Tag Archives: forecast

Close your eyes and load up on debt

This National Post commentary is one of the most direct attacks on Canadian personal debt levels I’ve seen in the mainstream media.

The takeaway is this: YOU are responsible for your own debts, don’t go whining to anyone if it gets you into trouble.

It’s mindboggling to think that an entire population can look at what happened in the US when personal debt levels got this high and shrug it off.

Analysts and economist are filled with forecasts of doom, and that was before the latest figures showed debt had continue to pile up over the past year to a record 163% of household income, which is where the U.S. was before the 2008 collapse, and about 10 points higher than anyone thought. As the housing market cools and home prices slip, a lot of people could find themselves making monthly payments they can barely cover for a house that isn’t worth what they thought it was. If you can’t cover the mortgage, you just have to pray the roof doesn’t start leaking or the furnace fail.

And borrowers won’t really have anyone to blame but themselves. The warnings are out there. The examples are rife: all anyone has to do is examine the experience of U.S. homeowners over the past few years. The dangers aren’t a secret, they’re just being ignored.

But people keep borrowing, because it makes them feel good to spend, because they’re too busy to think about it, because they figure they can cover the payments in the short term and will deal with the future when it comes. And because they can always blame it on someone else when the roof caves in.

Read the full article here.

Can’t burst a bubble that isn’t there

Some people are freaking out about a housing bubble in Vancouver.

Relax.

Tsur Sommerville of the UBC CUER Sauder school of business says there is no bubble and I bet the developers who sponsor the school would agree.

So it’s unanimous, no bubble.

But if you want a giggle check the spelling on the URL.. Sponsers? well I guess they study economics, not spellonomics.

Anyways, Tsur says no bubble in Vancouver.

“You can’t burst a bubble that wasn’t there,” said Somerville. “But you can have prices above where they should be and it not be a ­bubble.

“A bubble isn’t just defined by high prices,” he said.

Somerville identified a housing “bubble” as conditions akin to what was happening in 2007.

“It didn’t matter what the condo looked like or what it’s going to look like or who was building it, people were lined up around the block and snapping it up,” he said. “They were saying, ‘I’ll take 12, please.’ That’s more of a bubble environment.”

So there you have it.  We had a ‘bubble environment’ in 2007, but right now there is no bubble because very little is selling so we’re safe from a bubble that could burst.  We have prices that are above what they should be, but no bubble.

Read the full article in The Province.

Friday Free-for-all!

It’s a fine Friday for another fabulous free-for-all post, so let do our regular end of the week news round-up and open topic discussion thread!  Here are a few recent links to kick off the chat:

Central one hopes for slip, not plunge
Jurock: sales and avg price way down
Harper wants to destroy RE market?
Economists forecast 5-10% price drop
Hoping for years of stagnation?
Scotiabank: correction in TO & VAN
Realtors: Calgary will avoid downturn
Richmond Realtor warns of decline
Carney: Rates can go up
Canadas trade gap widens

So what are you seeing out there?  Post your news links, thoughts and anecdotes here and have an excellent weekend!

August 2012 Vancouver Market Outlook

B5Baxter posted this in the comment section yesterday, but the number of links tripped the spam filter and it was held up in moderation for a while.

We appreciate all market analysis and thought this one deserved it’s own post.

Here’s his summary of where we are in the Vancouver real estate market and roundup of forecasts:

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I have started to put together a monthly housing analysis update that I share with interested people. Here is the most recent one:
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Vancouver Real Estate Market Analysis – August 2012

July saw the lowest Metro Vancouver real estate sales in over a decade. Sales were lower than 2008 when prices saw a significant drop. And inventory has stayed near or above 2008 levels since the beginning of the year. That means that over the next few months we should see a drop in prices at least as great as we saw in 2008.

In 2009 prices recovered after interest rates were lowered and other government policies were introduced to stimulate the market. This time around there is less room to move interest rates and the federal government is signaling that they are interested in cooling the market rather than stimulating it.

The low sales and high inventory would indicate that we may be at the beginning of the long anticipated collapse of the Vancouver housing bubble.

Based on an analysis of price/rent, price/income and price/ gdp growth I am estimating that the current market is overvalued by 40-60% and we should expect to see declines of that magnitude sometime in this decade.

Average prices for detached homes in Vancouver have declined by 15% (www.yattermatters.com) from a peak in February. This is the first time we have seen five months of straight declines since 1996. Some individual asking prices have declined 20-40% (see: vancouverpricedrop.wordpress.com )

The Teranet index for Vancouver (usually considered a more reliable indicator than average prices of the overall market) has not shown the same decline. It has remained relatively flat but tends to lag other indicators. The REBGV index showed a 1.4% drop since May. This would be consistent with price behavior and inventory levels in 2008 when prices started declining in the second half of the year.

This graph ( http://vancouverpeak.com/groups/data-hounds/forum/topic/crash-curve-graphs/#post-2531 ) shows three of those metrics imposed on a graph of San Diego housing prices. I believe the Vancouver market is similar to the San Diego bubble market and the declines may follow a similar pattern.

If Vancouver prices did follow a similar trend to US prices we would see the 40-60% drop occur in 3-7 years.

Other estimates:

http://worldhousingbubble.blogspot.ca has estimated a decline of 41% and a time to bottom of 97 months (8 years).

The Economist magazine recently ( http://www.economist.com/node/21557731 ) stated that Canadian real estate is overvalued by 75% (this is an average for Canada, some markets like Vancouver may be higher).

http://alphahunt.ca has estimated a decline of “about 50%” from a March 2011 peak with a time-line of “5+” years

http://vreaa.wordpress.com/ has projected a decline of 50-66%

Pacific Partners estimates a 40% decline (http://pacificapartners.ca/blog/2012/07/18/canadian-real-estate-bubble-chart-book/#Table2 )

Investment Comparison:

During the last six months Vancouver Real Estate showed annualized return of 1.6% (using the optimistic HPI). During the first two quarters of this year the non-cash portion of my own strategic allocation portfolio returned 5.2%.

The Flat Market Fantasy

It seems that everywhere around the world that house prices lept up quickly there was always someone predicting a ‘plateau’.  The idea that even if the market is overpriced the correction won’t come in the form of a crash, but instead property prices will stay flat and wait for income and rents to catch up.  This prediction is of course being applied to the Canadian real estate market as well:

Matthieu Arseneau, a senior economist with the National Bank, likes mortgage payments as the best yardstick. That’s because the evidence tells him that the rise of interest rates from today’s bargain-basement levels will be moderate. Based on this, he thinks it’s silly to foresee a housing crash, since monthly payments won’t get into distress territory even by the time rates peak in about three years.

That’s why Arseneau dismisses apocalyptic talk about a housing crash in Canada. As a cautious analyst, he doesn’t rule out any scenario absolutely, but Arseneau said Monday that this one is awfully unlikely: “I think there will be no collapse unless there’s a worldwide recession and credit crisis.”

Of course these comments regard the Canadian real estate market, not the Vancouver market specifically.  Can anyone name any real estate markets that have reached Vancouver levels and then gone flat?

Full article at the Ottawa Citizen.