Tuesday, April 20, 2010

The End of Easy Money?

April 19th has come and gone- good riddance. The worst of the lending excess will be curtailed.

Of course in my opinion the whole CMHC should be shut down, or at least put on ice. The tax-payer has no business being exposed to the liability of insuring mortgages that the private sector wouldn't provide otherwise.

It is just adding liability on top of all the other liabilities we have burdened the future generations with.

At least put the huge behemoth on ice until there is a correction. I would have thought that was obvious. The last thing you want, is to insure mortgages at all time high prices and all time low rates.

Wait until it hits the fan - rates are higher, prices are down and no-one can borrow money. Then you can bring the carcass of the CMHC out of the deep-freeze to help get the wheels of RE moving again. It would make more sense and reduce the liability risk. But that would be too logical.

Talking of not being logical, the Bank of Canada basically said today that it is thinking of raising rates- PLEEEEZE!

Either raise them or shut up.

We are at 0.25%. Would the world have come to an end if we had gone to say...0.5%?? Of course not! It would have just sent a message that they care about savers and borrowers better be careful.

But by trumpetting this possible, maybe, we'll see rate change, they give every last speculator time to load up on debt, preferably government insured.

I think Mark Carney spent too long at that den of speculation (and possibly fraud) Goldman Sachs.

Larry Yatter is showing some nice price drops in Cambie and Kits. Inventory is moving up nicely. Anyone buying from now on, better try and get a good deal, as the winds are blowing in your face.


  1. BTW- watch the sales and price chnages. paulb posts them on VCI and Larry does too.

    In 2008 as it was getting closer to the fan- the price chnages started to out-number the sales. That is always demoralizing for sellers and their agents, to see more houses dropping their prices than selling.

  2. In 2008 prices started dropping once inventory was in the 16k range. We are there now, and I'm thinking we will be seeing price declines going forward, ie, in the May benchmark, if not sooner.

    When next year's spring bounce fails to materialize true panic will strike and it will be a decent time to climb out of the cave and get to lowballin'. The most patient bears can continue to enjoy the continuing real price drops, since the rebound will be weak and many many years away.

  3. I visit this realtor site regularly (www.austinkay.com)

    On April 18, there was 1 property with "New Price" sign

    On April 19, there were additional 3 "Reduced" or "New Price" signs

    The trend is changing!

  4. Panda- I think inventory is the first step. However we require a 'trigger' to really get things rolling downhill.

    In 2008, inventory went up and prices softened, but it was the credit crisis that sent the fear of God into everyone and started the major price drops.

    Inventory is the tinder- not sure what will start the fire- interest rates? another credit shock?

  5. Low interest rates and CMHC requirements and fear of being priced out means the last few years have taken lots of demand from the future. Supply will be up since investors will need/wish to sell cash flow negative properties. Many will have no stomach for waiting around when prices level off or drop. Also there are still a lot of condos to complete in ground zero-the condo market. Those buyers may not have the capability or the fortitude to complete with the higher CMHC requirements.

    So I think the market will crash under its own weight. BUT add in another contributing factor, eg a crash in China's RE and the process will be accelerated.

    The one thing that can mess up the cycle is government intervention...nominal declines may be less than the bears are hoping if the government sets its mind to it.

  6. What you need for price drops: three months of buyers with cold feet and a ton of properties for sale. Vancouver has the latter in spades.