Low rates forever
Looks like the US fed isn’t very optimistic about the recovery. They say Japan style interest rates until 2014. Will this help a US house price recovery, or will buyers wait if they know there’s no rush for bargain rates?
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January 26th, 2012 at 12:38 am
"Will this help a US house price recovery"
Did it help in Japan?
January 26th, 2012 at 12:51 am
@Makaya: It sure helped Japanese property buyers who waited. They we're able to scoop up property at half price at rock bottom rates.
January 26th, 2012 at 1:00 am
Potential buyer here, living in Orange County. Simple answer…I wait.
They have slowed the bleed with the artificially low interest rates, but prices are still dropping 4-8% a year. It just a way for the insolvent banks to earn there way out of it. I'll wait as long as I can convince my wife – maybe another 18months to 3 years. Hopefully till this slow bleed flattens out.
There is just way too much supply hanging out there with distressed inventory.
I'd like to buy when people around here can barely say the word "real estate" without spitting. We are getting closer.
See your future Canada.
January 26th, 2012 at 1:13 am
"Will this help a US house price recovery"
"Recovery" is really the wrong word as it implies that US house prices are currently too low. In fact the US average price is still well above historical norms. So the correct question is will it reinflate the bubble.
The answer is no for a number of reasons. Uncertainty about employment, household debt, many more foreclosures in the pipeline, and continuing new supply.
January 26th, 2012 at 2:14 am
"Will this help a US house price recovery"
Better question: will this help absorb inventory overhang and increase new construction project starts? That's the stat to watch for an indication when the Fed starts closing the tap. Right now, based on the US's employment trajectory, 2014 is about right.
http://www.calculatedriskblog.com/2012/01/decembe…
The second graph shows how sluggish employment growth has been. But it is growing, as is the population. Comparisons to Japan aren't exactly 1:1.
January 26th, 2012 at 2:48 am
Boomers are driving virtually all of the increase in Canadian household debt. That's scarry.
But they probably know that younger taxpayers will be forced to foot the bill for their irresponsibiliy in the form of higher CPP premiums and possibly new government programs so that Boomers can have their inflated houses and eat their children too (by having them pay for the retirement and healthcare that Boomers failed to save up for.)
http://www.theglobeandmail.com/report-on-business…
January 26th, 2012 at 2:53 am
Why did the Fed feel the need to extend ZIRP to the end of 2014 now when they had already committed to 2 more years of it just recently?
Because they saw this:
http://news.yahoo.com/home-purchases-fall-2011-wo…
January 26th, 2012 at 3:27 am
Extremely bad news for our economy. The minority who've taken on the most debt are about to hit the wall financially. No way are those with more sane borrowing habits going to pick up the slack. Less spending across the board.
http://www.cbc.ca/news/business/story/2012/01/26/…
"a third of families that have debt now hold 73 per cent of all household debt in Canada."
…
"It's not only the amount of debt Canadians are carrying, but how many are getting close to the limit of their borrowing capacity," said Shenfeld.
"It would have been nice to have found that the rise in debt was coming from those with a lot of room to borrow, but instead what we see is those with a lot of debt are piling on more."
"The debt-to-gross income ratio of those most indebted families is 160 per cent. The proportion of the most indebted families is greater in British Columbia, Alberta and Ontario where housing is the most expensive."
January 26th, 2012 at 3:31 am
@WS:
Are you saying that Orange County prices haven't come down that much? What neighbourhood are you looking in? What or who is keeping prices up if you don't mind me asking.
January 26th, 2012 at 3:35 am
I cant resist sharing the good news here…
Finally, after years of waiting for some sanity and affordability to no avail, I am moving next month to California.
Got the E2 visa today.
I never thought it will come to this, but I see no opportunity here other than selling real estate to rich Chinese.
I am confident fundamentals will eventually prevail, but I cannot live on the expectative for ever.
I mostly agree with the bear argument, yet the reality is that for the last 10 years it has been so wrong. Ant that is a very long time.
I only hope bears will eventually be right for the sake of the new generations. I am out of here. Good luck
January 26th, 2012 at 3:46 am
The real estate market is imploding and the recent stats confirm this for 99.9% of the market except that super high end including that purchase on Belmont which will help to disguise the damage in the short-term. But the crashing wave is too big to stop now, implosion will surprise everyone – the funny thing is, the majority are not aware of this until it is too late.
And all what will be left with is a bunch of cheaply built cardboard houses – the crash will be bad for government revenues. The artificial money wealth machine gig is up just like what happened in the U.S.
