Vancouver Condo Info

Looks like our largest trading partner is now ‘officially’ in a recession as declared by the National Bureau of Economic Research.

WASHINGTON - A panel of the National Bureau of Economic Research said Monday that the U.S. economy fell into a recession last year.

The NBER says its group of academic economists who determine business cycles met and decided that the U.S. recession began in December 2007.

Many economists believe the current downturn will last until the middle of 2009 and will be the most severe slump since the 1981-82 recession.

It looks like the ‘correction’ phase of the Canadian real estate market cycle is picking up steam and Vancouver is strapped to the front on the locomotive.  Homeowners who relied on property values to boost their net worth are discovering that they’re suddenly poorer than they were a year ago:

When Pat Webb moved to Vancouver a year ago, she didn’t think twice about buying a condo in tony Kitsilano, among the hottest neighbourhoods in the city’s booming real estate market.

But in August, the 70-year-old retiree decided to move back to the United States. She had sensed Vancouver’s market was slowing, but a neighbour’s condo had sold a week earlier, so she too tried to sell.

She listed her one-bedroom, 705-square-foot condo for the price she paid – $509,000 – on Aug. 30. Ms. Webb has since reduced that to $485,000. It still hasn’t sold.

And condo owners in downtown Vancouver are predicted to suffer the most in coming years:

Condo owners in downtown Vancouver are at greater risk for price depreciation than single-family homeowners in the suburbs, a BMO Capital Markets economic analyst said Tuesday.

“Condo prices could drop faster because of overbuilding,” Robert Kavcic said in an interview. “When you have excess in the market, that pushes prices down.”

A BMO survey released Tuesday suggested B.C.’s housing starts have to fall by about 25 per cent from current levels to return the market to sustainable numbers.

For those wondering why people would hold on to an investment that by all measures is set to decline for years, you can blame denial, which can be an incredibly strong force.  For an example of denial at work just look to the US where prices have been falling for two years and realtors still struggle to get the message to owners who believe that their property is different and is actually gaining value.

The Globe and Mail is reporting today that Merrill Lynch & Co are growing more ‘alarmed’ that the Canadian housing market is tracking the US housing crash with a 2 year lag:

Falling prices, overbuilding and too much unsold inventory in Canada are creating a trend similar to that in the United States a couple of years ago, Merrill economists David Wolf and Carolyn Kwan said in a research note Tuesday.

“Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community. We ourselves are getting more alarmed by the day,” Mr. Wolf and Ms. Kwan said in their report.

They aren’t the only economists to raise the warning about a two year lag, though many still emphasis the differences between the US and Canadian housing markets:

The same two-year lag idea was raised this summer by Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., who called the apparent trend “unnerving” in a report in July.

At the time, Mr. Porter said there were many reasons why the two markets were different, but said even a pale version of what had happened in the United States would be bad news for Canada.

House prices posted a record 16.6 per cent year-over-year decline in the United States in August, according to the benchmark S&P/Case-Shiller Home Price Index report, also released Tuesday. The index has now shown year-over-year declines for 20 months.

Taking into account the two-year lag, Merrill’s data suggests the ramp-up in construction of housing units in Canada may be even larger than it was in the United States.

The number of units under construction currently is just off the peak hit in May, which was the highest recorded in 36 years of available data and 97 per cent above the long-term average, the report said.

By contrast at its peak in 2006, U.S. housing construction was 54 per cent above the long-term average, it added.

Of course, just like in the US its a bit vague to speak of a national housing market - the averages are pulled up in a boom and down in a bust by a few select cities, in our case Vancouver and Toronto are showing some alarming supply issues:

As of August, there were more condos under construction in both Toronto and Vancouver separately than there were in all Canadian cities combined a decade ago, Mr. Wolf and Ms. Kwan said.

“And as in the U.S. two years ago, we are now seeing completed units pile up unsold in Canada, a clear sign of overbuilding and an ominous sign given the voluminous supply still in the pipeline,” they said.

Inventories of unsold new single-family homes in Canada rose by 56 per cent year over year as of last month, close to the maximum increase in July 1990, which marked the last housing market downturn, the report said.

At the peak in April 2006, inventories of unsold new single-family homes in the United States were up 26.5 per cent over a year earlier, the report said.

The two-year lag could be the result of Canada having more room to run up because its recovery started later than that of the United States. Strong commodity prices and looser lending standards initiated in 2006 may also have contributed to the lag, the report said.

Hat-tip to Dingus for this link.

Just so you know, Canada’s banks are in fine shape. Not the sort of ‘fine shape’ that US banks were in last year, but real, honest to goodness fine shape.  But just in case, Ottawa is considering options to aid Canadian banks if the current global economic crisis persists.

And news from around the globe hasn’t been real great lately.  A number of large US banks have failed, a record setting US bailout bill has been passed and the US government is now considering taking an ownership stake in banks (because what restores confidence more than government ownership?).

Meanwhile in the UK, they’ve already taken the step of partially nationalizing their banking system.  The fallout from the global credit boom is turning bust in a bad way, look at whats happening in Iceland for just one example.  The IMF has just announced the activation of an emergency funding scheme that was last used during the 1995 Asian economic crisis.

