Wednesday, October 16, 2013

Got to shut it down for now...

Sorry friends I have to close the blog for now due to personal circumstances. Maybe one day in the future it will pop up again. It has been fun reading the tea-leaves of RE, and then some, for the last few years.

Wish you all health and success whichever side of the fence you are on.

Thursday, October 10, 2013

A graph to digest...

Not able to put up a proper post, just more food for thought. THIS is why so many of us are bearish (and yet we have been confounded by the tardiness of the correction)...

Source : BCA Research

Wednesday, October 2, 2013


The Averages powered up in September per Larry's numbers.

Not altogether unexpected. While not as strong as August, September this year was a lot stronger than 2012. Was this the last of the pre-approvals going through? Certainly there seemed to be a division later in the month with lower sales/list showing up.

We have also had some big sales. As I documented earlier in the month, there were two $7 Million + sales in West Van alone (and a slew of $4-5 M sales). One was to a local buyer and one to a HAM from what I can ascertain. These numbers certainly baffle me. To spend $7 M on a house, requires a net worth at least twice that, and at a tax rate of even 30%, that's over $20 Million of earnings!

How many people have that sort of income?

Then I remembered that some banks were paying their senior executives over $10 M every year as was Telus.

MOI ends the month at over 7 for SFH and 6 for Apartments.

The bubble is not restricted to residential BTW. I spoke with a  commercial realtor a few days ago and he said there is so much money in this town looking for a home, that yields on smaller, good retail and office packages have reached silly low levels.

The money is local professionals looking for diversification, Eastern retired money and of course hot offshore money. "If there is a tenant turn-over, the lost rent and expenses associated with tenant inducements and costs can bring the yield down to zero for that year. They just want a low yield in a tangible asset that can keep up with inflation. Of course if there is a serious recession in our city, there will be a LOT of unhappy landlords".

He explained that is one reason for the high turn-over of tenants in particularly retail businesses. "The rents are just too high". For example it is cheaper for a landlord to leave a unit empty until it finally rents, even to a weaker tenant , and lose the few % return while he/she waits RATHER than lower the rent much.  If you lower the rent say 10%, that could drop the value of your property significantly in this bloated market, where every dollar of return is accounted for in the price.

Whence go we? The pre-approvals must be done. The market now sinks or swims on it's own. I suspect the HPI will still come in lower for September (it will if compiled fairly by the REBGV IMHO).

We should know soon if this is the case. As for the blog, I will be going fallow for a couple of weeks. I have a few matters to attend to and hope to be done near mid-month. If all goes well, I will return with commentary and the numbers at that time. May throw stuff in the comments from time to time.

Have a great October.

Sunday, September 29, 2013

Some anecdotal stuff

This conversation was over heard on the GG Gondola by a friend. Not by me, but by a friend who is reliable and does not exaggerate.

Lady. "I am 53 and thought I was going to retire when I was 60, but I just took out a second mortgage to help my son buy an apartment. That just buries me in debt again".

Friend: " I am even older and thought I would be free of debt by now, but my mortgage hasn't been paid out, and I haven't been able to clear my credit card debt before another holiday comes along".

Male friend: " I recently went into my bank to get an higher limit on my credit card for a month, and the   bank employee kept trying to sell me on getting a $25,000 line of credit. "Just sign here and $25,000 will be deposited into your account".  I had to fight her off.

They then discussed how the banks almost forced debt on people. "Quite the difference from a few years ago, when you had to prove you could replay them. Now they don't care if you are nearly broke with debt. "Just get more debt to pay off the old debt."

Then another occupant of the gondola spoke up and said he worked for CIBC and that they had quotas of credit cards and personal debt to meet, and if they don't there was pressure from Managers to get there, that's why they kept pushing customers to get into more debt.

That is were we have got to. The banks have become drug pushers. Except the drug is debt. We are supposed to hope the addict will quit using themselves. And if you can't get your drug from the banks, there are dozens of fringe outfits willing to give you money..'If you have equity in your home'. Which just drains whatever equity you have managed to build up in your home.

This can only end badly.

Wednesday, September 18, 2013

And then some....

The US Fed blinked. Actually it did't blink, it closed it's eyes and assumed the fetal position.

After talking tough about backing off on buying the US Government debt (the definition of ponzi btw), it stood pat and said.."we will..we will...keep buying! forget what we said earlier this year".

Actually it worked out ok for me, as my poor preferred shares which had been beaten into mush caught a bid.

However it did bring interest rates down a notch now that everyone sees the Fed for the blow-hard-but-do-nothing that it is.

