End of the week

My last post drew some significant reactions which I expected.

Nothing has divided this city, or caused anger as much as this danged RE bubble.

We have many 'hot-potato' political issues, but they pale in comparison to this one issue.

We have so much tied up in it, on both sides, both emotionally and financially.

Many bears have their marriages on the line as they stayed out of the market and watched speculation drive the price ever out of their reach. Other the hand, I know of buyers who are maxed out due to the insistence of one of the spouses to get into the market NOW and there will be problems if the price drops and they get into negative equity or lose the ability to pay the huge mortgages.

Such is the result of a bubble. Make a note future politicians and policy makers. It is not something to be proud of, but something to try and deflate as soon as it shows up.

I remember the same thing happening in California five years ago. prices got so high, that even in middle-class areas, none of the middle-class folks who worked in the community and were an essential part of it..eg teachers, police, fire-fighters, nurses etc could afford to live there. They would commute in from cheaper areas. The same can be said of Vancouver.

I also remember the dot-com days, where some young high-tech folks were made instant millionaires due to stock options in the latest crapola company (long since bankrupt) while their colleagues in other fields worked just as hard and had very little to show for it.

Lots of bitterness and anger around too. This is the social result of a bubble.

OK lets see what May brings.

I suspect April may show a small drop in prices. Larry Yatter promises to have the numbers out first. We have the winds of HST, CMHC, Mortgage rates and excruciating lack of affordability blowing in the face of prices. We still had strong sales in April with some buyer panic, which is inexplicable in the face of rapidly rising inventory.

I also have the feeling that price strength is narrowing down to the choicest neighbourhoods. A marker of divergence.

OK bears you need to read this...

Are Vancouver RE bears jerks?

Most aren't. But some definitely are. Or rather some are, some of the time.

As I head round the bear blogs, I see the usual hope for change, but I also something else. Anger and bitterness, the result of years of waiting outside the gate and watching your dream move further away every day. It is understandable.

However the result is anger, towards everyone and everything.

Like hoping the buyers suffer losses, hoping they are foreclosed or the City and Province go bankrupt. Enough already... they are your neighbours. So they got sucked into the vortex, that doesn't make them criminals.

And if things work out as bad you want...sure you can say 'I told you so' to all your buddies at work, as you all pack your things up and head out the door to try and find another job.

Or I read them say what a terrible city Vancouver is and how stupid Vancourites are...so what the hell are you doin' here??? Obviously they don't have roots in this city.

I suspect a lot of the REALLY belligerent bears are relative new-comers. (6 years or less). Some of the most rabid I met were from the big T or Brits. they sold their expensive property and moved here for the easy life and have found to their disgust that prices here are even higher, salaries are a lot lower, and they have had to down-size.

Hey, I want prices to drop too. But I don't want Armageddon and mass unemployment. I want the CMHC shuttered. But not so I can buy a cheaper house, so we don't go bankrupt as a country when the bubble bursts, which is a little more important than whether I own or not.

Some people have trouble looking past their nose.

And as to rich off-shore buyers. Yes it irks me. Yes I am pissed off when no-taxed money competes with my over-taxed savings but consider this....

There are Millions of Canadians who own prime water-front property in Mexico, Costa Rica, Panama, Guatemala etc which the locals can only dream of.

Desirable property has become an international commodity and there ain't nothing we can do about it. We should at least use local taxes to make sure they are not left empty without a penalty and use that extra money for social housing. But we cannot stop it...we do it.

Think on this: Friends of mine..Husband and Wife are blue-collar workers who just bought a waterfront home in a poorer Central American country to spend their retirement winters at. They bought it from a local lawyer and his family, who apparently, with the down-turn, couldn't afford to own it any more.

How would we like it if a heavy duty mechanic and hospital clerk from Taiwan came and bought our prime property? Maybe not so much.

So lets all chill out. Lets not hope people lose everything just because they made, what we consider, is a foolish decision. But let us lobby for change.