NDP will win next election and Chinese investors take their money back home. And LOW rates won't stop this puppy from crashing.
January 26th, 2012 at 3:46 am
@Mac
Orange County has dropped about 35% from the peak. SFH median for all of OC is now at about 450K. Dropped ~8% in 2011.
Poorer inland areas have dropped 40-50% from peak, wealthier coastal areas maybe about 25% from peak.
I think we are getting closer to a bottom, but still have a ways to go in certain slowing moving inventory areas. (i.e coastal).
The price/rent ratios are normalizing as rents have been on the rise (because so many have lost their homes). You are starting to see cash flow positive houses in some areas.
However there is still loads of foreclosures being sat on by banks (huge shadow inventory), the delinquency rate is way too high and demand is not there for many reasons (still record low sales volume).
If you are interested in Orange County this blog is one of the best around. http://www.ochousingnews.com
The main blogger called the bubble perfectly and has provided fantastic commentary and analysis for 4-5 years now. He is feeling we are pretty close to a bottom. Maybe 10-15% to go, but no real rebound with many years bouncing along.
January 26th, 2012 at 3:47 am
@paradox: Congrats. Its the next ten years you need to worry about, if the bears are right. We are at the beginning of a "lost decade" in Vancouver. I wish I could leave with greater ease right now.
January 26th, 2012 at 4:02 am
@Mac
Sorry – you asked what has held up prices in Orange county. It is just not a free market.
1. Artificially low interest rates
2. Insolvent banks not wanting to foreclose (mark to market) especially in high price area. Avg foreclosure takes almost two years from NOD to auction now. They'll move on foreclosures in LV or Phoenix, but the banks are sitting on their hands in OC and other wealthier areas. Lots of stories of people not making a payment for three plus years and still squatting in the house.
3. Federal government first time home buyer credit programs in 2008/2009 to help prop up the market.
4. Federal government foreclosure prevention programs (HAMP)
5. Federal government took over the lending market. 3% down FHA financing is the norm now.
6. Bank ineptitude. Robo-signing scandals. Not staffed to handle volume of foreclosures.
7. Orange County is a wealthier area that just takes longer for prices to adjust. People can handle being underwater for a longer period before pulling the plug. Condos and poor areas correct first and fastest. The rest follow in time due to the substitution effect.
January 26th, 2012 at 4:07 am
OMFG five days of free rent. Where do I sign?
http://vancouver.en.craigslist.ca/van/apa/2819506…
January 26th, 2012 at 4:35 am
@Patiently Waiting: Ha, check out those "newer" kitchen appliances. It looks like they bought the fridge before measuring as there is a big gap beside the stove where the original apartment size fridge used to be, now they have it sitting outside the kitchen against the wall and a big hole where it should be.
This place should rent for $700
January 26th, 2012 at 4:41 am
#13,
you got no string attached here, just leave your rich sister, it makes you feel greater ease. join the guy in ottawa.
January 26th, 2012 at 4:49 am
Hey WS, can you, or anyone else i suppose, clear up a couple things for me?
When we talk about the oversupply in the states, the shadow inventory, the overhang etc – what % of these are houses empty? Have the banks become landlords in any or many cases (on a typical owner/non-mortgage payment basis i mean)? Or do foreclosed homes just get vacated and put on the market?
Did a great number of people consolidate into fewer homes and up the household density? Or were there a large number of homes unoccupied when the shtf?
January 26th, 2012 at 4:56 am
@paradox:
"I mostly agree with the bear argument, yet the reality is that for the last 10 years it has been so wrong"
The bear argument hasn't been around for 10 years because 10 years ago prices were less than 1/2 of what they are now.
Our argument is based on numbers, not emotion or ideology.
January 26th, 2012 at 4:56 am
BofA, Citigroup Among Banks Facing Margin Pressure From Fed’s Rate Stance
Ironically, the banks down there are complaining too (I'm sure the tears will be falling around here
).
January 26th, 2012 at 5:02 am
Yesterday I saw this on the most recent Canadian Business cover: "CRASH! Why house prices are about to fall"
http://www.canadianbusiness.com/issue/66623–issu…
Here is the specific article on it:
http://www.canadianbusiness.com/article/65694–pr…
I was actually quite surprised when I saw it, thinking "wow has it really made into the mainstream media?" I continued to be in a state of disbelief when I started reading the article because it was surprisingly good.