The Canadian bond market which is tied by it's apron strings to the US one also got a bounce and rates dropped.

Now how about September? What are we looking at. Well so far it looks to em like we are going to get some weakness in the HPI and averages for the month.

I see mid range homes (would be super upper end anywhere else) $1.2-$1.6 M selling for a 4-8 % below asking. Of course the asking prices are pretty crazy, made up numbers , but that didn't deter the delusional buyers before.

I have said before that if September didn't show some weakness that I would probably suspend or close this blog but it looks like you may have to put up with me a bit longer. 

Sunday, September 8, 2013

What are you doing with your money while you wait?

Assuming you are waiting to buy or have decided not to, then you have a nice pile of cash building up. What are you doing with it in this forced low rate era?

None of the Central banks (UK, Canada, Euro), despite talking tough about soaring consumer debt have had the balls to increase rates. We are STILL sitting with rates at emergency levels and below inflation.

So what options do we have for our money?

Well a few and none are that enticing.

There is the GIC. Rates are pretty low at the moment. The banks still haven't budged much from the 1.0-1.4% for a one year fixed. You can get a little more by bargaining with your advisor. This has always irked me BTW. Why not just post better rates for everyone. Our banks, like our telecom carriers either need competition or serious regulating.

I just picked up 1.8% for a one year at ING direct which is owned by Scotia now. I got this from a brokerage account and was better than their posted rate. Other institutions with lower credit ratings offer up to 2%for a one year and 3% for a five year fixed. The CDIC will insure up to $100,000 if the GIC is under 5 years.

Either way you slice it, it isn't a big chunk of money. After taxes, it is below inflation. It used to be that a one year GIC matched inflation after tax and a two year beat it. Not now that the Central banks are trying to force us to speculate (and then complain when we do)

So what else is there?


You can buy bonds via any brokerage account. The rates are not much better than GIC rates at present for high credit companies and Government of Canada bonds are even lower. You can tweek things by buying stripped bonds which have a lower tax rate (capital gains instead of interest taxation). You can google this if interested.

Preferred shares.

These are shares that behave like bonds. They come in several flavours, some pay a steady % until maturity, others reset the rate depending on the Bank of Canada rate or rates for a ten year bond, others maybe convertible into the shares of the issuer. They pay higher rates as they are considered 'long bonds'. However as they are shares too, they are taxed better than bonds and so a 5% yield in preferreds would be the same as getting almost 7% in a bond if you pay tax at the highest rate.

Here is a good site which explains and tracks them. Though he also writes of other stuff in his commentary which I usually skip over.

Garth Turner used to be a big proponent of them on his site Greater Fool. They have done very well for the last few years and then got slaughtered recently as rates have been rising. He has not mentioned them recently :)

Then there is the stock market. You can buy stocks directly, or mutual funds or index funds etc. Bank shares have done very well as they have been in the sweat spot.

They have borrowed short (from all the people having one year GICs or getting near zero interest in their savings account) and lending out several % higher to mortgage borrowers. Even though rates are low, the spread between the short end and then long end of the rates curve has been widening and therefore the banks have been making even more money than before.

The best thing is that they have been doing this risk-free. Anyone with high leverage or poor credit risk they passed off to that garbage can of risk - the tax-payer back CHMC. A scandal IMVHO.

However this circus is slowly coming to an end, as outsiders from the World Bank to Investment houses to independent economists have told our Government how poorly risk is managed at the CMHC, they seem to be finally getting the message.

The stock market was a good place to be for the last four years, especially the US market. But I am too leery to put new money unless there is a good correction. Rising rates are usually bad for the earnings of companies

That's about it. Can't think of many more options.

What are you doing out there?

Monday, September 2, 2013

Averages up.

Larry as usual provides the numbers.

Detached MOI = 6.9
Attached =  5.6
Condo = 6.1

These MOI are in the 'balanced' range. However they are a LOT lower than last August. Is this demand pulled in because of the interest rate and CMHC changes or is the Bull back?

Some higher sales have skewed the numbers. Lots of local and HAM big buys in August in the Multimillion range have pulled the numbers up.

Is HAM buying drying up? Not yet. There are some signs that emerging markets are under some financial stress with the Fed TALK (only talk so far) of pulling back on ponzi monetary policy.

However the Chinese PMI number has come in above expectations and that may bring more hot money to our shores.

As I have said recently, we SHOULD have seen the top with everything stacked against RE. However there could be some new dynamic that I have not taken into account which will ignite further buying and if so, then it is time to move on. We will know very soon if this is the case.

