Nothing to see here...move along

We have Electronic Arts cutting 1500 jobs including a bunch here. We have Morgan Chase closing their Surrey call centre with the loss of 700 jobs, which followed close on the Ebay call centre closing last May which also saw 700 job losses... and here's what Kodak is doing http://tinyurl.com/yajcdhc
and yet RE is still strong!

That 1.5% Variable rate sure covers up a lot of outrageous pricing.

Who would have thought a couple of years ago, when we had our peak prices, that the US would be facing 10.2% unemployment and a real estate collapse, that BC's biggest resource..natural gas would be at multi-year lows, that BC and the Federal Government would be facing huge budget deficits and YET that our RE would be within spitting distance of those highs and in some other Canadian cities they would be at new highs??

Therein lies the power of devaluing money. Print it, pay nothing on it, lend it, spend it when you don't have it...ANYTHING to keep the worldwide bubble alive and well.

Maybe we are getting some $$ from HK. I just saw a BNN program on the price of RE in HK. If you think we are pricey here, you ain't seen nothing.

Meanwhile those pricey Olympic rentals aren't being absorbed. From the CBC:

Olympic rental market swamped with homes

Thousands of homeowners vying for Games tourists

Last Updated: Tuesday, November 3, 2009 3:49 PM PT Comments88Recommend33CBC News
Tanya Peters and Tyler Jones . (CBC)

The Olympic dream for many in B.C.'s Lower Mainland has little to do with sporting events or who makes it to the podium. They're hoping to rake in the gold by renting out their homes to tourists coming to the 2010 Games.

But it's not working out that way for everyone trying to take advantage of the opportunity. It appears the Olympic rental market has slowed to a crawl.

"There was that big buzz about people renting out their homes and making a killing on it," said Vancouver resident Tanya Peters.

Peters and Tyler Jones planned to get married in Costa Rica during the Games. Their vision was to rent out their house to Olympic visitors to help pay for the wedding. But so far, they have no takers, and now regret not hopping on the gravy train earlier.

"I know several people who rented out and did make a lot of money but they rented out a year ago," Peters said.

Corporations, teams and media outlets that needed to book homes in advance for big prices appear to have already made their bookings.

Jones and Peters have had their home listed on various websites since July. They have dropped their price to $3,000 for two weeks from $5,000.

A Vancouver couple hope to rent out this house during the Olympics, but find themselves in a market swamped with rentals. (CBC)
The explanation might be in the simple economics of the situation: There are more people who want to make big money than there are who want to spend it.

Thousands of homes for rent
"When the supply is larger than the demand, it's hard to maintain those price levels," said Bruce Fougner, president of Lloyds Travel Group in Vancouver.

Fougner estimated there were at least 6,000 homeowners in and around Metro Vancouver looking for Olympic renters right now. The majority of new rental listings were people wanting to get away, he said.

Jones and Peters say they are not giving up on their Olympic dream. And they plan to be on the beach in Costa Rica in February, no matter what.

But if they have to lower their price much further, it wouldn't cover the costs of additional insurance, fitting their home with extra beds and putting their valuables in storage, they said.

"We're not banking on it happening. But if it happens, that would be great," Peters said.

....getting us pumped up for the Olympics

It seems like we are not getting sufficiently excited about having an extremely expensive sports event and hundreds of thousands of people descend on our densely populated over-crowded strip of SE BC.

So we now have media ads featuring our Canadian athletes extolling us to support them, we have a news radio channel (official radio station of the Olympics) telling us how many great jobs are opening up in serving and bar tending. We also have the workers at Whistler being taught by some person from Disney University (yes it exists) and how to be a gracious host. Even Gregor Robertson was all excited about the Olympic Village today and one athlete was telling the media how great it was to be able to stay in luxury accommodation. Bob Rennie was reassuring them that the city wont be on the hook for the 1100 units. lets hope he is right.

Enough already!

There are some of us curmudgeons who really didn't want these games. We cant get around the city as it is. We think affordable housing is a better use of money than big ice rinks and Multimillion dollar ski runs. We don't want Hundreds of Millions spent on security. As for the athletes, we wish them well, very well, but the cost of hosting it here could have been better spent on them..help them train, buy them equipment AND have the whole event somewhere else.

Anyway we are stuck with it and all the inconveniences and it will bring. But please VANOC and major sponsors, spare us the..'we-are-doing-it-for-athlete's' BS. The developers and speculators have done VERY well out of this event. The politicians will feel important for a couple of weeks, and the Olympics have just become a contest of tallying who has the most medals which seems to me to defeat the purpose which is...what is it again?

