Cheap money not a long term growth strategy.
Following up on the last story about Canadian household debt warnings from the Bank of Canada Devore posted a link to this BNN interview with Mark Carney. Canadian debt levels are now higher than those found in the US, rising 7% just in the last year.
Here’s the note from Devore’s comment:
Some key points I heard:
- On mixed messages (rates low, but don’t borrow): we’re targeting inflation. Period. F has regulatory and legislative tools available to restrict borrowing.
- On tightening of lending rules: changes earlier in the year slowed consumer borrowing, but borrowing still growing faster than incomes, further tightening almost certain, 25 years amorts within realm of possibility.
- On asset-based lending: while debt is up, so are assets. But you cannot lend solely based on assets, ability to service is very important. Asset based lending tends to inflate asset prices, which drives further lending, in a cycle, not sustainable by any economy, assets eventually (de-)revalued.
- No country can grow debt faster than incomes sustainably.Fairly light and polished, but there was no optimistic talk of future growth, prosperity, rising (asset/house) prices, employment, everything was very cautionary and low key. That the BoC is sounding alarm bells before an election, rather than keeping a happy face lid on things, I think is quite telling, and that they are expecting significant movement in the near term, and are just covering their bases.
View the interview video on BNN here.
December 15th, 2010 at 6:57 pm
http://www.theglobeandmail.com/report-on-business…
A banker telling the simple truth. What's this country coming to.
As I've said, the solution to the debt problem is simply to let the free market prevail, which means getting the government to stop guaranteeing mortgages.
December 15th, 2010 at 6:49 pm
@Yalie:
Oh please.
You can only talk about the amount of something supplied, or the amount or something demanded, at a given price. That's called the supply and demand functions. Of course there are more people who would want something for free than are willing to give it away. That's not even economics, just common sense.
In any free market demand always equals supply at the market price, which is the price at which there are the same number of willing buyers and willing sellers.
And with respect to RE (or any capital asset), demand/supply for the use of the asset (rental demand for RE) is not the same thing as demand/supply for ownership of the asset. The former is determined by actual current total supply and actual current demand for use, and the latter is determined by expectations of future price, i.e. speculation. But if the latter gets out of line with the former, i.e. there's a bubble, it must eventually collapse.
December 15th, 2010 at 2:15 pm
@Re-diculous:
………
Vreaa @ 71:
Here you go:
http://www.cbc.ca/video/#/Show…..1696549384
………
Helmut and Tsur look like a couple of guys dredged up from West Hastings Street. Little stressed out maybe? Ha, ha. If you made up shit like this people wouldn’t believe you.
December 15th, 2010 at 2:07 pm
6 McLovin Says:
December 14th, 2010 at 9:21 pm
For those of you who think rich Chinese will bail out Vancouver:
http://www.businessinsider.com…..es-2010-12
Maybe they should buy there own empty condo’s first.
======================================
Yeah…amazing
On the domestic front….Try this simple test.
Solstice arrives soon.
When you drive by Hi-Rises etc..look up and see how many units have N-O lights on …..I say 70% on average.
What does that tell you ???
December 15th, 2010 at 1:21 pm
@Yalie: LOL you mean the demand curve is downward sloping?
December 15th, 2010 at 1:09 pm
Property taxes to rise 4.2 per cent. City's operating budget climbs to $1.03 billion
http://www.vancouversun.com/news/Property+taxes+r…
Hrmmm I think I should call my landlord to fix the leaky facet, another dollar saved
December 15th, 2010 at 12:45 pm
yalie says: And in case you missed my other point
i think you got lost between the 10th and 11th crantini.
December 15th, 2010 at 12:36 pm
Stagnate,
Since you're not the sharpest tool in the shed, I'll make it easy for you and use small words so you might actually understand.
The price of anything – as long as someone is willing to pay even 1c for it, indicates that demand exceeds supply. Everything that has a price falls into that category. The point about the Bieber dolls – since your head is too far up your ass to get this – is that even very cheap, low-priced objects meet your criteria. The comparison with dolls and bananas was meant to demonstrate that your "supply > demand" argument is a ridiculous reason to ignore fundamental valuation. This goes for cheap plastic dolls made in China as well as West Side houses bought by cheap-plastic-doll-factory owners from China.