Sunday, August 25, 2013

Vancouver, home of Speculators

I found this on Vancouver Condo info, hat tip China bust, it is a legal action brought by investors who purchased units at the Olympic Village and who now want their contracts  rescinded .

They are suing the City of Vancouver.

Here is the list of investors named in the law suit:

ok J. Choi, Il Ho Ahn and Ra Young Choi,
Yen Hai Doan, Tian Gao, Thomas Gisby,
Jung Gu Han and Hyun Joo Han,
Jung Kyoo Han and Sung Sub Han,
In Cheol Jang and Sunkyu Choi,
Heebo Kang and Soon Bin Kang,
Mi Hyang Jin and Yung Jun Kwon,
Mohamad Lafta, Hak Hyung Lee, Flora Kwangah Lee,
Sang Wook Kwang and Hyun Jung Lee,
Kyoung Won Lee and Nam Won Park,
Gordon Mah, Wendy Milligan,
Sook Ja Oh and Mu Hong Oh,
Young Ock Park and Yi Yong Pan,
Young Mi Seo, Shermar Holdings Ltd.,
Susana Yim and Hardy Yim,
Sook Ja Yoon and Eul Byong Yoon

Here is the case, and from what I can understand, the first question is whether the City of Vancouver can be deemed to be the developer of the project. I definitely do not know or even understand the legal intricacies. 

But I am an over-taxed Vancouver resident worrying about cuts to other City-funded services or a Provincial bail-out. I am also a student of the speculative frenzy in this city, where Billions of Dollars of real estate are bought and flipped or bought and left empty.

A few things come to mind:

1) The names are apparently mostly Korean. I don't know whether they are resident in Canada or not. They could be German or Mongolian, but the fact that one ethnic group has so many unhappy buyers, makes one wonder if the project was aggressively marketed to this group by a realtor.

2) Are they end users who have some concern about construction or are they speculators who are upset about the drop in value. ie were they speculating. The GetLegal blog linked thinks they are investors who bought at the top and are now regretting their decision and trying to get out of their obligations.

Certainly there have been a lot of condo projects built in this city which have been late or have had issues. When the market is flying no one seems too bothered, but once it falters the law suits start flying, like Sangrila and now OV.

3) How much more is this going to cost us? What we do know is that when lawyers have the Government as a client, ie the taxpayer, the fees are exorbitant. Let us not forget the defence that we paid for in the Dave Basi and Bobby Virk case which cost us $6 Million, before they pled guilty

To add insult to injury Judge Robert Bauman who IMVHO is a very misguided Judge, refused to allow the tax-payer's watchdog, the Auditor General, to audit the Legal bills to see how come they were sooo high.

Apparently the rights of two individuals who have already pled guilty trumps the ability of the Auditor General to do his job and point out waste and corruption.

What message does that give the legal profession? If you can get a clerk in Victoria to sign off on your billing, you are audit free!!!

I cannot believe what a carte blanche Bauman has given his fellow lawyers!

Once again I say PPP do not work. If the project is profitable, the Private keeps it, and if it doesn't the Public owns it. The financial sharks make sure they write the deals so that is how it works out. The other side of the table are well-meaning but naive councillors and city officials who are no match for the sharks. We are witnessing the result now.

Of course the councillors are mostly gone and the officials still get their bonuses and pensions and us suckers get to pick up the tab.

Thursday, August 22, 2013

Make or break time

The graph above is the Canadian five year bond yield. As you can see it started it's parabolic ascent early May. The rush to use up the low-rate pre-approvals SHOULD be almost over. Unless we are really headed for the stratosphere I actually expect things to settle here for a while. The US economy (which is what started the super low rates and now the rebound) is not strong enough to absorb much higher rates.

Throw in the CMHC changes, tepid jobs and wages situation and we should see some real weakness in the low and mid market starting right now! As I have said before the higher end has it's own dynamics.

Friday, August 16, 2013

Wednesday, August 14, 2013

Self Serving Propaganda

Off topic.

Have you heard the ads by the telecom giants, Bell, Rogers and Telus. They have some average employee who tells you that if the Government lets Verizon in to Canada then this unfortunate soul will lose their job and they and their family will be cast out to the wolves.

Funny how they pick lower ranking employees, not someone from the executive suite.

How about the CEO of Telus doing the ad and saying..." I made $11 Million last year and $10 Million the year before and if Verizon comes in, I may lose my bonus".

