow
Guest
pricedoutfornow
6 years 2 months ago

Sure, people might think Vancouver is a beautiful place after seeing it on TV, or visiting. However, I personally would run in the other direction once I had a look at house prices. That's enough to scare anyone off.

Starving Artist
Guest
Starving Artist
6 years 2 months ago

Let's have a look at Stockholm…

House Price to Income Ratio: 6.33

Mortgage as Percentange of Income: 52.21%

Loan Affordability Index: 1.92

Price to Rent Ratio – City Centre: 49.83

Price to Rent Ratio – Outside of Centre: 34.13

Gross Rental Yield (City Centre): 2.01%

Gross Rental Yield (Outside of Centre): 2.93%

And now Vancouver…

House Price to Income Ratio: 9.92

Mortgage as Percentange of Income: 78.59%

Loan Affordability Index: 1.27

Price to Rent Ratio – City Centre: 20.46

Price to Rent Ratio – Outside of Centre: 21.00

Gross Rental Yield (City Centre): 4.89%

Gross Rental Yield (Outside of Centre): 4.76%

Yup, sounds like a great deal for your flight attendant!

Starving Artist
Guest
Starving Artist
6 years 2 months ago
Some more stats… Stockholm Rent Per Month [Edit] Apartment (1 bedroom) in City Centre 422.07 CAD Apartment (1 bedroom) Outside of Centre 409.57 CAD Apartment (2 bedrooms) in City Centre 759.47 CAD Apartment (2 bedrooms) Outside of Centre 738.87 CAD Buy Apartment Price [Edit] Price per Square Meter to Buy Apartment in City Centre 5,046.54 CAD Price per Square Meter to Buy Apartment Outside of Centre 3,358.49 CAD Salaries And Financing [Edit] Median Monthly Disposable Salary (After Tax) 3,322.05 CAD Mortgage Interest Rate in Percentanges (%), Yearly For USD / EUR 5.50 Vancouver Apartment (1 bedroom) in City Centre 1,649.18… Read more »
Anonymous
Guest
Anonymous
6 years 2 months ago

"Yup, sounds like a great deal for your flight attendant!"

And we all know that those highly trained and educated flight attendants have the large salaries to afford living here…

VanRant
Member
VanRant
6 years 2 months ago

@pricedoutfornow: They will be in for a surprise that it cost 5 times more for a similar house here!

Dave
Member
6 years 2 months ago

@pricedoutfornow:

Money isn't always a factor for those looking to buy vacation homes. There are lots of people with lots of money.

Anonymous
Guest
Anonymous
6 years 2 months ago
If anything, Canada has has an opportunity to see what works and what doesn’t around the world. And the results are in: What works: nothing. What doesn’t: everything. ************** Hey Patriotz, You looking forward to continue renting for another 5-10 years? Just because such measures may not stop a reversion to the economic fundamentals does not mean that their implementation cannot prolong the deflation for a very long time. Throw in the fact that prices are often sticky on the way down, and you potentially have a very long deflation period. Lets see, the USA had a 5-6 year run… Read more »
logic
Guest
logic
6 years 2 months ago

Dave, yes, there are. And they also tend to be financially literate.

Btw, on the question of inflation/deflation: don't forget to factor in the massive destruction of credit that has occurred over the past 2 years. This also impacts on "money" circulating and thus on inflation/deflation.

logic
Guest
logic
6 years 2 months ago

anonymous: "You looking forward to continue renting for another 5-10 years?"

————————

This wasn't addressed to me, but I'll answer: sure, why not? As long as it is much cheaper than owning and allows me to save lots of money each month as RE prices slowly fall (as per your scenario). Renting rocks, as it is risk free if RE prices are declining.

Drachen
Member
6 years 2 months ago

@Anonymous:

"Vancouver has had a 8 year run up so its not inconceivable that our slide takes many many years."

Vancouver's actually had a 25 year run-up but bubbles are rarely symmetrical. The rapidity of the fall is generally based on three factors;

1) The ratio of peak prices to fundamental prices. (higher peak generally means a faster fall)

2) Government intervention.

3) The commodity being traded (obviously housing will fall more slowly than Bre-X)

You won't find any credible reference to the length of the run-up as a factor in the length of the fall anywhere.

Because it doesn't correlate at all.

jesse
Member
6 years 2 months ago

@domus:

I just find it funny that, in a time of exceptional monetary stimulus and priting of paper money, people can argue that all this liquidity will not result in higher prices down the line.

The money supply is increasing because people are spending less (i.e. the velocity decreased). It does not necessarily mean future inflation. To wit, what will the government and central banks do if money velocity starts to increase?

OhOh
Guest
OhOh
6 years 2 months ago

Of course theres fewer EI recipients. They have all run out of weeks. What propaganda.

http://www.vancouversun.com/business/Number+beneficiaries+falls/2586824/story.html

domus
Guest
domus
6 years 2 months ago
@jesse: Correct. But money supply you can control a bit; velocity? not so much. This is exactly the hayek/Friedman argument and the basic idea behind the 'quantity theory'. By the way, here is some update on 'The Mess that Greenspan Made' blog: http://themessthatgreenspanmade.blogspot.com/2010… This is what Tim Iacono had to say about this sudden interest from the BLS: "…I've not heard from anybody on this subject yet but I did go through some calculations with some of the other categories in the most recent inflation data and, as far as I can tell, they've got an error in today's report… Read more »
Wreckonomics
Guest
Wreckonomics
6 years 2 months ago

@patriotz: Good point, but we all know they weren’t refering to fundamental rental value, that’s the old way of thinking.

Things are different this time.

:roll:

vantownsucks
Guest
vantownsucks
6 years 2 months ago

I was talking to a sweedish flight attendant at the Irish House last night and I’m not kidding she was considering buying a condo in downtown Vancouver. She said she loves Vancouver. I was shocked I must say. I didn’t try to talk her out of it because it’d be nice to have a swedish booty call on hand.

Dave
Member
6 years 2 months ago

@vantownsucks:

If the weather stays like this, there just might be an uptick in foreign purchases of condos.

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