People stopped the Government bail-out of Canwest.
People complained so much, the CHMC has been reigned in.
Mark Carney and our MPs need to hear from us on interest rates penalizing savers and encouraging speculation.

Or we can just gripe and get bitter and hope the sky falls in. Enough said.

What's with folks??

Inventory is moving up faster than 2008.

We have all time low affordability.

The CMHC monster is being leashed.

Mortgages rates are moving up briskly.

The list/sales are moving UP. (example- West Van- 9 new 4 changes 1 sale)

And yet when I look at the houses bought, they are at list price or a few, tiny, inconsequential % less!

What's up with some folks?? What are their Realtors advising them? Quick bid it up NOW...or else...or else......we will have lots more inventory and it will much more difficult to chose a house!

I doubt it. I am sure they are telling them that inventory is growing, and growing inventory usually brings lower prices (yes, we are different in Vancouver I know) but folks still seem panicked.

Bank of Canada caught on the Horns of it's own making

Just a quick post.

Retails sales came in weaker than expected, especially once you back out the car sales. The pre-Olympic boost has dropped.

Inflation has come in at a pretty tame 1.4% (though only by manipulating the numbers since housing is on fire and is the highest family expenditure).

So what is the Bank of Canada to do?

it's last statement made it clear that rate rises were just around the corner. It has already stated that Canadians are taking on too much debt and housing is over-heated.

So does it leave rates at zero and keep inflating the debt bubbles, until they burst like the US, losing all credibility.

Or does it raise in the face of weak data.

They should not have got themselves into this space in the first place. Zero rates = speculation and debt. You reap what you sow...

A thought to share...

I was thinking about my previous post and the reluctance of the Bank of Canada to raise rates from their current near zero.

When they dropped them over a year ago, it was chop, chop, chop...no warning. We have to save our speculators!!

Now that the time has come (and passed) to raise them, they change the language slowly, they warn, they cajole, they play coy and then MAYBE they raise a teenie weenie bit.

All I can say is THINGS MUST BE REALLY BAD! Why else would they pussy-foot around so much. We have never been here before. No precedent exists for such low rates. Basically we are saying to folks- don't save money, spend it, invest it in over-priced real estate or stocks, but if you put it wisely in your bank account for retirement- you will lose 1.5% a year or more!!


The only other recent time when I know of rates being so low - is Japan who have had low rates for almost a decade.

http://bilbo.economicoutlook.net/blog/wp-content/uploads/2009/04/japan_interest_rates.jpg

Of course their real estate hasn't been that hot for a very long time too:

http://static.seekingalpha.com/uploads/2009/7/7/408757-124699620914452-The-Inoculated-Investor.jpg

..............

We are not Japan, there are many differences but let me remind you of something important.

When the Japanese RE bubble burst in the early 90's, Japan hit the wall. The rates were dropped to zero and they let Japanese banks lie and pretend their loans were still viable so they would not be insolvent. The Japanese government pumped billions into their banks.

THE USA and especially Greenspan and Rubin derided them. They told them to let their banks fail, take the losses, and move on. Short sharp medicine.

Fast forward to 2008. The exact same thing happens in the US. What do they do?
Rates are cut to 0.25%, banks are bailed out, mark to market rules are suspended (which allows banks to lie and pretend a loan is still viable).

Ha!

And now in Canada we are wagging our finger at the US and saying...

How could you have let things get so out-of-hand in RE, and bubble up so much. How could you have the tax-payer on the hook directly, by having Freddie and Fannie buy all these crap mortgages. What idiots!

Fast forward to 2011....

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.

Mad Rush!

We are seeing a frenzy of buying along with a 2008-like rise in listings.

A very odd situation. When listings rise so much, buyers generally feel less anxious to dive in, and take their time to asses and bid wisely on their purchases. But this does not seem to be the case. By all accounts the buyers are in a rabid condition. Of course the areas of high excitement have narrowed down.