Or the Rogers CEO saying.."Next year I get a $18.5 Million retirement package and um...well good luck with that Verizon things".

In fact the three CEO's earned $23 Big ones between the three of them. Enough to run a medium sized hospital or two High schools.

That is our society folks.

These companies who have shamelessly outsourced call and technical centres outside of Canada, are now waving the flag and asking for protection from that big hairy American company.

We could be more sympathetic if you weren't such greedy ba$tard$!! 

My cousin who has ATT comes up here from the US and uses his phone without a second thought to call the US or anywhere worldwide for one fixed rate. 

Whereas we make sure we have every button turned off to airplane mode or free wifi only to make sure we never inadvertently down-load a text or e-mail in Calgary, never mind the US.

Last year I went to Europe and somehow my phone set itself free and downloaded two banal text messages and one e-mail. I heard the ping and my heart sank. Sure enough, when we went back home the bill from Fido (Roger's pooch to make us feel like we have choice) was over $50!

Welcome Verizon, who BTW can only have up to 10% of the market anyway! AND CEOs of Rogers, Telus and Bell, if you are so worried about your employees distribute some of your huge payments to them and let us have SOME choice as consumers.

Sunday, August 11, 2013

Some Sunday Afternoon Reading..

As we wait to see if the recent bounce was an interest-rate induced pull forward of demand or a new up-leg, it is time to review our premise that we are in a bubble.

We have been over the exploding debt situation, the huge discrepancy between income, rental return and prices which is the basis for the bubble call. There is no point me reviewing them, suffice it to say we are near extremes in all these measure. Numbers which look even worse with the market driven rate rises (no action from the Bank of Canada needed), and now the CMHC pull back.

In fact since 2010, we have had a number of changes by the Federal Government designed to take RE off the boil and prices have withstood all this very well.

Will it continue or will we have a 'Wiley Coyote" moment as David Madani says.

On the other hand we have the bulls who point to places like Hong Kong, where finite supply and enormous demand from Mainland China have sent prices into the stratosphere. This is despite nearly a dozen initiatives from the HK Government trying to cool things down.

In fact they are very well documented in this excellent chart. You can click on it so that you can read the notations.

The HK government has been much more proactive about reigning in prices. Short of banning sales to Mainland Chinese, which they cannot do, they have done everything else. These include:

Forcing banks to stress test borrowers.
Dropping the loan to value to 60% for properties over about $900K (it was $1.7M before)
Increasing the property transfer tax to 4.25% for properties over $1.7M
Tightening up presales and putting penalties on both sides if they cancel.

Compared to Hong Kong, we are still in easy street, despite Mr Flaherty's changes (which were really a reversal of previous mistakes).

HK prices prices have gone up and up, pushing aside the Government road blocks like so many flies. The wall of money from China pours in through over dyke pricing out locals.

As you can see corrections were countered by the actions of another Government, Quantitative Easing by the US Fed which has poured money into the system (I won't go into how few people have benefitted from this action at this time, but will keep that for another tirade) as well as Chinese government liquidity drives (not shown) and those who can access cheap money will push up assets.

What does this tell us? That bubbles have a mind and a momentum of their own.

You will also note that Government action, even in Hong Kong, did not start until housing had increased 80% off the bottom in just a few years, and Hong Kong is one of the more sensible jurisdictions.

Government action to reign in bubbles ALWAYS comes too little and too late. When things are going up, everyone is happy and the groups benefitting the most become active in the political process to prevent any action to curtail things. It is only when it is obvious to any fool that we have entered a fantasy of valuation does Government act, usually with little effect.

Look at the graph again and you can contrast the actions of the HK government when prices started collapsing from their last bubble. Only a 30% drop brought action to bolster prices (in green). And yet they had very little effect on the way down too!

The bubble burst had to run it's course and went on and down for 5.5 years despite nearly a dozen pro-RE actions. 

Bubbles will implode when they implode. After the fact people will try and look for the cause. A particular event or action or some change in fundamentals. None of these are usually the case. It is just a case of a sudden change of mass psychology and a run for the exits.

Look at Gold the general wisdom is that Gold has been dropping due to the Fed talking about tapering QE. However if you look at the chart , you will see that the collapse started a few months BEFORE the FEd announced tapering.  

Now while I do believe the Fed's main role under Greenspan and Bernanke has been to keep profits at the Wall Street casinos healthy and some pre-warning is not unlikely, this still does not explain a drop that started due to a sudden drying up of demand. It happened because it happened.