And in case you missed my other point – I was also illustrating the total absence of simple reasoning ability of typical Vancouver residents. So on that front, thanks for making my point for me.
December 15th, 2010 at 12:27 pm
87 stagnate Says:
December 15th, 2010 at 8:08 pm
YALIE DO NOT DRIVE TONIGHT
======================
Stats submit that 20% of accidents are caused by drunk drivers.
Thus, 80% of accidents are caused by SOBER drivers ( probabry Asian Dlivers in " Rexuses" going to the Roonie store @ 50% off day )
December 15th, 2010 at 12:18 pm
WFT? Says:
December 15th, 2010 at 12:27 pm
@Troll:
I really need your advice, please give me one good reason why I should buy that house.
ANSWER THE QUESTION TROLL!!!!
December 15th, 2010 at 12:08 pm
YALIE DO NOT DRIVE TONIGHT
December 15th, 2010 at 12:08 pm
yalie says: Although your statement that “demand will exceed supply for shaughnessy land forever” is technically true, it’s also true of bananas, iPhones, and Justin Bieber bobble-head dolls. That doesn’t make them worth 5.4 million dollars each
wow, put your post in the hall of fame. you agree with me but then say that demand will exceed supply forever for justin bieber bobble-head dolls. here's my only tip for you tonight-
December 15th, 2010 at 11:54 am
Vreaa @ 71:
Here you go:
http://www.cbc.ca/video/#/Shows/The_National/1242…
December 15th, 2010 at 11:51 am
Shaugnessy was a prime example of irrational exuberance.
When the Depression hit, many of the owners went bankrupt and the Mansions turned into rooming houses which exist to this very day.
Shaugnessy was referred to as " Poverty Heights ".
This cycle is being repeated as we speak…with monster houses having outlived their usefulness and Asians buying them up and renting out rooms
BTW everyone who votes me down can Fuck right Off .
December 15th, 2010 at 11:32 am
Sometimes I wonder how Vancouver residents can be so overwhelmingly retarded when it comes to valuing real estate. And then a quote like this comes along which succinctly demonstrates the average resident's level of understanding of basic economics, and it all makes sense.
Demand exceeds supply for everything that has a price greater than 0. That's why it's not free. Almost any introductory economics textbook will define economics as "the study of how to allocate limited resources in a world with unlimited demand". Although your statement that "demand will exceed supply for shaughnessy land forever" is technically true, it's also true of bananas, iPhones, and Justin Bieber bobble-head dolls. That doesn't make them worth 5.4 million dollars each.
The fact that you don't understand this basic concept speaks volumes about you and the rest of your soon-to-be-underwater neighbors.
December 15th, 2010 at 11:07 am
@Anonymous:
#81 is mine.
December 15th, 2010 at 11:06 am
@oneangryslav2:
>>>Maybe 75% or even 80% ownership rates and price/income multiples of 5 are the new standard in Vancouver.<<<
First of all, the price/income multiple is far higher than 5. If it actually were 5 I'd say there wouldn't be a major crash, just a minor correction.
Secondly, before the bubble started the rate of ownership was 62%, or around 2 owners per 1 renter.
If ownership rates went to 75% you would have 3 owners per renter, at 80% you would have 4 owners to 1 renter. I've already shown a chart for the U.S. and U.K. where the rate went as high as 69% before reversing course.
At 80% who the hell is going to help pay the mortgages for all those new owners when they're so heavily dependent on renters?
Sure, in theory anything is possible, like those Star Trek teleporters.
December 15th, 2010 at 10:37 am
@stagnate:
Your quotes:
You are the one who brought price into it. Okay, I agree: People will be willing to pay more to live in the same house in Shaughnessy than if that house were at E. 49th and Knight. What further implications do you wish for us to draw from that?
December 15th, 2010 at 10:34 am
38 Bubble Lad Says:
December 15th, 2010 at 11:30 am
I heard an ugly rumor the other day that, during that last cold snap, the heat went out at the Olympic Village development and the inhabitants (what few there were) had to all stay in hotels.
==================
Go for it.
I never had any confidence in this Bullshite technology.
Any developer and/or purchaser should lot COV be the guineau pig if this LEEDS or similar systems work. I recall Strataman's sermon on how bad the OV systems were and the specilaized personnel needed
If I won an Olympic condo in a lottery etc. I would fire sale and cash out ASAP.
