Friday, August 14, 2009

Up-date

There is no sign of a slow-down in our housing market so far. Maybe it is the last rush to buy before school starts. However the numbers are far from bearish, with 100% sales/list or higher the last few days in many areas.

To look at Vancouver RE you would think the world was in the midst of a rip-roaring boom not a near depression.

If I had to guesstimate it, I would say prices are flat but clearly not dropping with this level of activity.

The right shoulder mentioned in the chart below may take some time to play out, but if we see prices move up higher, then the comparison with the bubble graph, or a head and shoulders top will lose validity.

Anonymous said...
What 'event' would cause the second part of that graph to play out?

It seems inconceivable that we are just on the edge of another major drop, but anything is possible


There are many things. Putting aside the black swan events which of course cannot be predicted, there are some likely suspects out there:

1) A slow down in China. We have increasing correllation with the Chinese economy (HK, China, Taiwan and you can add Korea). Not only do we have significant numbers off-shore buyers from these countries but their demand also detemines the price for many of our commodities.


China's rebound has been quick and impressive. It took a huge infusion of stimulus and orders from the government to the banks to lend or else..but it worked to stop the Free-fall and produce some domestic demand which will have to tide China over until the rest of the world recovers. However their recovery and need for commodities is still very fragile and I could see a weakening in demand later this year or early next.

China is truly an economic miracle, but the juiciest rewards may have been restricted to those with the best contacts. The fruit doesn't fall too far from the tree according to this report:

http://tinyurl.com/njcpn7

Any renewed weakness will not be well received by the rank-and-file, and could cause some social problems.

2) Interest rates. We have seen interest tick up slowly from the lows a few months ago. If we start to show some economic strength, ironically the rates will move higher and start to impede that very growth. Am I predicting that..no. It is just something to watch.

3) The Swine flu bears watching. Hopefully it will not make a big come back and restrict travel, spending etc and add to deflationary pressures.

4) A double dip recession. We are seeing some stabilisation in the US and elsewhere. However this is happening from a very low base. Unemployment sits at 9.7%, a rate that is almost unheard of in the US. If you add in the number of workers who are employed, but working on reduced hours, it would push the rate up a few more %.

Were we NOT to stabilise here, we would be looking at a full scale depression.

I think the recovery will be tepid at best and then there is a very good chance that we stagnate or start to sink again. However I do not have a good feel for the time-line, whether it would be in the next year or even longer that this happens.


I am sure you guys can think of lots more reasons too. Lets see if this pressure cooker buying keeps going or we settle to a more balanced market (and dare I say even a bear market again) once fall comes.

15 comments:

  1. A few remarks.

    The Vancouver RE market is still going because of government backed lending into the maw of the recession. This will not end well for the taxpayer.

    http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html

    Also, do not expect China to save the world in the short term. They have been stockpiling commodities to diversify away from the USD, but their economy is neither healthy nor strong.

    http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6011674/Credit-tightening-threatens-Chinas-giant-Ponzi-scheme.html

    Interest rates should not be a problem for the next few years, unless there is a strong recovery, which I am betting against. Swine flu is also a non-issue. It's all media hype, and I've actually travelled to a country where guys with facemasks check everyone on entry.

    The only reason people seem to think there is a recovery at all is that the stock market is going up. It is current 140 P/E and up to 700 P/E on forward earnings estimates, levels that have never been seen before. It got there care of free money from the government (stimulus and federal reserve), a falling USD, and completely fraudulent quarterly reports and balance sheets. Insider trading is at an all time high.

    http://www.market-ticker.org/archives/1322-Another-Bottom-Caller-Remember-This-One.html

    Expect another crash. For all the hype, it's not clear whether the US economy has even stabilized. The freefall stopped, but it's not clear whether this is a recovery or just a ledge. There are good reasons to suspect that calls for a recovery are premature.

    In the US, foreclosures going way up now that the moratorium has ended, and half a million people are losing their jobs every week. The entire stabilization in the unemployment rate is due to dropping people from the count.

    http://www.calculatedriskblog.com/2009/08/weekly-unemployment-claims-increase.html

    http://www.calculatedriskblog.com/2009/08/foreclosures.html

    In short, the very same people who said there would be/was no recession, when all the data suggested otherwise, are the ones now talking about a recovery. It's like something is broken in their brains, and they never left the cheerleading squad. The stock market thinks it's going back to 2007, which is simply delusional.

    In my opinion, we're probably going to see a change in consumer sentiment towards saving money and paying down debt, simply because anyone who doesn't have that attitude is probably bust. Credit is decreasing in both supply and demand, which is causing deflation.

    http://globaleconomicanalysis.blogspot.com/2009/08/misguided-worries-about-inflation.html

    When the stock market finally prices in deflation, things will get *ugly*.

    ReplyDelete
  2. My theory at the moment is the FTBs have bought. But every FTB triggers multiple sales. FTB buys condo, condo-owner buys house, house-owner buys retirement condo etc., until finally someone leaves the market (ie. rent or move away).

    This could take a while yet, but when its done, its done.

    ReplyDelete
  3. BTW earlier in the year, many more condos were selling than SFHs because FTBs were buying. Now you'll notice more SFHs selling relative to condos in the last few weeks.

    ReplyDelete
  4. Best place on methAugust 14, 2009 at 6:16 PM

    For Vancouver there are many more events lining up against real estate.

    Olympic construction projects wrapping up - more layoffs.

    End of tourist season - more layoffs.

    After Olympics - more layoffs and condos come onto the market by the thousands.

    Next summer - HST and rising interest rates.

    This is a perfect storm forming.

    ReplyDelete
  5. To be honest, the anal brushings are what got us into this mess to begin with. I can't believe the size of the prepu after-market. IMHO

    ReplyDelete
  6. More on the "boom" in China. http://tinyurl.com/ltrvk3
    Might not be as strong, real and sustainable as it seems, to put it mildly.

    ReplyDelete
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  9. Guess I should be honored we finally have a troll here.

    Alexcanuck- China could quickly become unstable if there is wide-spread unemployment and hardship.

    Best place- yes to all of those.

    Patiently- I think you are right. The buying push started iwth lower price homes and now I see mutli-million houses that have sat unsold suddenly being snapped up.

    ReplyDelete
  10. Interesting aricle today at FT regarding the market rally
    http://tinyurl.com/n9a9sk
    Sitting in cash (sold all my stock market positions last week) and happily renting here. I love it when the landlord come to cut my lawn while I get my aperitif on the nice balcony with the ocean view.

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