So when our bubble bursts, we should be alert for the 'causation experts'. RE representatives, bank economists etc who will try and blame the drop on the CMHC changes or some other Government action that needs to be reversed quickly - so that we can hold them to account in public.

1) No one action leads to a bubble bursting

2) The actions of Government are always too little and too late, on the way up and down.

3) No industry has the right to jeopardize the financial well-being of a country and future generations. It is my contention (and that of many smarter than me) that the CMHC has done just that, by increasing our obligation to $600 Billion and help fan the fires of prices. The next generation has enough to contend with carrying the debt of baby-boomer entitlements without having to deal even more obligations and even more expensive housing.

Finally it is good to end with Galbraith, the pre-eminent bubble economist dissector, who was quoted in Hussman's article today

Decades ago, in his narrative A Short History of Financial Euphoria economic historian J.K. Galbraith lamented the “extreme brevity of the financial memory.” He wrote, “In consequence, financial disaster is quickly forgotten. 

In further consequence, when the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by an always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.”

(Think Nortel and RIMM shares hitting the stratosphere. Think  shoe-box sized Condos selling for $600K or crack-shacks unfit for human occupation selling for over $1 Million Dollars.)

“There is protection only in a clear perception of the characteristics common to these flights into what must conservatively be described as mass insanity. Only then is the investor warned and saved. In the short run, it will be said to be an attack, motivated by either deficient understanding or uncontrolled envy, of the wonderful process of enrichment.”

“Speculation building on itself provides its own momentum. This process, once it is recognized, is clearly evident, and especially so after the fact. So also, if more subjectively, are the basic attitudes of the participants. These take two forms. 

There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely. It is adjusting to a new situation, a new world of greatly, even infinitely increasing returns and resulting values. Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. 

They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course. They will get the maximum reward from the increase as it continues; they will be out before the eventual fall.

“For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what – although it will always be much debated – triggers the ultimate reversal.”

Tuesday, August 6, 2013

US to phase out their own catastrophic CMHC...

President Obama, arguably to the left of PM Harper, has decided to phase out Fannie Mae and Freddie Mac, their own two versions of our CMHC which insure mortgages.

Our own dithering fools in Ottawa were anti-CMHC except when it suited them. And it did in 2008/9. Even as they watched the US equivalents pull hundreds of Billions out of tax-payers pockets, they cynically doubled our own CMHC, loaded it up with a weak board (IN MY OPINION) and allowed it to have poor risk management and operate opaquely (in the opinion of Nomura and IMF and other non-Major-bank economists). 

Now hopefully they will do the right thing before this monster endangers our financial future further...and wind it down!

BTW- there was a great BNN interview with Ian Lee, an Academic who has been sounding the alarm on CMHC liability which he calls gargantuan! Says the banks are using CMHC!

Try this link.

Click on the second video 'CMHC to take stream out of housing market'. All bulls and bears should listen to this interview

Monday, August 5, 2013

The definition of a RE speculator

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit.” 

- Chicago Tribune, April 1890

Look at the date it was written!

This comes from the weekly post of one of my favourite commentators, John Hussman.

You can read it here. He is talking about the stock market but outlines how one bubble bursting leads to the next one inflating and the foolish actions of Central bankers who think they know better.

Saturday, August 3, 2013

Looking back and looking forward...

Time to survey the land. Where have we been and where are we headed.

We have been a raging bull market for Vancouver RE, of that there is no doubt. It started gradually with minor increases in 2000 and then went up parabolically until the crash of 2009. Then after a brief and sharp correction it went vertical and started to correct in 2012. This correction has hit buying in June and July and looks to be in jeopardy.

In 2007/8 I posted about the divergence between income and rental returns and home prices in this city, and in the US.

The financial crisis of 2008 was precipitated by the US housing bubble bursting. It brought a sharp correction to our RE. MOI went sky-high and prices dropped about 10% from late 2008 into 2009.

Us bears where vindicated. The correction we had so long waited for, was happening.

However what we didn't see was the lunacy of the Government both Provincial and Federal and the idiocy of the Bank of Canada.

The right-wing Federal Government who hates semi-socialist outfits like the Wheat Marketing Board , the CBC and the CMHC...very cynically took up the CMHC as their method of stimulating housing demand.

Even though we were witnessing the catastrophic effect on the tax-payer of the US equivalents, Freddie and Fannie going BK and needing huge infusions of money, they doubled the CMHC.

Then Carney in his wisdom brought rates down zero.