October Numbers

As usual Larry Yatter is the first one out with the numbers for average prices:

http://www.yattermatters.com/real-estate/vancouver-average-price-october/#more-7284

They show that detached are within a hair of the highs and apartments and attached look to have surpassed their previous highs.

Well what can we say about the graph...as I said every 'bubble bursting graph' will look different. I gave some examples in this post:

http://fishyre.blogspot.com/2009_09_01_archive.html

It may be that we are following the more complex top set by places like Southern California :

http://www.doctorhousingbubble.com/wp-content/uploads/2009/01/socal-housing-prices.png

However I have to say, if we continue with these strong gains, then we may have to admit that a new up-trend has started...difficult though that is to believe...from these lofty levels, driven by all-time low interest rates.

I expect all Canadian cities to show gains.


Here is how it happened:

We are in the same position as places like Norway and Singapore. Norway is resource-rich, and Singapore is fiscally sound. We are probably both. When the crisis happened, interest rates world-wide crashed and many areas outside of the US and UK where banks had been completely irresponsible did not need this extra stimulus. The result was a new property boom.

The rates dropped to save banks and to help manufacturing, but what they did was reignite assets. Look at gold well over $1000 and property prices in many parts of the world started to take flight.

Some of these areas were Norway, Hong Kong, Singapore and South Korea and of course Canada.

Of course in the other jurisdictions they are doing something about it. In Norway they are raising interest rates specifically to cool RE. Regulators in South Korea, Hong Kong and Singapore told banks they needed to tighten lending, to nip the RE bubble in the bud.

Meanwhile what are we doing? We have a few words of caution from Mark Carney but no increase in interest rates, and the Government with one eye on the next election, is INCREASING the ability of the CHMC to lend at these over-priced levels.

We are truly setting ourselves up for a crisis. Both by feeding the fire of price speculation, and encouraging folks to get into the market with very little skin in the game AND at the lowest rates in history.

We should be doing the opposite. Waiting until rates are high and likely to go down, wait until prices have fallen and then help people buy..they would be getting in at the bottom of the prices an the top for rates not vice verse.

We are just setting these folks up for failure at the slightest rise in rates, drop in value or increase in job losses.

Enough said. Lets see what November brings. The October numbers were not heartening for those waiting for more reasonable prices.

What will the October numbers reveal...?

Will they be scary for the bears??

We really cannot go up much higher in price without jeopardizing the 'bubble bursting graph'.

Real estate has definitely cooled from the heat of summer, but is still being bid, supported mainly by incredibly low rates.

Five year variable rates are as low as 2.25% at ING!

No wonder some folks are saying..price be damned...the carrying costs are low....so I am buying!

As long as rates stay low, they are fine. Once rates rise they will be skewered and we will all be picking up the tab, either through CHMC bail-outs or our savings will be inflated away or home owners in trouble will get tax relief or other help.

Once again this potential crisis-in-the-making could be stopped right NOW. Raise the minimum deposits and severely restrict the CHMC are two first steps.

Heck put a Federal RE sales tax in place taking 1% from buyers and 2% from sellers, so when the banks start crying about foreclosures or the CHMC needs a capital infusion, the government has a 'sinking fund' to pay out of, not just throw the bill at everyone else. That extra 3% will help cool the market, then when RE strats to fall down, take it off.

Owning a home is not a decision to take lightly. A deposit must be saved, a potential rise in interest rates must be budgeted for, repairs and assessments (eg a special post Olympic assessment??) must be expected.

It is too easy to make an offer and sign on the dotted line and then wail when it doesn't work out.

If you have any doubts about that..take a look at the US. Despite the soaring stock-market, in the third quarter (which just ended) there were over 900,000 foreclosures in the US, the highest number on record...ever.

Who is the gate-keeper? The Commission-based Realtors and mortgage brokers who could be telling the buyers what they can afford and should not over-extend themselves? I am sure some are and some aren't.

Bank of Canada Governor Mark Carney made some weak noises about the housing market being frothy and people taking on too much debt at these low rates.

If he believes that he should walk across Ottawa to Stephen Harper's office and tell him we have the potential for another bubble, which will be supported, eventually, by the money of the prudent.

Happy Halloween!

Commercial Real Estate

Vancouver has some of the lowest CAP rates (% returns) on commercial real estate in North America.

Hot cities like New York and Hong Kong and London have teeny weeny cap rates and now Vancouver.

The reason is clear, we have a lot of money chasing very little product.

