Friday, May 22, 2009

Not much to say this week...

The Canadian banks have been down-graded by Credit Suisse who thinks we still have some fiscal pain ahead.

Japan is in bigger trouble than anyone thought, with a 4% first quarter drop in GDP. That is enormous. Since then the Yen has appreciated against the dollar so expect more of the same, as they are an exporting nation.

The Canadian Dollar has had a nice little run, which I have used to buy some US dollars for trips and shopping. Everyone is abandoning the US Dollar as they think the US government is going have to bail-out companies and issue debt for a long time. They will, but then so will every other government. So I am betting within a year the USD will move much higher once again.

The UK had it's rating put on 'credit watch'. Now some of you may think that it is impossible for a first world sovereign nation to be put on credit watch. It did happen to the UK in the 70's when the IMF had to pull them out of the ditch. However it goes to show you how bad things are.

I do not think we are out of the woods by any means.

I am seeing a slight drop off in sales for this week, and lower prices on the sales. The froth that built right after the big mortgage rate cuts, is diminishing. Folks are beginning to realise that there is no point taking on a $1M asset, loaded with debt, however low the rates....if... there is a good chance you they not be able to make the payments in a year, the asset is no longer appreciating, and they end up having to sell and lose your equity.

What are the rest of you seeing out there?

I am seeing consternation amongst the bears and even the most bullish Realtor bloggers are expressing surprise about the market strength. No surprise at all.

About a year ago, when the market was it's feverish heights, many bears (myself included) estimated that the market was 40-50% ABOVE the affordability level for this city.

Well we were right, it's just that the mechanism of correction wasn't what we expected. We expected housing prices to drop 40-50%. Well as we all know, sales went into free-fall from Oct 2008 and we hit 20 MOI.

Then the Central banks cut rates to near zero. The net result is a 12-15% drop in prices and 30% drop in mortgage payments, which gives us our 40%+. The payments have come down to the affordability level of a year ago.

So am I buying? Not yet. Note above I said the affordability of a year ago. I think we live in a very different world from a year ago. In the interim many large banks in the world have teetered on BK and have been rescued by tax-payer money.

Two of the big three auto makers are moving slowly into bankruptcy, even Toyota has suffered it's first loss in 70 years!

So this is not the same world. I doubt many of you reading this blog will get much in the way of pay raises if you are an employee, or make as much money as last year if you are self-employed.

So the affordability level is actually lower now than last year and I would expect housing to have to correct further. How much further? Well that depends what happens to interest rates. they cant get lower, but they can go up, as is happening in the US now. As rates rise, the prices will have to adjust for that as well as lower earning potential.

Meanwhile I found this sad tale on the Internet. The dirty side of a reckless boom going bust:


  1. As someone looking for a condo in the $400-500K range downtown, i see multiple offers and properties priced 10% higher than April-March in the same building :(

  2. Luc. I am seeing some of boil coming off SFH, but must admit I have not been following d/t condos much.

    I think there will be a lot of inventory that will be coming on- however lower interest rates have made it more affordable to own. The economy will trump both.

  3. I think we're just seeing a brief rally, in housing and in stocks, both of which will crash again come fall (or sooner). People are losing their jobs all over, things really aren't that great. However, the media keeps trying to tell us that things are "turning around". Based on what, I don't know, maybe just a belief that if they keep saying it, it will come true. People buying stocks and houses right now are suckers, hence the term "suckers rally."

  4. I am seeing continued weakness in the rental market. As employment (and average wages) fall, even more pressure on the rental market is coming over the next year or two.

    With high prices, low interest rates cannot completely compensate for wage deflation. It will slow price drops down -- in fact this is a natural compensation built into the financial system -- but the end destination has not changed.

  5. The Lost Vegas story was eye-opening. Coming to Vancouver soon.

    BTW is anyone else having problems with their WordPress ID?

  6. Really great 2 week old news

  7. Hi, my name is May13 Anon (Fish wants me to pick a real name). And I brought a house last week.

    It was a very strange feeling after firmly believed this Vancouver Market will drop at least 50% for a long time.

    There were a few things happened in my situation made me to change my mind. The numbers works out good in the purchase. Since it was a family deal, we were able to pick up a Town house in a pretty good area of East Vancouver (Killarney), plus the low interest rate. My mortgage for the next five years would be around 1200. And we also arrange the deal, so we don’t have to pay the darn CMHC 1 penny (that is very important for me). Yes, the interest rate could be 15% five years down the road. But I could have hit by a truck as well. That's life.

    What hits me the most happened couple weeks ago. As I was riding my bike to home I saw groups of people gather outside. You know these people too. They are usually three in a group. One well dressed person accompanying an anxious couple standing on the sidewalk. Yes, realtor + would be home buyers. Mind you, there is not just one group but 4!

    I was thinking: good god! When will these people go away! We saw BC poverty rate and EI claims soared this year. Who are these people? I have no idea, but I know there are plenty of these people out there.

    I well aware this decision effectively kills my dream owning a SFH. But oh well, I want to live in Point Grey too.

    Now the darn mortgage broker hasn’t returned our calls. Which means he is probably damn busy.

    My bear friends, what is your take?

    P.S 5 yr fixed is 3.55, should I go variable?