As I posted at the time, in 2009, the result of the above measures and the 10% drop in prices was to drop the monthly cost of housing 30%, which was the amount I thought housing was over-priced, and some may want to buy. Well buy they did and up went RE and it kept going up.

As it went up our equally foolish Provincial Government, hearing the cry of first time buyers, gave them financial incentives to get into the market...thereby adding fuel to the fire.

Where are we now? One of the countries with the highest personal debt levels in the world, one of the most over-valued RE in the world and a Government which calls itself fiscally prudent but which has put another $600 Billion of obligations on our shoulders through the CMHC. This is the Canadian miracle that the world has lauded!

The CMHC btw has been called opaque and having poor risk management by several organizations as we have detailed in previous posts. IMVHO this is explained by looking at the composition of the Board which lacks any RE outsiders, serious academics, well-known economists or representatives of tax-payer groups.

So bears were blind-sided by the actions of the Government. What else did we get wrong?

Income. The numbers we worked off for income in this Province, to gauge RE value, are seriously under-represented I believe. We have drug money, a huge black economy (mainly contractors and drug related), and a river of off-shore money coming here. So looking at the stated income levels was wrong.

We were wrong not to account for that in our calculations.

We were also wrong in thinking that Carney would do more than just jaw-bone as consumer debt exploded to the level that the US had pre-crisis. He refused to walk the talk.

We also did not realise how much the Federal Government would allow easy money to come here. The 'Investor's Program' in many cases has been an absolute farce and has allowed Mainland money to come here and invest in little more than commercial and residential RE, with-out the big job impact that was promised. Worse still, the entrants from almost every Province except Ontario ended up here. So Provinces like Quebec got the fiscal benefits and we got the added costs and RE pressure.

More Federal Government meddling which bears did not account for. It is hard to include the effects of Politician's constant desire 'to do something'.

OK, so where are we now?

We are in no-man's land. MOI of 6 = balanced. Some recent buying pressure after a terrible 2012 and early 2013. YOY prices still lower by a few %. Do we go up from here?

Well rates have ticked up. Mortgage rules have been tighetened. The CMHC has a new CEO and has been capped, but at too high a level IMO. 

So was this recent rush just a fear of higher rates?

If so, then it should, as I expect petter out soon and we should enter much higher MOI by late August and early September and the correction will start anew and this time it will have significant drops.

However if the buying pressure keeps up, then the correction meme has been invalidated and for now we go to higher highs. I favour the first scenario. However as we bears have learned, there is always something around the corner (usually Government meddling) which we did not account for.

There is no doubt that bear fatigue exists. Look around the blogosphere. Many blogs have closed up and I am close to throwing in the towel if scenario one does not play out. 

The subject of RE has dominated our lives for too many years in this city. Those that don't own wondering if they should abandon prudent plans and just dive in. Those who own and are deeply indebted, and have all their net worth in RE worrying if they are a job loss or re-financing away from losing it all.

This is the result of initial demand exceeding supply and absolutely stupid policies from lazy politicians and policy-makers who could only take the easy road to try and shore up consumption and demand in the economy. The power of the RE lobby cannot be underestimated.

If you live in the Okanagan and Whistler you have seen major price declines and the Fraser valley is not much better, but this city has not had it's major correction yet. If we are still in a correction it has to happen soon per this graph (hat tip Price Drop Vancouver)

Have a great long week-end.

Friday, August 2, 2013

REBGV Press release

No surprises here. We all knew July was hotter in every way than we expected. Was it the post interest rate rise blip? Was it due to Chinese RE going up again, and easing of liquidity? Or are we headed up on a new up-trend?

In any case we are still down a few % YOY for HPI.

My own opinion for what it is worth (very little) is that we saw the peak of buying for the year and MOI will start going up again. We have been hovering around 6 for July. If I am right it should move up briskly, if not I am wrong.

