Mon Post #3: Newsflash... it's "a stagnating housing market and in Vancouver prices are already falling from sky high levels a year ago"

On Sunday we told you that it's not the news per se that's important... it's how you spin it.

The GVREB had been hard at work MOPE'ing the news (Management of Perspective Economics) and had downplayed the third worst February in real estate sales on record (a decline of -17.8% from February of 2011) into a "pre-spring hike" in sales.

This was achieved when the GVREB compared those very same abysmal February 2012 numbers to that of the absolutely horrendous January 2012 numbers... instead of comparing them to the results of February 2011.

As a result February's abysmal numbers were promoted as being 61.4% higher than the horrid January numbers... thus a "pre-spring hike".

So how embarrassing is it for the GVREB, after heralding an awesome February in real estate sales, to open up today's edition of Canadian Business Magazine?

Generally the article painted a rosy outlook for Canadian Real Estate nationally by the CREA...

"Risks to the Canadian economic outlook remain elevated owing to the European sovereign debt quagmire, but the continuation of low interest rates is the silver lining. So long as the European debt crisis is contained and a global economic recession avoided, low interest rates will support Canadian home sales and prices - CREA chief economist Gregory Klump"

But buried in the article were a couple of real gems.

First off our old friend, CIBC economist Benjamin Tal, tells us the new CREA forecast is "if anything a best case scenario forecast."

Ouch!

Then Tal goes on to say his bias leans more "toward an expectation of more significant price declines."

Oh really?

Tal expects further price declines and that these declines will MORE SIGNIFICANT than what we have already seen?

Pass the popcorn and tell us more!

"This is basically a stagnating housing market," Tal said. "This is not a housing market that is going to be on fire. This is a housing market that you'll see activity moderating and prices actually going down."

Seems Benny is reading from a different script than the GVREB this month. What about Vancouver?

"In Vancouver, prices are already falling from sky high levels a year ago, especially in the once bustling condominium market."

Now I ask you... when you read the GVREB's take on February's numbers, did you come away with the message that Vancouver's prices are already falling from sky high levels a year ago? Or that more, significant price declines are in our future?

Hmmm... didn't think so.

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Today's letter is M: As in Media and Manipulation

Garth Turner covered this yesterday and I wanted to take the time to point it out to my colleagues who read this blog.

The battle over mortgage terms is starting to heat up. As many of you know Mark Carney, Governor of the Bank of Canada came out in December with another salvo of debt warnings. This was followed up by a couple of Banks (TD, BMO) calling on the government to take the initiative because they could not be expected to curb debt lending for competition reasons.

The concern? The vast majority of new home loans are being written are 5/35ers and the debt loads are becoming alarming amongst Canadians.

Carney has been urging Ottawa to do something about it as well and Finance Minister Jim Flaherty has hinted changes might be coming.

Enter the Canadian Real Estate Association (which represents Realtors).

Real estate agents and brokers are being urged to write their MPs immediately to counteract this move. They argue that mortgage debt isn't the same as other consumer debt. It's “the foundation of household equity and a gateway to financial security.”

More importantly, it's the foundation and gateway to Realtor financial security (aka paycheques).

• “Additional changes to mortgage financing rules would raise the barrier to home ownership excessively and destabilize housing markets and the economy. In particular, we are concerned about the negative impact modifications to the allowable amortization period or minimum down payment requirements would have. These changes would create affordability problems, especially for first-time buyers. First-time buyers are the first link in a chain reaction of real estate activity. They allow existing home owners to change properties or rent.
  
  “Creating burdensome barriers for first time buyers will seriously impact the rest of the market, including retirees looking to downsize. Further tightening of mortgage rules would have other far reaching consequences for the economy. It risks causing a home price correction, a drop in the net worth of Canadian households, lowered economic growth and reduced tax revenues. Consumer confidence would be damaged, labour mobility would be impeded, and unemployment would stay elevated.”

In a desperate attempt to save paycheques, this urgent communication has been sent out to all member Realtors (click on image to enlarge):

Meanwhile, despite concerns that these moves could kill the real estate market, the full court press is being applied to get the general public to BUY, BUY, BUY before they are priced out forever.

Royal LePage has come out with a report predicting real estate prices increasing in Canada in 2011 far more than expected. The report is titled, "Strengthening Economic Recovery and Low Interest Rates Point to a Stronger Than Anticipated 2011 for Housing Market".

This is in conjunction with the R/E industry's own version of the Art of Media Manipulation. Newspaper articles touting the R/E line magically appear at the same time.

The Globe and Mail tells us "House prices to see steady climb", the Toronto Star tells us "Canadian housing prices set to rise in 2011" and the Toronto Star warns that a looming "Buying frenzy to push up house prices".

Seems to me if the government simply tightens regulations, prices will fall and then people can buy houses at affordable prices, a move which will make Carney happy and keep Realtors employed as more houses trade hands.

But I guess if you eliminate the huge commission from the sale of multi-million dollar homes, Realtors will have to work harder.