From previous discussion on this site I know that many of you are sitting on a cushion of cash, some above the $100k CDIC insured limit.  Are you worried about the health of the Canadian economy and our banking system? Do you understand the ins and outs of CDIC insurance?  Are you making any changes to your banking habits to prepare for possible problems?

The $700 billion US bailout plan has been defeated for the time being and the markets are in turmoil.  So far today the Dow has plunged by more than 770 points and the TSX is down 840.93 points.  Anyone out there concerned about retirement? Are you starting to bottom fish for stocks or stockpile canned goods?

In a stunning vote that shocked the capital and worldwide markets, the House on Monday defeated a $700 billion emergency rescue for the nation’s financial system, ignoring urgent warnings from President Bush and congressional leaders of both parties that the economy could nosedive without it. The Dow Jones industrials plunged nearly 800 points, the most ever for a single day.

Democratic and Republican leaders alike pledged to try again, though the Democrats said GOP lawmakers needed to provide more votes. Bush huddled with his economic advisers about a next step. The House was to reconvene on Thursday instead of adjourning for the year as planned.

Want to make your lawn look lush and green all year round?

A Stockton man sees the growing number of dead brown lawns of foreclosed homes in the area and sees nothing but green.

Nick Terlouw has launched the Greener Grass Co., which amounts to a service in which he sprays dead lawns with a deep green, water-based dye that makes the turf look good enough for a golf course or a professional football stadium.

For between $175 and $225 per yard, Terlouw uses a motor-powered 50-gallon insecticide sprayer designed for treating orchard trees. He waves his magic wand and in broad sweeps, a la painting a house, makes tired, if not expired, turf sit up and sparkle like Shirley Temple.

Full article here.

Wow. What a weekend in the financial markets!  Lehman Brothers has filed for chapter 11 bankruptcy, an emergency trading session was opened on Sunday, Bank of America is said to have struck a deal to buy Merrill Lynch, and AIG is looking at ‘options’ for business capital.

Phew.  That all came out of left field eh? I mean no one could have predicted that excesses in credit markets would lead to problems like this right?  That would be a feat worthy of a soothsayer, like predicting that overvalued housing markets would fall.

Fortunately for us local experts like Helmut Pastrick of the CUCBC predict that our housing market will be going up by 10 percent.. er, no.. sorry thats changed to dropping by 10%, maybe more.

Anybody have some Gravol?

The two largest mortgage finance companies in the US, Fannie Mae and Freddie Mac have been taken over by the US government in an effort to become the most expensive financial bailout in US history.  ..no sorry, that’s not the underlying goal..  They’ve been taken over because they were ‘too big to fail’ - their collapse would have caused turmoil in financial markets in the US and around the world.

No final word on how much this bail-out will cost American tax payers, but the rough estimate of $25 billion has been called ‘too optomistic’.

The plan also commits the government to provide as much as $100 billion to each company to backstop any shortfalls in capital. It enables the Treasury to ultimately buy the companies outright at little cost. It bans them from lobbying the government, putting an end to their ability to use their political machine on Capitol Hill.

It also eliminates dividend payments to current shareholders while protecting the principal and interest payments on the debt, now held by foreign central banks, financial institutions, pensions funds and others.

The Treasury will force both companies to shrink their portfolios over the long term; they now hold or guarantee about half of the country’s mortgages. In addition, the government plans to buy significant amounts of their mortgage-backed securities on the open market, beginning with the purchase of $5 billion worth this month. This step, never before undertaken by the government, could begin to restore some confidence in the credit markets and lead to lower interest rates for home mortgages.

In Canada the CMHC has taken steps to try to minimize speculation and the risk of bubble markets by eliminating the insurance of zero down and fourty year mortgages introduced a couple of years ago. Have these barndoors been closed too late?  Will a collapsing housing market in Canada bring a taxpayer bailout of the CMHC?

Vansanity points out an interesting article comparing warning sign of economic downturn in the US and Canada:

Fifty-five thousand jobs disappeared last month. The shockingly large loss was the biggest monthly drop in 17 years. But the employment report shouldn’t be too surprising—warning signs abounded. Now, just like all the people who were partying it up around Noah’s ark when the rain first began to fall, some Canadians are finally beginning to wonder if a flood really is coming.

As Ignatius points out ‘The Trumpet’ is a religious publication, and if there’s one thing housing market bears and certain religious people have in common it’s predicting end-times where the righteous will get their reward and those that have succumbed to the sins of sloth and greed will get thier come-uppance.   Of course William Kamm and Nouriel Roubini have dramatically different track records at this point.

Regardless of your opinions on religion this article nicely sums up some recent economic news and may raise some red flags for anyone that believe that faith alone can maintain a market.

There’s an interesting article in yesterdays New York Times about American debt, complete with interactive features and debt calculators to compare your debt load to others:  Given a shovel, Americans Dig Deeper into Debt.

Years of spending more than they earn have left a record number of Americans like Ms. McLeod standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.

While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up.

It is not just individuals but the entire economy that is now suffering. Practices that produced record profits for many banks have shaken the nation’s financial system to its foundation. As a growing number of Americans default, banks are recording hundreds of billions in losses, devastating their shareholders.

There’s a meme in the local media that Canadians are more financially conservative than Americans, and while that may certainly be true I wonder about Vancouverites specifically - With our negative savings rate, relatively low incomes and high housing costs are the residents of this city really that different from some of the more extreme US cases?