As oil, so goes Real Estate?

Over at the CBC Don Pittis notes that what goes up can also go down.

Specifically, he notes that in the oil market there were a number of ‘experts’ with access to detailed data and analysis, yet seemed to be as surprised as anyone at the drop in oil prices.

Canadas housing market is of course a completely different beast, and we don’t really lack for ‘experts’ noting that prices are a bit out of sync with reality.  When the Finance Minister speaks up and the Bank of Canada estimates that real estate is as much as 30% overpriced nationwide that’s not exactly ‘without warning’.

Pittis notes another key difference between oil and housing is of course the liquidity of the market:

This is one example of how housing is different from oil. While oil trades on big, well-informed central trading desks by large corporations, housing is a market made of individual, many of whom have only bought and sold a house once in their life.

Partly because of that, housing is an illiquid market. Unlike stocks or oil, you can’t just sell a house at today’s price and get out. You have to go through the long process of finding another individual who wants to buy your exact house at a price at which you are willing to sell.

In previous housing downturns that has meant a stock of overpriced houses builds up because buyers are unwilling to pay the price sellers expect.

At that point, prices in the market are set by people who have to sell immediately and will take the price offered. Sudden divorces. A new job across the country. A death in family. People who can’t afford to keep up their payments. Overpriced properties waiting for their price actually fall in value while the seller waits.

Read the full article here.

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patriotz
Member

Another key difference of course is that oil is a consumable and RE is a capital good.

People have a choice between buying a house and renting one but they don’t really have a choice between buying their own oil well and going to the gas station.

Which means that RE prices are determined more by credit availability and speculative expectations than by actual demand.

Westside Realtor
Guest
Westside Realtor

Great blog post.

I am in full agreement. I am beginning to see it in my area of focus, although it’s slow in coming.

I wonder if the oil carnage hits kelowna and northern BC and if this filters into the lower mainland.

My prediction is that it does and that we see further weakening ahead.

I suspect that sellers of $5.5mm places in Vancouver’s westside will find it hard to unload these properties for $4.5mm this spring.

If you have anyone willing to pay full price for one or to get into a bidding war for one, please let me know – I don’t.

WSR

Bottom smell
Guest
Bottom smell

Canada’s XEG energy fund is up over 10% since yesterday morning. Anyone else smelling a bottom here?

patriotz
Member

@3:

Bottom? In oil stocks or oil? Two different things, just as house prices and rents are two different things.

Also note XYZ Energy stock going up doesn’t help the XYZ Energy employee who’s losing his job.

bullwhip29
Guest
bullwhip29
@ #3 maybe a tradeable bottom for those looking at short term trading. the problem is that everyone and their dog has been programmed to buy every and all dips. this said, that strategy isnt working too well for many stock investors across all sectors in recent weeks. perhaps a bounce is coming as tax loss selling winds down for the year. an absolute bottom one? we’ll see. what goes down doesnt necessarily go back up in a V formation. take the entire TSX-V for instance. down in 2008, deadcat bounced and never looked back. for those energy co investors that got caught holding the bag (lots of Cdn investors in this camp that havent even seen Dec statements), i think it could be a long time in the making before you recoup all or even a significant portion of… Read more »
bullwhip29
Guest
bullwhip29

cont’d…

maybe up 10%, but still needs to rally by 50% for those that held this as of a few months ago to recoup all losses

bullwhip29
Guest
bullwhip29

“Low oil to hit Canadian economy harder than expected…”

“Canadian economy now twice as exposed to oil than in the past…”

Peter Buchanan
Senior Economist, CIBC

on BNN this morning
http://www.bnn.ca/Video/player.aspx?vid=515547

crikey
Guest
crikey

Something that I’ve noticed some investors don’t realize is percentage differences on the way up and down … E.g., if something drops 50% and bottoms out there it then won’t back to the starting point until it goes up 100% from that point

Mortgageslave
Guest
Mortgageslave

Good point Crikey. Same goes for Real Estate. If you have had a nice run and made 80% gains on your property, it only takes a 40% decline to wipe you out (or close to it).
Also being levereged 5 to 1 is great when prices are going up but hurts 5 times as much on the way down.

I’m just glad I have a professional managing my portfolio. I have a very small energy exposure so I’ve seen a whole 2% decline during the selloff. This is when the professional brokers show their worth. It’s a long boring ride up with no real huge gaines but they know how to stay away from risk. Slow and steady wins the race in the long run..

bullwhip29
Guest
bullwhip29

@ #8
see post #6

@ #9
when prices fall, leverage kills. if the problems in russia, china, japan etc do not sort themselves out in short order (or at least appear to be) then your best bet is to not be exposed to the mkt entirely. i know many that say they own no oil stks, but have big positions in “safe” stocks like AAPL, BABA etc.

anyone care to bet that markets close in the red today?

