Saturday, January 9, 2010

I'm back

Hope everyone had an excellent break.

The RE numbers have continued to be bullish. The end of last year was a steady and panicky stream of buys, near asking, in many Vancouver areas.

The December stats show a new high for average prices:

There are not many places in the world, one year after the credit crisis, which show new all time highs in their prices..maybe Hong Kong and Shanghai- due to the Chinese Government stimulus, a few smaller European countries like Norway, and of course Canada.

If you had told me a year ago, in the midst of the near financial collapse, that in one year the following events would have happened; Dubai would have nearly defaulted, Greece, Spain and Ireland would have their debt downgraded, one hundred US banks would be closed due to insolvency, the unemployment rate in the US and Europe would be over 10%, we would have 8.5% unemployment in Canada and move up to 8.4% in BC (just before the Olympics and all) AND residential RE would have moved back to all time highs, I would have thought the two scenarios impossible to co-exist.

But yet it happened.

Of course not everywhere has bounced right back to new highs. In Kelowna, where I just returned from, there was a much more muted rebound:

In Victoria, a strong sales number this year, did not prevent the first year on year decline in average prices (that's 2009 compared with 2008) since 1998.

Fraser Valley had a rebound from last year, but not new highs.

Places which deal with the real economy, ie making and mining things, like Prince George, have seen drops in both sales and prices from even 2008:

So will the strength move out again to the rest of the province, or will the boom die out in Vancouver too.

Now we have 2010 to deal with. Here are some themes:

1) So far we have seen a little flood of listings, with less sales. However the list prices are high and in some places, we are back to 'wishful pricing'. We will have to take any stats coming between now and the Olympics with a huge grain of salt. No one knows what will happen in the next 30 days and then we have 30 days of probably very little action and then the market will reveal itself in all it's glory. After the Olympics, I hope to post the weeks of inventory again.

2) Flaherty the Federal Finance Minister - who is no coward when it comes to dealing with thorny issues- remember he got rid of the tax-free trusts- is finally making some noise about the bloated house prices and the problems that this could cause. How this jives with the expansion of the CHMC's lending capacity is beyond me. It's like pouring gas on a fire, and then wondering why the flames are leaping up.

Once again I say = aiding and abetting low-income or even high-income folks to get into over-priced houses, with high leverage mortgages, while interest rates are at all time lows and prices are at all time highs, and transferring that risk from the borrowers and the banks, to tax-payers is stupidly negligent at the least. Especially as we have just watched the failure of this very same policy in the US.
This will NOT end well.

Governments should encourage affordable food and housing and healthcare.

They should not enrich one group (owners and developers) by helping others, who cannot afford it, pay inflated prices for an asset.

Anyhow, if Flaherty is serious, then we may see some of the more reckless activity taken out of lending.

3) Is this the end of the recession? What recession? A couple of points more on unemployment- it didn't feel too bad here in BC. For that we have to thank the Chinese Governments huge stimulus package, the US government and UK governments back-stopping their willfully foolish banks (and AIG) to the tune of One Trillion Dollars and zero interest rates.

The net result was a stabilisation of banking and a re ignition of speculation. Gold, Commodities, stocks and RE- anything but cash- which was king a year ago but now is a pauper.

Of course we are very far from being out of the woods yet. The governments cannot keep writing checks and eventually the huge deficits will have to be acknowledged. When that happens, if the private sector has not recovered enough, part 2 of the recession starts. On the other if we get an economy on fire again, then interest rates will spike up in anticipation of inflation, and squeeze borrowers (of all types).

So the policy makers have to try and engineer a smooth recovery, without too much inflation, and without a double dip. Good luck to them. Their play book says = if a bubble deflates, blow up another one.

I think there is any point trying to predict any of this. It is too much of a crap shoot. We have had many respected analysts from Robert Schiller to Mike Shedlock saying Vancouver is grossly over-priced and a correction is due. However, apart from the frightened drop late 2008 and early 2009, we have had remarkable resilience in prices.
We will have to look at the tea-leaves after the Olympics, an event which will inconvenience the locals, cost us a fortune to stage and police- but we can at least be reassured that our politicians can have some well deserved time in the international spot-light and some contractors and developers have made nice fortunes out of it.


  1. Welcome back, fish. The government needs to figure out how to pull out of a deflationary spiral. We know Carney is acutely aware of the need to control country-wide asset bubbles or risk greater damage in the future. They best lever they have is changing leverage ratios on assets that are starting to froth up. Using interest rates as the only tool is a blunt instrument and I think the finance ministry is slowly starting to understand this.

    Note it took noticeable asset bubbles in Ottawa and Toronto before the government and Bay Street economists started sitting up straight.

  2. Interesting that this current RE boom has been mostly lower mainland-centric. I also checked out the Kelowna market and was astounded to see that houses on my old street are selling for low $300k (4 bedrooms!) while just a year and a half ago, my old house went on the market for $500k and sold for high $400k, similar to other houses on the street. Big change, probably in part because people have left the Okanagan in droves, without those high-paying construction jobs to keep them around. Will the market see similar declines here?

  3. Could this be one reason for the Real Estate boom here and in Australia

  4. Yesterday was a big listing , low sales day. FWIW