The Fraser Valley hasn't been invited to the party, which fits in with the 5th wave theory I posted about several weeks ago.

Why the frenzy?

There are several possible reasons for this:

1) We have the April 19th CMHC changes which we have discussed before. Note that the government did it's usual miscalculation. It noticed that housing was on fire, due to their stupidly low rates and 'no-skin-in-the-game' CMHC mortgages and decided to do something about it. OK - so far so good. So they come out and announce the changes to take place over two months later!

That gave time for all those with vested interests (you know who they are - from local media to real estate types) to panic buyers into the market.

It would be like saying to your kid..."I know you are spending most of your allowance on drugs , so in two and a half months I am going to cut you off!" Huh. What do you think the kid is going to do?

In fact the new rules for self-employed borrowers already took effect on April 9th.

http://www.oyetimes.com/lifestyle/naukri-a-paisa/2651-new-cmhc-rules-for-selfemployed-borrowers-effective-april-9th-2010

2) rates are moving up and borrowers have their pre-approveds in their back pockets. If they don't pull it out and drop it on a house asap, the next one will be at a higher rate, or for lower loans. So BUY NOW! Price be damned.

3) This is the normally busy buying season.

This is it folks. The stars are all aligned. If the market doesn't even wobble with higher inventory, higher rates, HST on new homes, new CMHC rules, Provincial cuts, Olympic bills..............

OLYMPIC COSTS

Add this to the pot of CHMC changes, rising rates, HST etc

Will all those who were clamouring for the Olympics to be held here, please dig deep into your pockets and PAY UP! thank you.


Over half billion dollar bill for Vancouver to host 2010 Winter Olympics

2 hours, 58 minutes ago

By The Canadian Press

VANCOUVER, B.C. - A preliminary report estimates that hosting the 2010 Olympics cost Vancouver over a half a billion dollars.

The report will be presented to city council next week and suggests the lion's share of the costs went to venues and local infrastructure improvements.

The bottom line doesn't include the cost to the city of taking over the $1 billion Olympic athletes village project.

Vancouver never had an omnibus budget for Olympic costs, though it earmarked $20 million to cover items like city celebrations and decorations.

The full cost of hosting the Games for the city is actually over $700 million, but was partly financed through contributions from the provincial and federal governments.

The report is expected to be made public, but an early copy was provided and publicized by a local rights advocate.

The US stockmarket just hit 1200- up from 666 last year

Boosted by Wall Street's free money. Meanwhile in the real world.....

Foreclosure rates surge, biggest jump in 5 years

By Alex VEIGA
AP Real Estate Writer

LOS ANGELES (AP) -- A record number of U.S. homes were lost to foreclosure in the first three months of this year, a sign banks are starting to wade through the backlog of troubled home loans at a faster pace, according to a new report.

RealtyTrac Inc. said Thursday that the number of U.S. homes taken over by banks jumped 35 percent in the first quarter from a year ago. In addition, households facing foreclosure grew 16 percent in the same period and 7 percent from the last three months of 2009.

More homes were taken over by banks and scheduled for a foreclosure sale than in any quarter going back to at least January 2005, when RealtyTrac began reporting the data, the firm said.

"We're right now on pace to see more than 1 million bank repossessions this year," said Rick Sharga, a RealtyTrac senior vice president.

Foreclosures began to ease last year as banks came under pressure from the Obama administration to modify home loans for troubled borrowers. In addition, some states enacted foreclosure moratoriums in hopes of giving homeowners behind in payments time to catch up. And in many cases, banks have had trouble coping with how to handle the glut of problem loans.

These factors have helped slow the pace of foreclosures, but now that trend appears to be reversing.

"We're finally seeing the banks start to process the inventory that has been in foreclosure, but delayed in processing," Sharga said. "We expect the pace to accelerate as the year goes on."

In all, more than 900,000 households, or one in every 138 homes, received a foreclosure-related notice, RealtyTrac said. The firm based in Irvine, Calif., tracks notices for defaults, scheduled home auctions and home repossessions.