It mentioned the key points of a bubble: How it is driven by psychology, which can turn and work to pop the bubble too. How low interest rates looks like the main culprit that enabled the borrowing binge. How there is no data on foreigner buying, but even if that's the case, it means they will start dumping even faster when prices stop rising. How even if the economy improves, there is little reason to believe it would stem the tide.
(Un)fortunately it ends on a slightly reassuring note of "As long as you buy with the expectation of having a place to live and not an investment, it might be ok".
But overall quite a well written piece. I was impressed to see it printed.
January 26th, 2012 at 5:11 am
@alx:
“As long as you buy with the expectation of having a place to live and not an investment, it might be ok”.
That's a polite way of saying "If you don't care about losing money, go ahead and buy".
January 26th, 2012 at 5:33 am
#20 @ReadyToPop: People always forget how super low interest rates put immense pressure on profits and incomes. The US is going Japanese, for a little while anyways. Their demographics and immigration policies suggest the long term picture will be different.
That being said, slipping in and out of deflation can raise living standards across the board. It becomes difficult to make money by buying and hoarding. Could North Americans have a few things to learn from Mrs. Watanabe ?
January 26th, 2012 at 5:50 am
@Guy Smiley
I think official (U.S. Census) national housing vacancy rates are in the 2.5% to 3% range. Up from pre-recession norms of around 1.5% to 2%. However it is very regional getting up to 6-8% in the worst areas – Florida, AZ, NV and the worst California spots.
They overbuilt in those areas the most and there was excess supply of unoccupied homes. FL, LV and AZ were driven by speculator dreams.
Also many people (young and old) have moved back home with families or doubled up.
The banks (or loan servicers)often don't follow through with a foreclosure and leave families in the home to squat for free. Or just as often they foreclose, boot out the family and leave the house empty for months (years) before auctioning it.
Corelogic reports there is 1.6 million homes nationally in the show inventory. Some less official reports think it is way, way higher (maybe 10M). One report puts over 2 million in just the state of Florida. http://ochousingnews.com/news/shadow-inventory-mu…
The banks (and gov't) know they can't flood the market with REO's so they sit on them. Sooner or later someone is going to break (BofA maybe).
On top of this problem is that foreclosure rates need to get better fast if we are anywhere near a bottom . They are still over 4% in Orange County, CA. (historical should be around 0.5%).
check out the OChousingnews.com link and search for "shadow inventory" for some good info.
January 26th, 2012 at 6:09 am
Look, they're still making more land!
http://www.flickr.com/photos/28634332@N05/5425018…
January 26th, 2012 at 7:14 am
In some respects Cam Good may be right, we should be more like the Chinese.
http://www.propertywire.com/news/asia/china-real-…
January 26th, 2012 at 7:22 am
@Best place on meth:
HA! The Chinese are worried about foreigners meddling in their real estate! That is the funniest thing I've heard all week on so many different levels.
January 26th, 2012 at 7:24 am
U.S. banks are effectively insolvent:
http://mathbabe.org/2012/01/25/mortgage-settlemen…
What US house price recovery?
January 26th, 2012 at 7:47 am
@WS:
Do you know much about Santa Monica? I have an ongoing discussion with a friend about house prices. He more or less agrees but has a very bullish friend who says if you look at Santa Monica, prices haven't come down much at all… he says that is and will be comparable to Vancouver's West Side, where this guy has just bought a house.
I can't really argue with his buddy because I have only the info Zillow supplies, like Santa Monica is down by 11%. It was down by 15% but has just risen last year. Does Santa Monica include areas like Malibu? If so, maybe that explains that it's not like 99% of other areas in the US.
Lemme know if you can provide perspective and points for argumentation… we've got a dinner party in 2 weeks. Mr. Bull will be there and I want to be prepared.
January 26th, 2012 at 8:14 am
@rp1
I agree. What I found interesting, were Carney's remarks suggesting that they also see long term (I can only conclude systemic) changes to their economy.
“It’s going to take a number of years before they get back to the U.S. that we used to know. In fact, they are not, in our opinion, ultimately going to get back to the U.S. that we used to know,” he said.
January 26th, 2012 at 8:29 am
"Pending housing bubble spells trouble for Canada, experts say"
http://business.financialpost.com/2012/01/26/pend…
More talks of a housing bubble….humm, could there be a bubble????
January 26th, 2012 at 8:29 am
Lots of worried realtors in the marketplace these days… Here are a couple of comments taken from Larry's blog:
and
January 26th, 2012 at 8:42 am
@MadasHell: From the article you referenced:
The tone has changed quickly in the MSM and I would suspect that lots of people are getting worried about it, and it's not the bears…
January 26th, 2012 at 8:56 am
@Makaya:
"Pending housing bubble"?