July home sale activity increases in Greater Vancouver

Sunny weather did not slow the pace of home sale activity in July. Last month was the highest selling month of the year in Greater Vancouver and the highest selling July since 2009.
The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales in Greater Vancouver reached 2,946 on the Multiple Listing Service® (MLS®) in July 2013. This represents a 40.4 per cent increase compared to the 2,098 sales recorded in July 2012, and an 11.5 per cent increase compared to the 2,642 sales in June 2013.
Last month’s sales were 0.1 per cent above the 10-year sales average for the month.
“Demand has strengthened in our market in the last few months, which can, in part, be attributed to pent-up demand from the slowdown in sales activity we saw at the end of last year,” Sandra Wyant, REBGV president said. 
New listings for detached, attached and apartment properties in Greater Vancouver totalled 4,854 in July. This represents a 1.1 per cent increase compared to the 4,802 new listings reported in July 2012 and a 0.4 per cent decline from the 4,874 new listings in June of this year.
The total number of properties currently listed for sale on the MLS® in Greater Vancouver is 16,618, which is an 8.1 per cent decrease compared to July 2012 and a 3.9 per cent decline from June 2013.
The sales-to-active-listings ratio rose two and-a-half percentage points between June and July to 17.7 per cent in Greater Vancouver. This is the highest this ratio has been in Greater Vancouver since April 2012.
The MLS® Home Price Index composite benchmark price for all residential properties in Greater Vancouver is currently $601,900. This represents a decline of 2.3 per cent compared to this time last year and an increase of 2.3 per cent over the last six months.
“Home prices continue to experience considerable stability with minimal fluctuation throughout much of this year,” Wyant said. “This stability in price brings greater certainty to the home buying and selling process.”
Sales of detached properties reached 1,249 in July 2013, an increase of 59 per cent from the 787 detached sales recorded in July 2012, and a 13.7 per cent increase from the 1,099 units sold in July 2011. The benchmark price for detached properties decreased 3.1 per cent from July 2012 to $920,500.
Sales of apartment properties reached 1,210 in July 2013, an increase of 31 per cent compared to the 927 sales in July 2012, and an increase of 16.3 per cent compared to the 1,040 sales in July 2011. The benchmark price of an apartment property decreased 1.6 per cent from July 2012 to $368,300.
Attached property sales in July 2013 totalled 487, an increase of 27 per cent compared to the 384 sales in July 2012, and a 12.7 per cent increase from the 432 attached properties sold in July 2011. The benchmark price of an attached unit decreased 2.6 per cent between July 2012 and 2013 to $456,700. 

Friday, August 2, 2013

Sunday, July 28, 2013


The market is certainly more resilient than one would expect for this time of year. There are more sales than last year as well as lower listings.

The expected rise in the MOI has yet to take place. This is in the face of a few factors which should have a dampening effect

Rates which look like they have broken out.

Mortgages changes which where brought in, in 2012 limiting CMHC insurance to $1 Million and dropping the ratio to 80% from 85%. Now in Vancouver, almost all housing would be over this threshold. But so far we have not seen much of a drop from this factor.

China was experiencing a credit tightening cycle, though it looks like they have loosened the purse strings again and reinflated their housing market (and likely ours).

On the other hand we have an up-tick in court ordered sales. We also have an up-tick in bankruptcy and arrears (hat tip aggregator on Vancouver Condo)

So where does this get us?

Is the market going up again despite the headwinds? Will the MOI drop below 6? Or is this just a pre-approval blip?

It certainly looks to me like there are two areas selling at present. One is the lower end (is there such a thing in Vancouver anymore) which would be explained by the anxious first-timers with pre-approvals in their hands. The second is upper end $3-4m where we have seen more Far East and local Wealthy buyers. Of course they would be undeterred by interest rate and other considerations.

In between, things are pretty stagnant and that may explain the drop in listings. If you see two houses like yours sitting unsold for several months, who wants to be the third one.

There is not enough financial stress out there to 'force' selling and so people will stay put and not move up or cash out. That's why paradoxially those still in the market may be more amenable to offers.

In any case July's number's are likely to be a bit of an anomaly, though I would still expect HPI to show a small decrease. 

Any opinions on what you are seeing out there would be welcome..

Thursday, July 18, 2013

Here's one from my week off

I picked up on the Pimco report from Vancouver Condo info.

The National Post has painted this as a don't short Canada piece. I thought I would read the original.

First who is saying it? Pimco. The world's largest bond dealers. What they say counts. 

Have they been wrong? You betcha. They bet big against the US bonds a few years ago as the US deficit exploded and then switched when they realised the US bond rally had legs.

Are they talking their book? From what I could see their Canadian bond funds have holdings from $3 Billion to as low as $7 Million.  Performance is from +9% YTD to -9% YTD, depending on the fund. 

PIMCO has $2 Trillion of assets under management. yes that's Trillion with a T. They are acknowledged to have two of the smartest bond brains that walk this earth....William Gross and Mohammed El-Erian. You don't get to a T without consistent performance.

However as you can see the Canadian funds are peanuts in the PIMCO empire. So while they may be smart, Canada is a side show for them.

So what did Mr Devlin say?