Homeowners continue to fall behind on payments because they've lost their job or seen their mortgage payment rise due to an interest-rate reset. Many are unable to refinance because they now owe more on their loan than their home is worth.

The Obama administration's $75 billion foreclosure prevention program has only been able to help a small fraction of troubled homeowners.

About 231,000 homeowners have completed loan modifications as part of the Obama administration's flagship foreclosure prevention program through March. That's about 21 percent of the 1.2 million borrowers who began the program over the past year.

But another 158,000 homeowners who signed up have dropped out - either because they didn't make payments or failed to return the necessary documents. That's up from about 90,000 just a month earlier.

Last month, the administration expanded the program, launching a plan to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. But the details of those programs are expected to take months to work out.

The states with the highest foreclosure rates in the first quarter were Nevada, Arizona, Florida and California, with Nevada leading the pack, RealtyTrac said.

Rising home prices and speculation fueled a wave of home construction there during the housing boom. But now the state, particularly around the Las Vegas metropolitan area, is saddled with a glut of unsold homes.

Still, the number of homes in Nevada that received a foreclosure filing dropped 16 percent from the first quarter last year.

All told, one in every 33 homes in Nevada was facing foreclosure, more than four times the national average, RealtyTrac said.

Foreclosure filings rose on an annual and quarterly basis in Arizona, however.

One in every 49 homes there received a foreclosure-related notice during the quarter.

Florida, meanwhile, posted the third-highest foreclosure rate with one out of every 57 properties receiving a foreclosure filing.

California accounted for the biggest slice overall of homes facing foreclosure - roughly 23 percent of the nation's total. One in every 62 properties received a foreclosure filing in the first quarter

Worth Watching

China's RE bubble will burst. You can replace the word China with BC and it resonates perfectly. Also our market seems to be linked to theirs now, so we should keep an eye on this:



http://www.charlierose.com/view/interview/10960

A Personal Journey

As I read the blog comments here, on VCI and other sites, I have noticed one thing that strikes me again and again. It is something I can identify with personally. That is the heavy toll that the housing bubble has taken on the psyche of the inhabitants of our city (and Province).

We are not alone, of course, the same is true when I speak to British or American or Chinese friends. The frenzy in housing is causing some major dislocation of attitude.

Lets think about it- in society we have learnt that morally correct behaviour is generally the best route to take. Don't drink and drive, don't go deep into debt, don't use drugs, don't abuse anyone etc etc.

However when there is a bubble this gets turned on it's head. Let me explain:

Owning a home is a very good proposition for most people who intend to live in one place for a long period of time. They get to pay down the mortgage and build equity, they miss out on the costs of moving, they have more security of abode.

HOWEVER:

The purchase has to be within one's budget and sustainable through difficult times eg job-loss, interest rate rises, or lack of ESL students to supplement income.

Many people decided buying was not sustainable, and they would wait until they saved up more down-payment or there was a correction in the price. They waited and prices shot up.

Meanwhile, others were less cautious and dived in, regardless of price or concern for the future and they have been winners. So we are left with the cautious being left behind and those that just jumped in with both feet, without doing any simple math, building equity.

Of course the buyers feel superior and those that waited feel bitter and cheated.

The irony is that public policy has been skewed completely towards the irresponsible behaviour.

Gains on primary RE residence is not taxed. As we have mentioned to death the CHMC has been insuring mortgages for those with very little skin in the game, even for absentee landlords ( which seems to defy it's mandate of helping Canadians own homes) we have the lowest interest rates ever, we have home improvement and 'green' tax rebates and subsidies, we have property tax deferral, we have zero return on savings etc etc.

The same thinking was going on in the US when they had their bubble - there were winners and losers- those who jumped in regardless of risk and were making big gains and those who were more cautious and missed out. At the peak, buyers not only had to bid high, they even had to write sellers a letter stating why their offer should be chosen eg we will keep feeding the birds, my children will attend your old Alma Mater - it was a complete circus.