As we all know a lot of people come to Vancouver with money, they retire from out East, they come from overseas and a lot of people here are making big chunks of money. After a few years of almost no interest in the bank, many finally make the leap into commercial real estate to try and juice their returns. They like to keep it local, so they can keep an eye on it.

Some of our retail rentals (like Robson Street) are amongst the highest per sq foot in North America.

The logic is that while it may just be 5-6% return now, the market is tight and so rents will go up and in a few years you may have CAP rates of 8% or more.

Downtown rental buildings have had particularly low CAPs. Some selling with minuscule 4-5% rates.

The problem with such low rates for commercial rates...be it office, retail or residential.. is how easily the CAP rate can disappear altogether.

A renovation or an elevator which needs replacing OR A tenant who leaves or goes bankrupt (and the tenant-inducement needed to bring another one in) and your total returns for the year are gone.

Also any on-going weakness and the rents will NOT be going up, and in fact may go down to keep struggling tenants.

Looks like the total sales of commercial property have fallen dramatically all across Canada. Though Vancouver was saved somewhat by the big ticket purchase of Bentall V by a German Pension agency. This seems like an expensive buy to me, especially in this environment. They must have a lot of faith in Vancouver:

http://tinyurl.com/yz2fzzs

This is absolute Lunacy...

I really cannot get over the fact that Harper's Government is almost doubling the CHMC's ability to lend in just over a year.

What are thinking? What happened to the fiscal Conservatism?

Think about it..if you are a bank lending officer and sitting across from you is someone who has, with great difficulty, saved 15-20% down-payment but is subject to the vagaries of the job market or someone who can only scrape together 5-10% but has a government-issued CHMC guarantee behind them...which would you lend the most money to?

I know the concept of the CHMC is laudable. Help low earners get on the property ladder. It was the same rationale used by Fannie Mae and Freddie Mac and the HUD in the US.

In fact what happened was a catastrophe. A lot of these folks were too extended to get into their purchases, had very little 'skin' in the game and with the smallest drop they lost their equity and stopped payments.

Lower income earners are also, unfortunately, the most likely to get hurt first in a recession.

'The federal government has quietly given Canada Mortgage and Housing Corp. more financial muscle, raising concerns the multibillion-dollar agency is expanding at an unprecedented pace with little oversight.

For the second time since the beginning of 2008, Ottawa has raised the amount of mortgage insurance CMHC can have outstanding. The increase moves the cap to $600-billion, up from $450-billion and nearly double the $350-billion limit in place at the end of 2007.' Globe and Mail October 21st.

What does this all mean? It means when, and if the second round of the recession comes in 2010, there will be nothing left to fight it with. The Provincial and Federal Governments are already tapped out and the Federals will be dealing with CHMC losses and Baby-boomer costs. There will nothing left to stimulate with.

We will be forced to live within our means.

The governments here have made many decisions, some good and some bad, but this is one of the worst.

To 'Help' people to get into housing when the economy is so uncertain, when the prices are near or at their peaks, when interest rates at so low and could conceivably double in the next few years, is....IMVHO ECONOMIC LUNACY and purely political!!

The Perfect Storm

They are showing the Perfect Storm on TV.

Are we setting up for the Perfect Storm in Canada?

Maybe.

Exhibit one...exploding deficits like this one:

http://ca.news.yahoo.com/s/capress/091022/national/ont_economy


Exhibit two...completely oblivious to the foolish errors that took place south of the border, we are marching to exactly the same drum:

'The federal government has quietly given Canada Mortgage and Housing Corp. more financial muscle, raising concerns the multibillion-dollar agency is expanding at an unprecedented pace with little oversight.

For the second time since the beginning of 2008, Ottawa has raised the amount of mortgage insurance CMHC can have outstanding. The increase moves the cap to $600-billion, up from $450-billion and nearly double the $350-billion limit in place at the end of 2007.' Globe and Mail October 21st.


Insanity: doing the same thing over and over again and expecting different results. Albert Einstein


Wave one. The crisis hits. Governments and policy makers did nothing to prevent the onset, but now throw everything at it, everything they have.

We go deep into deficit.

The crisis is averted, for now.

Asset bubbles reignite..RE here, Gold and Oil worldwide.

Wave two hits. They have nothing to fight the fire with. How can a Provincial Government which has a $25 Billion deficit pay for it's regular programs, never mind expand??

We hit the Perfect Storm.

Is this scenario likely? Maybe. Not many economists are even mentioning it as a possibility. Yet it is very possible. All governments are facing increasing expenditure and declining revenue...and add to that the baby-boomer entitlement programs and it is hard for me to see how this can end well.