Did he say that Canadian housing will not correct and is not over-valued? 
NO. He said it IS over-valued and DUE for a correction and very much so in the over-heated areas like Vancouver. However he said it will not be the catastrophic event that everyone has been betting on. I HOPE HE IS RIGHT.

We may be housing bears, but we don't want our country to implode. 

Click on the link above and lets look at figure 2. Household debt to disposable income is declining in the US and UK and plateauing in Australia and rising in Canada. This cannot go up for ever. Currently low rates, HELOCs and asset appreciation are making us feel richer and pushing borrowing. We are no different from the Americans.

It is supported by higher wages. This ratio cannot go up forever. Eventually it will hit a hard wall and start down. 

Then there is the CMHC. I did not read any mention of this monster in Mr Devlin's piece. How can one discuss the prospects for a major housing correction without mentioning the CMHC?

A 10-20% correction, which is his benign scenario, will put a lot of stress on the CMHC and in turn the Federal Government which will have to bail it out. This will have to come from somewhere...higher borrowing or cuts elsewhere.

I hope Mr Devlin is right. I hope it will be a gradual deflation of 10-20% and larger hits in the bubble cities. I hope the Canadian banks will take a few quarters of bad earnings to get over it. I hope the tax-payer won't be skewered for the huge debt of the CMHC.

However what annoys me most is that all of this could have been avoided by less Government meddling and a sane interest policy.

Friday, July 12, 2013

Will be gone for a week

After posting today's numbers.

Keep the fires of hope burning. I know there is a lot of bear fatigue out there..'where is this crash already!'

Well, we are still in a correction from the highs. And even though we have had some days of higher sales to listings (more lower lists than higher sales) as long as we stay above a MOI of 6 we are in correction. We are also going into the slow season for RE sales.

Fingers crossed and see you in a week.

BTW if you are bored have a read of John Hussman's latest commentary. He is one of my favourite commentators. As he says banks have made windfall profits on the backs of savers and the prudent due to ZIRP (zero interest rate policies).

The senior executives have done very well. Many making $5-10 Million a year or more (this is in Canada not the US where number are even higher). 

I have noticed that even with the rise in Interest rates, the banks have barely budged in offering higher GIC rates, even as mortgage rates have ticked up.

Are they keeping the wider spread for themselves? Are they preparing for more write downs when RE deflates? 

Maybe they are saving up money to help out the CMHC when it hits the fan. That would be the right thing to do. Because in Canada not only have had ZIRP but we had a built in sucker to pass risk off to, the tax-payer, and now it would only be right if the banks threw some money into a fund to help bail the CMHC out.......maybe some of those $10M a year executives could throw in a few million too!

Sunday, July 7, 2013

No HAM means no bacon?

Fraser Valley...

No bounce in the FV. MOI sits at a whopping 8.5.

9 per cent lower sales in June 2013 compared with last year
significantly below 10 and 20 year averages.
volume of active properties at 10,515 a decrease of 1 per cent compared to June 2012

As always the Fv benchmark has been the most sticky in coming down. Defying lower volume, lower averages etc and still hanging in there. It was no different this time

Fraser Valley was $552,200, an increase of 0.2 per cent compared to $551,000 during the same month last year. For townhouses, the benchmark price was $298,700, a decrease of 2.1 per cent compared to $305,000 in June 2012 and the benchmark price of apartments was $202,500, 0.8 per cent less than in June 2012 when it was $204,200.

I suspect the real benchmark or standardized median is a lot lower than last year.

Thursday, July 4, 2013

Mr Carney goes to London...

What is the first thing he does?

He says interest rates are too high and the pound is too high too.

Result the pound takes a good tumble and stocks rise over 2%. This ladies and gentlemen is the new Central Banker....not our parents' central bankers who believed in regulating and controlling the more greedy and speculative drives in humans.

These new men (they are all men) want speculation. They want bubbles to be blown up. 

They have one eye on the stock market when they make their announcements and if the gamblers there aren't happy, they quickly shift policy.

No doubt he will will be lauded for his immediate effect on increasing risk appetite, but I would say that Central bankers of Mr Carney's ilk are no longer necessary, just replace them with an 8 year who has a free lemonade stand. They don't seem to realise that all this free stuff will cause indigestion later.

Wednesday, July 3, 2013

Vancouver SFH HPI down 4% YOY


West Van down 6% YOY.

Sunshine Coast and Whistler down 11% over 5 years -bears out what I have seen in those areas.... Including some homes for sale on and off for almost the whole of the 5 years!

Look at West Van and Whistler apertments. I won't post the numbers so bulls don't have a heart attack.