Now that seems like a world away. Their bubble has burst and it nearly brought the world of finance down with it. Of course when it hits the fan, the responsible will be asked to pay again, this time in taxes to bail out the irresponsible and their lenders.

Already in the US they have many programs aimed at helping owners avert foreclosure, all paid for by the tax-payer- and of course all the lenders on Wall Street were infused with money so they could pay they Billions in bonuses, as if they had just made the best investment decisions on earth- and not bankrupted it.

We will probably get the same once our bubble bursts. Is it a bubble? I think so. And not just in Vancouver. Look at the whole country. OK we may have throngs of Chinese investors and lack of land in Vancouver but what about other cities which have neither. Even they have moved to high multiples of income.

http://tickerforum.org/cgi-ticker/akcs-www?getimagenr=68141

At this rate Canadians will be spending every cent of after-tax income on housing and Governments will spend every cent of tax on healthcare (Ontario is already at 46 cents of each dollar and we are not far behind)

Anyway back to my main theme. A bubble is very destructive on the mental health of a city. It diverts people from productive activities, why bother trying to invent something that will produce innovation and employment, when you can make so much from 'flipping'.

It makes everyone anxious. For potential buyers as they see the market slipping further away and have to decide whether to bite the bullet (more like a grenade ) and push the debt up.

Owners are anxious too. They worry about keeping their wind-fall of profits if they bought several years ago. Should they sell and cash in or hold on for more gains? Recent owners have even more anxiety. They have very little equity to fall back on and have bought at high prices with low rates. Any change in these parameters, or a loss of employment and they will be under water.

So far from pumping RE, our policy-makers should have tried their best to cap it.

Who are you all?

This obscure and rather dull blog always had about 100-150 visitors a day.

Suddenly there are 200-300 visitors. Why would that be? The quality of the posts are no better :)

So I have decided to find out a little about my readers. One simple, very quick poll.

HERE>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Please fill it out. It will be up for a week. (BTW: Sometime means in the next year or two.)

The Law of Unintended Consequences

From Wiki:

Any intervention in a complex system may or may not have the intended result, but will inevitably create unanticipated and often undesirable outcomes.

This is a common occurrence in the world. Some people think they are smarter than they are and can intervene in a very simplistic manner in a complex situation, with many variables and still expect to have a linear outcome. OK before you leave from boredom let me give you an example:

Ronald Reagan decides to arm the hodge podge of fundamentalist factions in Afghanistan to fight the Russians in the 1980's. They win and twenty years later they are using some of those weapons against US troops. Who would have thought that would happen?

Here's another example:

Think back to September 2008. Lehman brothers had just gone bankrupt in the US, the world stock exchanges were collapsing, the financial ponzi scheme in Wall Street was unwinding.

There was a sudden realisation that the RE bubble in the US had burst and a large proportion of the mortgages given on those properties would never be paid back.

We were still in pretty good shape in Canada. yes, we had a bubble in Vancouver which was deflating, but many other parts had already corrected to more reasonable affordability levels. There was never any concern about widespread defaults in Canada.

However the Central Bank and the Government had to act! DO SOMETHING. ANYTHING. NOW

SO they followed the crisis-ridden Fed and chopped rates to ZERO:

http://themortgageblog.ca/_wp/wp-content/uploads/2009/05/boc-lending-graph-1024x717.jpg

Then they doubled the CHMC lending capacity.

Not too surprisingly the result of these activities was a rip-roaring trans-Canada housing bubble and debt binge which has the Bank of Canada wringing it's hand.

http://www.thestar.com/business/article/766171

The problem arises not from evil-doers in Government, but by mis-guided do-gooders. The normal capitalist business cycle requires booms be followed by busts. This penalizes speculators and capital is then redirected from the latest craze, Dot-coms or RE into other areas which have been starved of capital due to the frenzy. If this cleansing doesn't happen, speculative behaviour is reinforced.

