Archive for the ‘predictions’ Category

BOC chops rate in race for bottom

Wednesday, January 21st, 2015

If you’ll recall you’ve been warned many times by a number of government talking heads that rates could go up at any time.

Today the Bank of Canada finally took action and cut rates by a quarter from 1% to 0.75%.

Speaking to reporters, Mr. Poloz said the oil price drop is “unambiguously bad” for the Canadian economy, prompting the bank to take out what he called an “insurance policy” against future risks, such as weak inflation and a household debt squeeze. But he denied the move was calculated to send the Canadian dollar lower.

“Market consequences will be what they are,” he said.

The rate cut sent the loonie plummeting below 81 cents (U.S.).

Mr. Poloz, who acknowledged that oil dominated the bank’s discussions leading up to Wednesday’s rate decision, said he’s ready to cut rates again if prices fall further.

“The world changes fast and if it changes again, we have room to take out more insurance,” he said.

The rate move, which few analysts anticipated, is an attempt by Mr. Poloz to shield highly indebted Canadian households from an oil-induced hit to their jobs and incomes – signs of which are already evident in Alberta.

In the comments section here, Dave asked the question: How much of the BC economy is tied to Oil and Alberta?

I would like to know how much of a hit the damage to Alberta will be to BC. It seems to me that everybody underestimates the economic impact. I think our statistics don’t capture the role of Alberta in our economy. I think I read that Westjet estimated 5,000 people in the Okanagan work in the oil patch. And that’s just them trying to estimate things for their benefit (i.e. people who buy plane tickets). How many work from home on their computers? Or only make a few trips per year and don’t get picked up the radar? How many work in the Okanagan but for companies that service the oil patch? Add it all up and there is a LOT of employment related to Alberta.

 

Deutsche Bank: Canada is 63% overvalued

Tuesday, January 13th, 2015

If there was a competition for ‘most bearish outlook’ on Canadian real estate Deutsche Bank would take home the prize.

When local banks say real estate is overvalued in Canada they usually go with a safe 10-20% figure.  The Bank of Canada recently said 10-30% overvalued which is pretty damn bearish, but not quite as extreme as this.

Research by Deutsche Bank chief international economist Torsten Slok even manages to out-bear the Economist Magazines estimations:

Broken down, Slok sees the market as being 35-per-cent overvalued when compared to incomes, and 91-per-cent overvalued when compared to rents. That’s a more bearish assessment than most. The Bank of Canada estimates the market is overvalued by between 10 per cent and 30 per cent.

But those are similar numbers to those at the Economist magazine, which for years has been calling Canada’s housing market overvalued. It pegs the overvaluation at 32 per cent, when compared to incomes, and 75 per cent, when compared to rents.

“Canada is in serious trouble,” reads the title of a chart from Slok’s report, showing Canada’s household debt, as a percentage of income, climb to 50 per cent above current levels in the U.S.

See the charts and read the full article here.

 

How to prepare for interest rate hikes.

Tuesday, January 6th, 2015

We should be well and deep into the ‘boy who cried wolf’ territory by now.

How long have you heard warnings that interest rates may be going up?

We’ve all become so used to hearing that it’s going to be a big surprise if they do.

The CBC has an article that says interest rates will go up this year and here are 4 ways Canadians should prepare.

#3 is ‘don’t rush to buy a home':

Higher interest rates could also lead to a correction in the housing market.

“The big issue as far as I can see is that people panic and think they have to get into the housing market before interest rates climb. But they have to recognize the overall long-term impact of interest rates actually climbing,” says Laurie Campbell, CEO of Credit Canada Debt Solutions.

Homebuyers who rush out to purchase homes to beat a spike in rates could end up with homes dropping in value.

“I think people have to be vigilant about any big purchases they may be making in the next little while. Housing in particular,” Heath says. “If someone is considering purchasing a house, they have to really look at more normal interest rates during their budgeting.”

Read the full article here.

As oil, so goes Real Estate?

Wednesday, December 17th, 2014

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.

Builders stop building in a bubble?