"Risk of a housing bubble…what lies ahead"?
Like we don't have one already?
Canadian Business can come out and say so right on the front page, can't these "experts" do the same?
January 26th, 2012 at 8:58 am
@Makaya:
I am surprised that they haven't use the weather as an excuse yet.
3. The butts of potential buyers are still waiting to thaw out from the snow.
January 26th, 2012 at 9:02 am
@mac:
"I have only the info Zillow supplies, like Santa Monica is down by 11%."
Zillow says SM is down 18% from the peak in early 2006. Look at the price history chart on this page.
http://www.zillow.com/homedetails/1032-6th-St-UNI…
Santa Monica is an incorporated city and the Zillow numbers are for the city proper.
January 26th, 2012 at 9:04 am
@patriotz: Agree with you, but it's better than nothing. At least the word "bubble" is in the title, which is what people will remember. One year ago, you would not have found one article talking about the bubble. Now, it's like there is a competition among them to put the most dramatic title. The tone has changed, people's perception of RE will follow, and then the bubble bursts. How long will it take? I don't know, but my guess is that it will be much faster and deeper than ever the bears think.
January 26th, 2012 at 9:12 am
@Mac
I know Santa Monica very well. It is probably the last place I would touch in Southern California precisely because it has corrected the least. I see tremendous downside risk.
Yes, SM is probably is one of the most desirable areas to live in LA and thus one of the most expensive. And your friend has a valid claim as prices have not corrected near as much as other areas (yet). It is just a more illiquid area.
SM was (and still is) extremely bubbly. The wealthy areas take the longest to correct. But be sure that SM is slowly correcting. A 15% correction on a $2M house is pretty painful I might add.
I often look at the median price trends by quartile in Southern California. The bottom quartile was fairly flat in 2011 as it has corrected heavily from 2008 on. The upper quartile was slower and took longer to adjust. In 2011 the upper quartile median SFH price dropped 8-10%.
Here is a graph historical median prices in Orange County by 25th and 75th quartile. http://lansner.ocregister.com/files/2011/12/Housi…
Here is a blog posting specific to Santa Monica (the comment section is always fun)
http://www.doctorhousingbubble.com/real-homes-of-…
The neighboring areas (like Culver City) are dropping much quicker than Santa Monica and I think people always under estimate the substitution effect. Big drops in neighboring community will always drag their neighbors down, it just takes time.
I really think the nicer areas in LA like Santa Monica are in for a long slow grind down, where some areas that have correct 50% or more (and are now cash flow positive) are probably bottoming out.
January 26th, 2012 at 9:21 am
New Listings 176
Price Changes 66
Sold Listings 95
TI:13218
http://www.laurenandpaul.ca
January 26th, 2012 at 9:25 am
@Mac
This guy says Santa Monica is off 20-25% and heading down further.
http://www.santamonicameltdownthe90402.blogspot.c…
http://www.westsideremeltdown.blogspot.com/
January 26th, 2012 at 10:22 am
@WS:
Hmmm… food for thought WS. I will check out the drhousingbubble blog later tonight. Looks like I'll have a poor defence when the guy strays into comparing SM to Westside Vancouver. I always fear that the westside here can just resist all pressure. We'll have to see. Looks like sales/list ratios are starting their spring climb. Will it never end?
January 26th, 2012 at 10:30 am
@mac:
"I always fear that the westside here can just resist all pressure."
Sure didn't in 2008, 1990's, 1980's. The fact is that the West Side has equalled or exceeded the % decline region wide in previous downturns.
Does your friend have an explanation of what has changed in the last three years so that this can't happen again?
January 26th, 2012 at 11:31 am
I still don't understand why all these bubble warning articles and experts are pointing at interest rates being the main culprit when in fact it's the CMHC (taxpayer) backing that has really kept this madness going.
Canada's dirty little (big) secret I guess.
January 26th, 2012 at 11:45 am
this graph is a pretty clear indication of "what goes up the most will fall the hardest"
look out Vancouver!
http://www.doctorhousingbubble.com/wp-content/upl…
January 26th, 2012 at 12:14 pm
@patriotz:
Patriotz,
I wish I could be as confident as you but the guy has made a fortune several times over in this market and in Toronto. The fact is, he has been righter than I have, if there was such a word. And I no longer believe that my view will prevail to the extremes that I thought it would. And you know how it is in this city, if you're a renter, you're a curiosity, especially at dinner parties. It's like being Bridgett Jones with the smug marrieds.