The bubble then gets so big that it has to be sustained at all costs or it will down the whole house of cards.

However along came a fellow called Alan Greenspan who convinced us all that he could defy the business cycle. It was an lucky by-product that his supporters in Finance also had their most lucrative two decades ever under his leadership. Every time they speculated too much and a bust seemed imminent- he lowered rates or bailed them out directly.

Unfortunately our own Mark Carney came from the Temple of financial expediency itself, Goldman Sachs and so he followed the same play book.

Cut rates and boost spending, support financial institutions and allow them to reap wind-fall profits from the huge gap between what they pay borrowers and what they charge lenders.

The result however has NOT been more stability. In fact we have reached the moment of maximum instability. We now have a huge RE bubble across the country in which the riskiest mortgages have tax-payer liability written all over them.

IE- we have been brought by our Greenspan-clones to the very place where the US was prior to it's financial collapse.

I would suggest you read that last sentence again. We are currently the flavor of the month -as you can see from the huge rally in the Canadian dollar. We are stable, we have commodities- yes we have a few deficits here and there- but they are manageable.

Well how about a decade of deficits.

How about a situation so perilously on the edge that a small increase in rates or a small weakening in employment could lead to a daisy chain of lower prices and defaults which reinforce each other.

We missed a great opportunity. We could have thanked our lucky stars that we were in such good shape, and told Canadians to buckle up for a few years and deal with the pain, but instead we decided to push the gravy-train a little further along the line, we are now close to where the US train went off the tracks and hurtled down the canyon.

Some Random Thoughts

So we are now entering the busy Spring listing/buying season.

We enter it with our housing at all time highs, with affordability at all time lows, with rates at all time lows too and with inventory growing at 2008 levels. An interesting stew.

Apart from affordability there are several other factors that may influence housing over the next few months. I will take a quick look at each one in turn:

1) The most important could arguably be interest rates. We cannot go any lower than 0.25% (zero and 0.25% are essentially the same) the question is when do we go up.

Last week banks raised their rates. This was for several reasons. Firstly long rates which are market driven have been moving up, secondly the program of swapping insured (risky) mortgages for hard cash has come to an end:

http://www.actionplan.gc.ca/initiatives/eng/index.asp?initiativeID=39&mode=3

That accounted for a $60 Billion transfer of money to banks and mortgage companies and the debts to be held on our books and assumption of complete liability by the tax-payer.

The rate increases coincided with this program ending.

Ok, so when will the B of C raise. Some say June and some say never! There have been some interesting polls conducted by banks saying how frightened and over-extended Canadians are. The latest came from RBC and had some dire statistics:

http://canadabubble.com/bubble-watch/723-canadians-losing-sleep-over-their-finances-rbc-canadian-consumer-outlook-index.html

Now I always think that when a public body or large company runs a poll, they should be made to explain what their purpose was for undertaking it.

I have no idea what it was, but I do know that the banks have been in the sweet spot for the last year. They are paying their depositors almost nothing, and lending it out at 4-6%. The spread, 4-6% is remarkably high. Add in CHMC insurance and the buy-back programs and this is what is happening:

http://media.www.brockpress.com/media/storage/paper384/news/2010/03/16/Business/Canadian.Banks.Reap.Massive.Profits-3890929.shtml

So I suspect the banks would be very happy with this state of affairs continuing. Wide spreads, assumption of much of the liability by the tax-payer. AND- Nothing like throwing a few polls out there saying Canadians will collapse with even a tiny rate hike :)

Ironically, the best the bears could hope for, is strong economic numbers and a 'whiff' of inflation to force the bank of Canada to move from these ridiculously low rates. Even India has raised and we are too frightened to. Wow!

2) The new CHMC rules will come into effect April 19th 2010. As usual everything is dragged in at a snails pace so everyone can get in and drive prices even higher. The changes are well documented on the net and I won't comment on them at length. They will affect high ration borrowers and reduce the 'rental' income that can qualify for mortgages.