December 15th, 2010 at 10:27 am
@Best place on meth: I don't think that Troll is either of those people. In fact, I think that Troll is far from living up to his stage name since he is actually asking some very good questions.
To take one example, he asks about home ownership rates and price/income multiples. Nobody here knows if 70% is the maximum possible. In fact, I don't even know how this statistic is calculated. Is it via survey, census? As for price/multiples, he's correct that just because 3.5 has been standard for Vancouver historically does not necessarily mean that it is (or should be) the equilibrium rate.
What I think that Troll is implying, without coming right out and saying it, is "things are different". Not necessarily different [only] in Vancouver, but just different. According to him, we have diverged from "fundamentals" for almost three decades, which suggests to him that maybe what we thought were the fundamentals are not the fundamentals anymore and it's time for a new paradigm to reign. Maybe 75% or even 80% ownership rates and price/income multiples of 5 are the new standard in Vancouver. I think that he would agree with that and would also argue that this is due to Asian immigration. Am I correct?
I'm not so sure that a equilibrium level has been reached for either of the aforementioned metrics. We are in the blow-off phase of a speculative bubble (in fact, given the relatively flat prices of the last six months or so we may be past the blow-off phase). I'm not going to guarantee that the market will crash in 2011 or 2012, or even that it will crash, but I do predict that Vancouver will have real estate prices that will once again make it cheaper to buy than to rent in Vancouver. Oh, and I think that the potential for income gains is muted, so the metric will have to be balanced by dropping real estate prices rather than increasing rents.
December 15th, 2010 at 10:25 am
@stagnate: "an asset of limited supply will demand a premium. "
That's right. But it's a strawman. Everyone wants to live in a mansion so mansions are in demand. Thanks.
December 15th, 2010 at 10:21 am
New Listings 90
Price Changes 27
Sold Listings 91
December 15th, 2010 at 10:19 am
oneangryslav says: This quote is mindnumbingly bereft of elementary economic logic. Take out your Economics 101 text and take a look at a basic supply-demand curve
don't confuse price into it, the quote can be taken literally. if you still don't understand, i don't care how bright you might be, real estate is not your gig.
December 15th, 2010 at 10:10 am
@stagnate:
This quote is mindnumbingly bereft of elementary economic logic. Take out your Economics 101 text and take a look at a basic supply-demand curve.
December 15th, 2010 at 10:04 am
@Troll:
>>>And that is all based on fuzzy guesses that all the buyers are gone…<<<
No you worthless, illiterate cheerleader, my precise words were "we have few buyers left."
This is a perfect example of how the scumbags in the real estate industry lie through their teeth.
I wouldn't be surprised at all if you were Chimpman or Agent Shill in disguise.
December 15th, 2010 at 9:56 am
wft says: if I can live in that house using my $1,200,000 in savings, why would I spend those savings AND borrow a few million more to live in the same house?
well, ask the reverse question; why does the landlord rent it out rather than sell it? demand will exceed supply for shaughnessy land forever. an asset of limited supply will demand a premium. depends on someones long term goals and desired asset allocation but the market has set the premium. you're a smart guy asking a dumb question, not much more to it than that.
December 15th, 2010 at 9:53 am
@Re-diculous: "Stunned to watch CBC essentially apologise on the National last night for the fear they caused regarding the CDN debt story the previous night. Even more pathetic is how the “retraction” included clips from Helmut Pastrick and Tsur Sommerville. My respect for the CBC was shaken yet again."
—-
Anybody have a link to that clip or an archive of it?
December 15th, 2010 at 8:21 am
@fixie guy: "Are you arguing where markets found equilibrium for well over a hundred years is irrelevant now?" Fantastic…we have data for well over a hundred years! What was the price to income ratio in the 1890's?
December 15th, 2010 at 8:15 am
@Best place on meth: OK, so you made a remarkably precise and confident prediction that the market is toast in 2011. And that is all based on fuzzy guesses that all the buyers are gone (since 70% already own), that interest rates will be higher and that there will be changes to mortgage qualifications. Solid analysis. With an attitude like yours, you need to do better than that.
