Monday, May 24, 2010

California Dreaming...


  1. BTW- nayone notice the melt-down in the Asian stock-markets over-night from N. Korean sabre ratlling?

    We are down a big chunk too, and the dollar fell another 2 cents. This makes the Bank of Canada more likely to renege on their rate hike signalled for June.

    They will be stapling $20 Bills to cereal boxes soon.

    I hear they are heading to Zimbabwe to learn how to 'get the money out there' :)

  2. Hm. I thought with Case-Shiller that in the long term it sits around 100 - which suggests to me the possibility of MORE American pullback. I'm not sure I'd go bearish on those markets, but I also would be somewhat cognizant there could be even more downside. Although I must say I'm surprised at the "relative" strength.

    (However, it's quite possible that 2000 was a trough in some of the markets.)

  3. The index has been set to 100 for the year 2000 in this graph. There is no reason to believe that prices will end up at 2000 valuations. The graph could have been started in any year, it is completely arbitrary.

  4. Prices continue to fall in the US, more foreclosures expected this year due to more resets in 2010-2011. Also there is the issue of shadow inventory, banks holding onto property without foreclosing/listing on the markets, otherwise the new inventory would swamp the markets, causing further downward movement. Plus economic conditions in the US do not seem very strong.
    No, I don't see any stabilization in the US RE market right now. Only Canadian fools are buying, thinking that it's "cheap" and can't possibly get any cheaper. Think again!

  5. Why would a weak dollar cause the BoC to "renege" on a supposed interest rate hike (which it hasn't guaranteed by the way)? Wouldn't it mean it has room to move rates up without blowing exchange rates out of the water?

  6. The CAD is dropping because of commodity weakness and the stockmarket has been weakening.

    The BoC probably doesn't have the cajones to add a rate hike into the mix.

    Even though a weakening CAD will add to inflation risks and should be an impetus to normalise rates (ie nearer 2-3%)

  7. West Van 10 new. 11 changed. 1 sale. bwaahahhaha (ooops sorry about that!)

  8. I don't think the BoC can afford the Greenspan doctrine: set monetary policy to make the stock market go up. If the bond market gets a whiff of that then Canadian debt will be toxic, and this country doesn't save enough to cover the difference so interest rates would definitely go up. We would be sitting ducks.

    In short, there's a big difference between what this country can expect to do and what a country with world's reserve currency and by far the largest military can do (and has done). And the Americans had help. They would not have been able to pull it off their ridiculous policies without the cooperation of China, which bought and held all that American debt to maintain a trade advantage, impoverishing its citizens in the process.

    In short, the market has priced in an interest rate rise of +1% this year. If that does not happen it will be a surprise given the track record of Core CPI and employment, and the market will react accordingly. The BoC has repeatedly indicated, for months now, that the economy was improving faster than their initial projections and that inflation was higher than expected. Then they removed the conditional commitment.

    They will raise interest rates in June or July. It is almost 100% guaranteed. The question is by how much? I think it will be 0.5%, with another 0.5% to follow in the fall. Not a lot, considering the housing bubble is already imploding.

  9. The BoC is more into inflation targeting than the Fed and, despite their words, are likely watching the housing bubble closely. They probably don't have complete faith the bubble has popped yet and are unsure if their changes to CMHC policy will be enough to bring it under control.

    I don't know much about Carney but I have read some of his papers. I'm pretty sure he's looking at the house price to income and debt to income ratios with both eyes open.

  10. Today the OECD economists told the Bank of Canada to normalize rates asap.

    Apparently prolonged low rates cause speculation and encourage consumers to go deeper into debt. No? really? Isn't that what we have been saying for over a year now.

    The markets are recovering. Maybe this will be the final push to give Carney the balls to raise rates.

    Will it cause a housing crash, like some bears are forecasting (hoping) It will just take a little froth off. It will be very slow and very small and will be reversed at the first sign of weakness.

  11. We dont have to wait long. The next interest rate announcement is on June 1st

  12. I wonder what Carney will do...I suspect he might take a "hold" position...though to me this is not a smart thing to do, as we are in "recovery" mode, there is no need for these emergency interest rates. So who knows.

  13. June 1st, we will be analyzing the decision right here.

    BTW West V 11 New 8 changed 2 sales. Lots of multi-hundred thousand dollar price reductions- just goes to show you where the original numbers come from- and anyone paying asking in this market IMVHO is a fool or too rich.

  14. And here I've added Vancouver with the Teranet index scaled by 100/70.

  15. Looking at the graph, I guess the real question is, are we San Francisco or are we New York? Hmm, which one has the big orange bridge?

  16. Also worth noting: the BoC rate vs the Federal Funds rate:

  17. Just for fun take a look at what happens if we start the graph in 1990 instead of 2000.

    LA looks way higher in the first graph because prices were depressed there in 2000. Just wanted to reassure everyone that Vancouver isn't just some average bubble city.

  18. RP and Vibe- the Vanouver graph was following every other bubble city when three things happened:

    1) Interest rates were slashed by the ''

    2) the CHMC was boosted up to the stratosphere,

    3) China rebounded due to their huge fiscal program.

    These three pushed the graph higher, in a V-rebound- confounding many of us.

    The US did the same, but they are a much larger market, less dependant on China and their lending was more dysfuctional ('was'- we have now cuaght up), so their graphs kept heading down.

    Instead the money went into a V-bounce in their stock-market.

    Like I said before, the last refuge of the bearish-chart reader is to say we have a divergent-5th wave.

  19. I would say Vancouver was following the path of the very worst bubble cities, that was the point of my post. The first graph made it look like we were somewhere in the middle.

    Take another look at those graphs and you will see that the US had a similar spike in prices at the exact same time as us. In absolute terms it looks smaller but I think in percentage terms it is similar in many cities. This temporary blip shouldn't have any affect on the final outcome in either country though.

  20. I think the first graph is fairly representative. Vancouver is comparable to San Francisco, and the only US cities which went higher (proportionally) are Phoenix, San Diego, Washington, and Los Angeles. Phoenix was simply crazy, and the other three cities are much richer than Vancouver. San Diego has a major military presence, Washington has dirty money, and LA is huge and has always been susceptible to insane real estate bubbles.

    Look at Vancouver, Seattle, and Portland. They all rose together, and due to the insane policies of our Federal Government, up to and including outright lending that the private sector would never do, Vancouver just kept going up and up.

    I'm beginning to think that we're all going to end up like Chinese peasants. Even homeowners won't be able to keep up as inflation spreads from houses to the rest of the economy. Cashing out will provide only temporary relief.

    I guess we'll find out if the Bank of Canada has any integrity or not.

  21. I really could go on for far too long about how every single bear argument made here is completely incorrect and I would ridicule the bears intelligence here if I didn't think their absurdly stupid conclusions were based on an inbred inherent bias, therefore I give you all a pass.

  22. Chad...back to bait us poor bears.

    Well, educate us on what you see ahead for the housing market in the year ahead.

    We won't hold you to it :)

  23. I think the BOC will raise rates a quarter point Tuesday, because they kind of have to.

    I will be very interested in the language that accompanies it, though. I expect comments like, "strong domestic demand, housing sector strongly rebounded, improving job market.....".

    Will they put something in to expect more quarter point hikes, like every primary dealer is expecting at every meeting this year?

    These rate hikes are less important than what is happening in the cyclical private sector of Vancouver right now, ie jobs vanishing forever in some cases.