Thursday, November 20th, 2014

Markoz left this comment in yesterdays thread, but it got held up in moderation because it had more than two links:

My wife works at a bank and her boss sent a link to this BIV article entitled, “Nobel economist housing bubble formula shows Vancouver resistant.

Here is a copy of my response (unfortunately the charts I clipped won’t paste into the comment section):
His theory (as presented by the article’s writer at least) is that builders are smart enough to stop building before/when a bubble pops. I’m not sure if he means that a slow down in building is a precursor to a bubble popping or if he means that when sales drop so do housing starts. In Vancouver, housing starts only dropped off significantly well after sales did in 2008.

Vancouver sales began to tank in March or April of 2008.

Residential property sales in Greater Vancouver totalled 2,997 in March 2008, a decline of 16.3 per cent from the 3,582 residential sales recorded in March 2007, and a decline of 25.7 per cent compared to the 4,033 sales in March 2006.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver totalled 3,218 in April 2008, a decline of five per cent from the 3,387 sales recorded in April 2007, and a 3.8 per cent drop from the 3,345 sales in April 2006.

VANCOUVER – The Greater Vancouver housing market continued its re-balance between sales and listings last month. The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver declined 30.7 per cent in May 2008 to 3,002 from the 4,331 sales recorded in May 2007.
All of the above is from the REGBV website: http://www.rebgv.org/monthly-reports?month=May&year=2008
It just kept getting worse:http://www.huffingtonpost.ca/2012/07/04/vancouver-home-sales-10-year-low_n_1649539.html

“This summer, sales went off a cliff,” added Somerville, who is director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C.:http://www.canada.com/vancouversun/news/business/story.html?id=e6e0c211-fddd-413b-9a94-3564e20567d8

The financial crisis did not start until Lehman Bros failed on September 15, 2008.

Here are the housing starts specs:

Apparently our builders aren’t as smart as the Nobel Laureate. Starts for all types of homes stayed above the average for 2004-2008 till the end of 2008. They plummeted after the fact. Perhaps the writer is putting his own spin on what Smith said. I wasn’t there so I don’t know.

The other thing to note is that the writer never actually asked Smith if he thought Vancouver was in a bubble. He did a follow up interview with him but seems to have avoided asking the question directly. He says, “Using Smith’s formula for housing bubble-burst scenarios, B.C. and Vancouver do not appear threatened, despite record-high prices in the latter. B.C. housing starts this year are up 3.1% from 2013 and forecast to rise a further 1.4% in 2015, according to Canada Mortgage and Housing Corp.” Why not just ask him what he thought instead of making a supposition?

Hold cash or leverage up?

Monday, November 10th, 2014

This article in the Globe and Mail asks ‘where is the smart money going‘?

Is a drop in oil prices good for the Canadian economy? Will interest rates stay low forever? Nobody knows, but that doesn’t keep us from asking.

Today’s situation amounts to a near total inversion of the markets of a generation ago. “If you look back to, say, 1981, stocks, bonds and real estate were all cheap,” says Jim Giles, chief investment officer at Foresters, a Toronto-based financial services provider with more than $20-billion in assets under management. “Now, the exact opposite is true.”

For investors, this poses a daunting challenge: What do you buy when there’s nothing left to buy – or at least nothing that appears to be a bargain?

For somepeople cash is trash, for others it’s king:

Tim McElvaine, one of Canada’s best-known value investors, has a similar viewpoint. The head of McElvaine Investment Management Ltd. in Victoria is holding about 25 per cent of his fund’s assets in cash, considerably higher than the normal level, as he awaits buying opportunities.

“People will tell you they don’t want to hold cash because it doesn’t yield anything,” he said in an interview. “But the real value of cash is its ability to buy things when prices become attractive.”

Among the reasons to worry about today’s market is that near-zero interest rates have failed to spark any widespread global recovery. The Organization for Economic Co-operation and Development trimmed its global growth forecast this week to 3.3 per cent for this year, reflecting the euro zone’s continuing woes and a slowing Chinese economy.

Read the full article here.

CMHC: Lower house sales in lower mainland over next 2 years

Monday, November 3rd, 2014

The CMHC is predicting declining house sales in the lower mainland over the next couple of years due to higher mortgage interest rates.