December 15th, 2010 at 7:50 am
@patriotz
timely
http://www.cbc.ca/canada/british-columbia/story/2…
December 15th, 2010 at 7:22 am
@55 Ex-Bear Says: "Printing press and fiat money."
Both have been around a lot longer than the current upswing. See: Mississippi Company.
December 15th, 2010 at 6:56 am
@Loveitorleaveit: I think it's better to think of a mortgage as an investment in a homeowner by the bank. Filling in a mortgage application is akin to writing a business plan.
December 15th, 2010 at 6:37 am
@blueskies:
December 15th, 2010 at 6:31 am
@blueskies
"if you owe money on it you don’t actually “own” it
the bank owns it and you are renting it from the bank"
I understand the sentiment, but legally. you own the home. You also own the obligation to pay the debt, and someone else owns the right to those cash stream to those mortgage payments. (or many people ow the rights or nobody is sure, thanks to securitization).
If you dont pay, then the bank takes it back. The bank is not going to loan you its own "house" as collateral so you can use it to secure a loan with that same bank. You will not find your house on the banks financial statements listed as an asset or liability, only your mortgage.
That house is your asset, and the mortgage is your liability.
December 15th, 2010 at 6:17 am
WFT? Says:
December 15th, 2010 at 12:27 pm
@Troll:
I really need your advice, please give me one good reason why I should buy that house.
ANSWER THE QUESTION TROLL!!!!
December 15th, 2010 at 6:16 am
Troll you are officially discredited. You are providing nothing of value. Are you and Dave the same guy? You seem to be a person who knows a little about a lot of things and spouts off as if he knows something. You were voted down because you think banks control interest rates and now you think that 70% home ownership is sustainable and can increase. You are a joke but please keep writing I laugh out loud at many of your posts. I can't wait for you to tell us "this is the new normal" like that Yatter guy.
But why don't you answer the question? Why should he buy the house?
December 15th, 2010 at 6:01 am
@Troll:
This market is toast, I stand by that.
But I don't have magical absolute numbers that petulant, bratty, foot stamping children like yourself demand. Perhaps you could ask Santa for those.
What I said to Dave applies to you as well – I hope you're highly leveraged and "all in" on Vancouver real estate.
I'm serious, I hope you borrowed ever last dollar you could to buy into this market.
December 15th, 2010 at 5:48 am
@Best place on meth: Oh, I see you are now using weasel words. You went from a definitive "The market is toast" to "an educated guess of being very likely". I'm sure if we question a little more you might admit that you really don't know shit, you're just a mindless bear cheerleader.
December 15th, 2010 at 5:34 am
@Troll:
Of course there is no magical number that is an absolute limit.
However, if you look at where home ownership rates climbed to before reversing course in the U.S. and the U.K then you can make an educated guess that we are very likely at our limit as well.
http://financialinsights.files.wordpress.com/2010…
December 15th, 2010 at 5:30 am
@fixie guy: "Are you arguing where markets found equilibrium for well over a hundred years is irrelevant now?" Are you arguing that a value that we haven't seen for 25 years is still relevant? Nothing changes? 3.5x is an absolute universal constant? Just like 70% maximum home ownership?
December 15th, 2010 at 5:13 am
@Dave:
The lion's share of new credit went into mortgages.
Over the last 5 years consumer debt increased $129B and mortgage debt increased $301B.
http://financialinsights.wordpress.com/2010/12/15…
December 15th, 2010 at 5:10 am
Dave's argument is that large amounts of debt aren't a problem as long as the distribution of the debt allows it to be serviced by the debtor's income. Looking at the national picture, however, there is not enough national income to properly service the debt at higher interest rates. Who cares how it's distributed.
December 15th, 2010 at 5:04 am
@fixie guy:
Printing press and fiat money.
December 15th, 2010 at 4:56 am
52 Troll Says:"You mean like 3.5x price to income?"
For one. Are you arguing where markets found equilibrium for well over a hundred years is irrelevant now? New paradigm?
December 15th, 2010 at 4:35 am
@Dave:
Jeez. Dave must be the last person in the country to know that most of thet debt is mortgage debt. It's only on the news every single day.
December 15th, 2010 at 4:34 am
@fixie guy: You mean like 3.5x price to income?
December 15th, 2010 at 4:31 am
47 Troll Says: "So what’s the magical limit, 70%?"
Market driven historical norms mean anything to you?