Mortgageslave
Guest
Mortgageslave

Are you basing this on what the US Fed will announce at 2pm est today? It looks like the market is anticipating that they will be patient with rates and not announce any planned changes in early 2015. For the market to go into the RED there would have to be a timeline for an interest rate increase…

nufio
Guest
nufio

fed rates are not going to go up in another 5 years is my prediction.

nufio
Guest
nufio

i also dont think that will prevent the canadian RE bubble from deflating

history
Guest
history

Every time you Refinance you sell your house back to yourself. Is that illiquidity?
-No.
And how many times Was this done, typically?
-Every year since 2001, but maybe not in 2009… just guessing… but judging from all the Snowbird vacations people Must take.

The point is: Housing in the last 15-20 years became Highly Liquid as Sales (repeatedly to yourself), became the grandaddy bubble.

Westside Realtor
Guest
Westside Realtor

My purely a guess on this is that we have not seen the lows in oil as of yet.

If we have then perhaps the carnage won’t be as bad as I had previously speculated.

Time will tell.

Ps. HAM are getting nervous from what I can tell, China getting more aggressive with money outflow riles and now cra joins the battle….

WSR

wcth
Guest
wcth

patriotz Says:
“.. but they don’t really have a choice between buying their own oil well and going to the gas station…”

That is starting to change now that people can buy EVs and install solar modules.

But that doesn’t really change the point you were making.

@45
Guest
@45

prices in the market are set by people who have to sell immediately and will take the price offered. Sudden divorces. A new job across the country. A death in family. People who can’t afford to keep up their payments. Overpriced properties waiting for their price actually fall in value while the seller waits.

Hang on. I thought prices were set by rich Chinese and locals who never need to sell because they are rich or have so much equity? I thought if the don’t have to sell prices can’t go down? That is what my realtor told me?

Say What?
Guest
Say What?
prices in the market are set by people who have to sell immediately and will take the price offered. Sudden divorces. A new job across the country. A death in family. People who can’t afford to keep up their payments. Overpriced properties waiting for their price actually fall in value while the seller waits. Hang on. I thought prices were set by rich Chinese and locals who never need to sell because they are rich or have so much equity? I thought if they don’t have to sell prices can’t go down? Maybe divorcees will start keeping their house and just live together after divorce, those that die will leave their house to the family pet and not allow it to be sold ever and those who get job transfers will just commute across the county. Besides Vancouver is the… Read more »
bullwhip29
Guest
bullwhip29

@ #11
markets are addicted to QE, which has been key in propelling mkts to where they are. yellen is now stuck in a corner until there is legit reason to turn printing press back on. efforts from ecb, boj etc have not worked. mkts teetering on a high wire until “something” happens or the US economy goes into overdrive (not likely). rallies are being sold into now.

Randy Randerson
Guest
Randy Randerson

Looks like the Fed is pretty ready to hike rate, judging by the sudden jump of the market after the meeting.

VanRant
Member
VanRant

Interest rates are going up soon,,,,,,

“The Federal Reserve signaled Wednesday that its first interest-rate hike in eight years is approaching.”

“The wording change, which many analysts expected, indicates the Fed will start raising its benchmark short-term interest rate in the next few months.”

From LA Times

Whistler or bust?
Guest
Whistler or bust?

I for one am feeling much better that WSR is giving his is thoughts on oil.

Hey WSR – we don’t care what you think you fucking phoney. Just go away.

PS – Crescent Point Energy up over 20% from the bottom. That’s 46 years for a Langley condo.

Doomcouver
Guest
Doomcouver

Wow I had no idea how strict they were making the requirements for the new IIP.

http://www.reuters.com/article/2014/12/17/us-canada-immigration-millionaires-idUSKBN0JV2SZ20141217

It’s a 2 million dollar loan to Canada for 15 years, plus an English or French language requirement, and only for individuals with a minimum of 10 million in net worth.

I think it’s about time they fixed this program. This will make sure we get only the immigrants that are able to integrate in society with other Canadians. That being said this program will be nowhere near as popular. The language requirement alone will undoubtedly exclude most of the 40,000 applicants that were dumped off the previous IIP (as it should).

Whistler or bust?
Guest
Whistler or bust?

#23 – We live in one of the greatest countries in the world and the world knows it. I bet if they tripled the requirements to $6 mil and $30 mil net worth we would still have a massive backlog of quality applicants to pick from.

Its about time we stopped giving away something of priceless value. For once, I applaud the Gov’t.

patriotz
Member

@23: “This will make sure we get only the immigrants that are able to integrate in society with other Canadians.”

All immigrants are able to integrate. The question is are they willing. It appears to me that willingness to integrate tends to be inversely proportional to the wealth of the immigrant.

This language requirement is just going to result in a boom in cram schools in China to get the principal applicant qualified. The rest of the family won’t be subject to the language requirement.

The only good thing about it is that the numbers are reduced. But 50 households buying their way in is still 50 too many.

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