“Total housing starts will edge higher as resale market conditions remain balanced and the supply of completed and unabsorbed (unsold) new homes trends lower,” said CMHC B.C. regional economist Carol Frketich.

“Housing demand will be supported by employment and population growth, but tempered by gradually rising mortgage interest rates.”

They are predicting price growth of 1.2 and 1.7% (unclear if this is before or after inflation) and they forecast this based on an assumption of a shift to ‘lower cost housing’.

Which might be good news for anyone trying to sell ‘lower cost housing’ since prices on Vancouver homes under $1.1 million have gone essentially nowhere over the last four years.

 

Well, that must be the top then.

Tuesday, October 14th, 2014

Over the weekend we found out that a bearish poster on this site just bought a house.  Not in Vancouver mind you, but still..

What went wrong? Landlord wanted to move back in. Now if it was just me I would have rented another place, but as it isn’t just me I decided to see if I could make buying work.

Had to look outside my old neighbourhood, but I found a house on a big lot, price $330,000. Taxes about $3000/year, rental value about $1750/month. Great deal? No. But one I can live with. There might be some downside on the price going forward, but what matters to me is value, i.e. ownership costs versus rent, not expectation of price changes going forward.

And in that same thread we found out that a bullish poster sold his house and is now renting.

In all sincerity, when a voracious bear purchases, it may signal a top. Market trends often reverse at points like this.

To let you guys in on a secret, yours truly is no longer a home owner. I rent. I do have other real estate interests though.

So are these signals of a market top or what?

 

The problem isn’t prices, it’s the buyers

Tuesday, October 7th, 2014

Over on Medium there’s an Op-Ed by Spencer Thompson on the high cost of Vancouver Real Estate.

Not just the literal high cost of property, but the risk of a greater price paid by the city .

The secret that no-one actually wants to talk about is that the quality of a city is mostly determined by a simple factor — the number of smart, ambitious people who live there. These people are the ones who want to drive that city forward by investing in opening businesses, donating their time to the arts & community, participating in city planning, etc… Without them, growth wouldn’t happen and you wouldn’t get all of the benefits that great cities enjoy.

The biggest contributor to the decline of a great city is simple — it’s the decline of those smart people. When they decide that the cost of living in a place outweighs the benefit, they move. They don’t just take their money with them, they take their intellectual and future capital with them. This is dangerous. When people aren’t willing to make an investment in a place to live any more, the city doesn’t just lose their taxes for the year, they lose a massive function of potential jobs created, culture added and future capital they can put to work.

Read the full article here.

Now clearly Mr. Thompson is a believer in foreign investors as a primary driver of prices in this city, but whatever the cause, HAM, Drugs or Credit, does he have a point? Do high real estate prices risk driving out ‘smart people’ who would contribute to a brighter future for the city?

Vancouver: Getting better or worse?

Monday, September 29th, 2014

Pete McMartin has an editorial over at the Vancouver Sun about the ‘amenity paradox‘ – that is that the attributes that make a city attractive to live in eventually erode liveability.

“It’s funny that you should mention the Amenity Paradox,” said author and urban planner Lance Berlowitz. “I was thinking about that very thing last month when I was in Barcelona. It’s one of my favourite cities and I’ve been there many times, and local people I know there were complaining that they can no longer afford to live in the city, that it has become too tourist-oriented, that, like Paris, it has become a caricature of itself.”

That is not the case in Vancouver. As much as our Chamber of Commerce would convince us of our global significance, we are not anywhere near being in the league of Barcelona, Paris, or even Toronto, for that matter. And we have a long way to go in terms of becoming truly urbane.

Wrote Bob Ransford, consultant and bi-weekly columnist for The Sun on urban design:

“We are quite delusional about what we are in Vancouver. We’re a small regional city that has seen a population spike, changing quickly some of our old ways. Those old ways were not that impressive. We’re like the 14-year-old — neither an adult nor a child, but we think we’re pretty special and we pretend we’re more gorgeous than any other teen — yet we’re terribly insecure.

So what do you think? Is Vancouver getting better as it grows more mature or are we still an adolescent insecure city in many ways?

Read the full article here.

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