Silly me.

Over in the Silver Corner

Two interesting items for you from yesterday in Silver.

First from Zero Hedgee comes this announcement that the CFTC will be voting on 10% position limits next week in an attempt to control the rampant manipulation going on in precious metals.

Second is this thread on a Yahoo messageboard. This could be interesting just for the speculative value if this goes viral on the internet:

• New Year Strategy from Blythe's Former Traders 5-Jan-11 02:04 pm
  
  Blythe,
  
  This is what I am hearing from your former traders (who made "very interesting career decisions"). Well it seem that they are on to a new scheme to corner the Comex and drive the price of silver up $10 to $15 dollars in a matter of weeks.
  
  The strategy is as follows. We know that Comex only has 105 million ounces of silver of which only 50 million ounces are available for delivery. (I personally don't believe the Comex numbers are anywhere near that high, but that is neither here nor there for now.) Well, all it would take is 10,000 contracts on the Comex to buy up all the "available silver" at the Comex and 20,000 contracts to deplete it completely. The current front month March OI is north of 78,000.
  
  Watch the OI closely. Blythe's former traders are advising major hedgefunds and billionaire investors to buy up as many contracts as possible as March 1 approaches and deposit the cash needed to stand for delivery for the month of March. The purpose is not necessarily to bust the Comex but to force the Comex to pay a premium (some as much as 30 percent) for cash settlement. Think about it. If a group of hedgefund gets together and bankroll $1 billion, they can buy more than 30 million ounces of silver. Of course, the contract sellers like The Morgue cant deliver the silver so a cash settlement is the only recourse. So what's wrong with $200 million in profit on a $1 billion investment that takes less than 4 weeks total?
  
  Guess what Blythe? Your former traders are advising everyone they know to put on this trade come the first week of February. Is this what happened in the December contracts? Is this why silver went from $22 on September 30 to $29 by December 1? How much do you think silver will spike in February as we approach March 1? The traders think silver will be north of $45. Heck it went over $9 as we approached December and everyone who got a pay off in terms of a premium cash settlement will be back for more. And they are all gonna be bringing friends to partake in the bounty.
  
  Your former traders are telling everyone who would listen that all they need to do is purchase a huge amount of March contracts near the end of February and stand for delivery and they will all make 20 percent in a matter of days. Is this what you are hearing Blythe? If so, shouldn't you let the price of silver move up so that you can get some physical to deliver before March 1?
  
  Either way
  
  You're going home in a body bag, do-da, do-da...

Ahh fun times everywhere, eh?

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Hey... did you hear? The Vancouver R/E decline is OVER!

Tis true folks. According to the real estate 'pumper-in-chief', CREA's Cameron Muir, "the number of new residential listings in the province has fallen 30% since April. With fewer new listings, total active listings are now on the decline, signaling that an end to the buyer’s market may be on the horizon."

Woohoo... perhaps Andruff was right and it IS time to pack in the blog.

Meanwhile let's turn our attention to the inflation that isn't (because government doesn't count it anymore).

The quantitative easing and stimulus money are working their way into the commodity sector which is allowing the dogs of inflation to slip their leashes and work their havoc.

Take a look at the way food prices are being driven to unseemly high levels once again just as they were in 2008.

Corn is coming up on $5.00, wheat is more than $7.00, soybeans are over $10, sugar is over $0.24/pound, cotton is closing in on $1.00, coffee is up near $2.00 pound wholesale (which is a 13 year high), cattle are just shy of $1.00/pound, bellies are trading over $1.50/pound for fresh product.

What does it all mean? It means the consumer is on the verge of watching his disposal income be decimated by high food prices. In Canada this comes at a time when most Canadians are living paycheque to paycheque and are saddled with the highest levels of household/mortgage debt ever. Disposable income is at an all time low. In the USA, a record number of Americans are on food stamps and are either unemployed or underemployed.

The only saving grace is that energy prices have not YET begun moving up alongside the rest of the commodity complex. But it's only a matter of time. When the crude complex gets involved you will see home heating bills, home cooling bills, industrial energy costs and gasoline prices join the list of soaring costs nationwide.

But don't worry. None of this counts towards the Consumer Price Index anymore. Thus... there is no inflation.

The technical term is 'Cost Push Inflation'. And it's insidious havoc is silently taking root.

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Nothing to see here... move on.

The turning of the real estate market in Vancouver continues unabated. Listings are up, sales are down... even the CREA came out in the middle of last month (June 16th) with a press release confirming this fact from May's sales.

And just like in 2008, the R/E machine cranked up the P/R offerings as to why this should not concern you.

Last month the angle was all about 'Hot Asian Money' (HAM). The spin was 'HAM' was pouring into town and this would support property values - ergo no need to drop your asking price.

Stories appeared everywhere promoting this angle, but it appears reality is having it's effect.

If you are a faithful reader of this blog, you have seen postings about the ever-upbeat downtown realtor, Ian Watt. Watt posts regular youtube blurbs constantly pumping the market. During last year's downtimes, Watt regularly chided buyers for following negative press about the market.