They also wont allow high-ratio mortgages for rental properties if the landlord doesn't live there. Like duh! Why were they allowing this in the first place.

Why were they taking liability on tax-payers backs so someone could own rental property. If their mandate was to increase property ownership for the low income, this surely is diametrically opposite to that goal.

I suspect that like Freddie and Fannie in the US, people have forgotten what their mandate is, and they are used as another instrument to pump the economy and 'kick the can down the road', when things are slow.

http://www.google.com/hostednews/canadianpress/article/ALeqM5jp5t6CCVLGCGQoq-QbdKCt-AgBBA

3) HST, which is supposed to be introduced this summer will have an unknown effect as of yet. Right now the NDP, who rarely saw a tax they didn't like, have jumped on the band-wagon with unlikely fellow traveller Bill Van Der Zalm from the other side of politics to try and defeat HST.

They should also be asked what cuts they would make if the tax does not pass, since we are running such a huge deficit as is, and how we will deal with possible credit ratings cuts on our debt.

4) Watch unemployment. We are at 7.7% down from 8.1% thanks to the Olympics. We also have money flowing back into commodities due to China and a devalued US dollar driving investors into hard assets. It will important to see how things progress post-Olympics in April and May. An up-tick in unemployment will increase job anxiety and it SHOULD delay the purchase of their largest and most expensive asset.

So the major drivers should be cost of capital, government policies which pump up RE, demand which depends on a robust economy and rental equivalent cost.

If you can think of any that I have forgotten, speak up. There is of course foreign investors, but since I know of no accurate way of measuring that, I havn't put on my list of things to follow.

Who is the real Fool?

I am!

Let me tell you about the history of this blog. I started in 2007. We watched local RE reach crazy heights, then we charted the steady rise in inventory of 2008, and the crash that followed it.

I had a hiatus for health reasons and returned in March 2009, well into the correction and my first post was discussing when the bears should get in.

We were by then in the midst of the financial crisis, and housing was in 'no-bid' land. I posted on how the 15% + drop in prices and the zero 'emergency' rates had brought about the 40% price drop that we had all been expecting.

I expected a recovery and then another down-leg as the emergency measures were lifted or the recession moved unemployment up and buying power down.

Neither happened.

These emergency rates and all the increased Government spending were to make up for years of irresponsibility.

Debt that was piled on shaky assets and could no longer be serviced.

The answer to this, according to our central banks, was more of the same. Bring the interest rates down to insanely low levels, for an insanely long time, and then whine, as Mark Carney does, about how Canadians aren't saving enough, how they are borrowing too much and why is housing in a bubble?

What else would they expect?? Take a glutton to a buffet and wonder why they are gorging themselves to death.

It is not just RE. Look at all assets, they are back up to pre-crisis levels in many cases. The TSE is flying, gold hit new highs, and most of the rest are up there. Who would have thought it?

Certainly not me.

I thought they would act more responsibly and we would be at 2-3% by mid-2009, once they had allowed the banks to reap enough money from the steep yield curve.

However playing by the old (and failed) tactic of accommodating excesses seems to have won the day. With this we get:

1) Low savings - why should I save when I am getting 0.4% before tax and inflation is running at three or four times that.

2) A stampede into assets, leveraged up, on borrowed money. Isn't that what got us into this mess in the first place?

The really foolish US consumer over-extended themselves on debt for flat screens, and SUVs and over-priced homes and then couldn't pay back their debts, so the world spins out of control and the result is we are all doing it now!

Chinese, Canadian, European - we are all American now.

Ultimately though I am the fool, for believing our policy-makers would be more responsible this time.

Greenspan said there was no debt and property bubble repeatedly, then after it burst he said he couldn't have been expected to see the bubble, and even if he could, it wasn't his fault. With leaders like that, looking for responsibility was definitely foolish.