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Thursday, July 14, 2011

The shifting sands (2nd Thursday Post)


Time to draw the focus back to local real estate for a moment.

As you are all aware, there have been a number of mainstream media articles in the past few months about about the possibility that we are in a housing bubble.

These articles have come as the Governor of the Bank of Canada and the Federal Finance Minister have been sounding the alarm about the massive amount of debt that Canadians have been assuming.

Last week we were treated to the incredible sight of Royal Lepage, that bastion of real estate cheer leading, coming out and telling us housing prices may have peaked.

And this week the big news is TD Bank telling us that housing prices may fall over the next two years. For Vancouver, TD believes housing prices will drop 14.8%, a huge $133,000 off  the REBGV benchmark price for a Greater Vancouver house of $901,680.

But it gets worse.

TD predicts that Vancouver is destined for a thumping 25.4% peak-to-trough decline in sales activity and they describe the Village on the Edge of the Rainforest as “the poster child for those individuals worried about a real estate bubble here in Canada.”

Even local realtors, like Vancouver's Larry Yatkowsky, are suggesting Vancouver's house values may be more smoke and mirrors than a reflection of actual value.

Now none of this surprises the blogosphere... but a forecast that calls for a decline of 14.8%?

What is this...  a county fair game of 'guess the number of jelly beans in the jar'?

14.8% is the best way an organization, whose primary business is making money off loans, can soften the bad news.  TD  is peddling this as a 'slowdown':
  • “A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first time home buyers are expected to be the chief culprits behind the slowdown."
Should the world economy suffer from the Sovereign Debt crisis, the prognostication will be much worse.

Still... the most striking element is that now you have the cheerleaders, the real estate industry and the banks, not only calling a top - but trying to predict the depth of the collapse (err... 'slowdown').

The tide is clearly turning.

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