January 26th, 2012 at 1:13 pm
@mac: Take it from a born and bred Westsider, who has owned more than one house on the Westside. A lot of people have made a lot of money in residential real estate on the Westside. A lot of people think that they have a lot of money because they own a house on the Westside. Some of them are right, depending upon their equity levels, some of them are wrong for the same reason. Some of them will get out while the getting is good, some won't care or don't need to. Many of them on the lower end of the scale, however, will hold out and be absolute toast. What I can tell you from long, direct experience is that the Westside of Vancouver is now and always has been ground zero for real estate corrections as it has been the same for price increases. A whole generation of property virgins have grown up and bought in without having a clue about this, even when their Kool-Aid drinking parents ought to know better.
January 26th, 2012 at 1:30 pm
@mac: "And you know how it is in this city, if you’re a renter, you’re a curiosity, especially at dinner parties. It’s like being Bridgett Jones with the smug marrieds."
You obviously have low self esteem if this concerns you. Tulip bulbs were all the rage some time ago too. How did that turn out for the bulb barons?
January 26th, 2012 at 1:38 pm
@mac: "I wish I could be as confident as you but the guy has made a fortune several times over in this market and in Toronto."
I always laugh at comments like this. Anyone who made a "fortune" many times buying and selling could have made way more by buying and holding. Buying and selling has a very high transaction cost to it and is way more work. You need to find a different guru to idolize.
January 26th, 2012 at 1:49 pm
@JR: "A lot of people think that they have a lot of money because they own a house on the Westside."
Yes a friend of mine is a builder on the Westside. He laughs at the amount of debt people are going into to move up and build a new house. Long term Westside residents feel rich when their tare down is worth 1.5 mil and go and borrow to the max to move up into a new house with all the bells and whistles. He tells me everyone is maxing out because they think prices will continue to go up forever. It is an "investment". Million dollar mortgages are nothing even with middle class incomes. The Westside will be worst hit area in the lower mainland in my opinion. Easy 60% correction coming without rates rising. Worse when rates go up.
January 26th, 2012 at 2:43 pm
@Makaya:
"There is no cause for concern" – a sure sign that now is the time to panic.
January 26th, 2012 at 2:50 pm
looks like Jesse was right RE: listings being pulled forward for CNY. Definite slump in listings the last couple of days. Sales not boosted either (yet), but listings do seem to be down.
January 26th, 2012 at 3:18 pm
And another must read! Jeez, it's a flood of bubble talk these days… Today from MacLeans
What happens when Canada’s housing bubble pops?
Here we are guys, this is it. The time has come to buy pop-corn and enjoy the show…
January 26th, 2012 at 4:02 pm
Quoting what Makaya had to say:
Makaya Says:
January 26th, 2012 at 4:29 pm
Lots of worried realtors in the marketplace these days… Here are a couple of comments taken from Larry’s blog:
If we have rich and savvy Chinese buyers keeping the top end of the RE market busy, and we have next-to-nothing interest rates keeping the mid-low range busy, then we have a robust housing market.
Be calm. There is no cause for concern.
My opinion:
Chinese buyers may keep the top end moving but cheap interest rates may not do the trick if your mortgage is $500k and you make pennies for wages. So if you've maxed out on your mortgage to buy your overpriced Vancouver mutt house on low interests, you're still barely scraping through. Any unforeseen economical event can still wipe you out. With a $500k mortgage, you can probably pay it off when you turn 90. Hopefully medical technology will prevent you from being senile before then. Or maybe that's a good thing…….you just forgot that you had a mortgage didn't you:=)
January 26th, 2012 at 4:16 pm
Just started a thread in the forum to help RE newbies (myself included) understand the linguistic intricacies in a typical MLS listing (especially for Vancouver). To start off:
"Handyman's Special": looks bad, smells bad, has at least one major system that doesn’t function
"Motivated": seller gives the impression that he is under pressure to reach a quick deal
perhaps someone can continue on by defining "Vancouver's Special"..
http://vancouvercondo.info/forum/topic/mls-lingo-…
January 27th, 2012 at 2:12 am
@DEFAULT NAME:
Default Name,
As I've said before, you're a light in a dark sea, but a dim one.
January 29th, 2012 at 10:37 am
[...] having a clue about this, even when their Kool-Aid drinking parents ought to know better.” – JR at vancouvercondo.info 26 Jan 2012 9:13pm Share:TwitterFacebookRedditStumbleUponDigg This entry was posted in 02. Profiting from the Boom, [...]