So should we expect a similar tact this time around?

Perhaps recognizing early on a similar pattern as the start of last year's downturn, Watt has posted this latest blurb telling potential sellers that they have to recognize the turning market and bring down their asking prices:



You know the market has to be turning significantly when you see such a blurb by Watt. Which means we should be seeing the next move by the R/E P/R cabel in response to this turn of events.

And right on que comes this article in Saturday's Vancouver Sun.

Authored by real estate bull (and developer) James Shouw, we are chided to stop focusing on declining sales numbers and increasing listings as red herrings that distract you from the real issue (although somehow this point is never relevant when sales are booming, listings are few and prices are climbing).

Shouw's position?

"Real estate numbers are transitory, but value is forever, the only 'news' that matters: the metropolitan population increases 50,000 annually."

Schouw basically throws realtors under the bus dismissing them because they focus on those headlines that focus on a year-over-year decline. While that concerns realtors who are primarly focused on volume, this news shouldn't concern real estate owners.

"As a developer, I'm primarily concerned about value. As a real estate broker, I'd likely be more concerned with volume. Value and volume can fluctuate in parallel, or in opposition, depending on underlying market dynamics."

It's a variation of the 'buy now or be priced out forever' mantra. Land is running out, people continue to move here, so don't worry... values will fluctuate but real estate will always go up.

Look for this theme to be repeated all summer long to counter a falling market.

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The Story In Your Eyes

About a year and a bit ago it was time to pull up the ottoman, grab a bag of popcorn and watch the saga play itself out.

Of course a great many were gleefully anticipating a Canadian-style housing collapse that would mimic the great American catastrophe playing out on our cousins to the south.

But it was frustrated despair that many felt as the Canadian story took an unexpected path - government intervention, emergency interest rates, CHMC directives to approve sub-primers.

A watched pot never boils. And with that thought, I am now reminded of the classic Moody Blues song, The Story in your Eyes.

"Listen to the tide slowly turning
Wash all our heartaches away
We're part of the fire that is burning
And from the ashes we can build another day"

For the past month and a half we have watched the media slowly begin to grasp the true condition of what has been driving our real estate market, watched the bond market start to drive interest rates up and listened to the Governor of the Bank of Canada 'tsk-tsk' Canadians for overdosing on the crack cocaine of the emergency level interest rates he has set out on the table.

The result?

As CREA’s economist Gregory Klump says, “with interest rates soon expected to rise, Canada is widely believed to be entering a typical demand-driven downturn due to recent prices increases and rising interest rates."

Typical? It will only be classified as 'typical' if the bleeding is minimized. Last month's statistics are out and the 'demand-driven downturn' has begun.

Detached houses prices are down 4.6% from April, listings are exploding and buyers are exiting en masse.

And yesterday... the Bank of Canada doubled their emergency interest rate from 0.25% to 0.50%.

This comes on the heels of StatsCan reporting that the personal savings rate of Canadians has plunged. We now spend, on average, 97.2% of what we earn.

Debt has postively exploded among Canadians.

Mortgage debt is at an all-time high and we’ve never owed so much on credit cards, lines of credit, car loans and/or home equity loans.

And this debt orgy has all been built up when interest rates are at the lowest point in history.

The email inbox reveals numerous comments that I am gleefully crowing over the hardships I expect to befall my fellow countrymen.

Nothing could be further from the truth.

"But I'm frightened for the children
That the live that we are living is in vain
And the sunshine we've been waiting for
Will turn to rain"

I focus intently on the obvious conditions which are brewing because to ignore what is coming is pure folly.

As I said Monday, understand what is going on around you. We live in extraordinary times, most of us just don't realize it yet.



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Sunshine, lollipops and rainbows everywhere

Ahh... ya gotta love it.

Almost as if on Que, enter the Canadian Real Estate Association trying to slap down yesterday's bank economist's attempts to piss on the R/E parade.

"Don't expect big drop in B.C. home prices," trumpets the CREA. "If you are waiting for housing prices to drop substantially in B.C., it's probably not going to happen."

Of course not, real estate only ever goes up.

CREA Chief Economist Gregory Klump predicts a small decline in the average price in B.C. in 2011. "After that it will likely stabilize so what's going to happen is over time incomes will continue to rise as well. So that's going to return the ratio to its long term average. It's going to take longer than elsewhere in Canada because you're farther away from a long term average than other provinces are."

But if Klump's prognosis is still no pessimistic for you he quickly adds that "the price-to-income ratio may be affected by investors - again skewing the market upward."

Leslie Gore would be so proud.

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Hark how the bells, sweet silver bells, all seem to say... throw cares away?

Another day and another flurry of Canadian housing bubble stories in the mainstream media.

Among the treatsies yesterday was this Globe and Mail offering titled 'Housing Market Has Big Cracks' which tells us, "it is probably a real estate bubble that will eventually burst - two years after the rest of the world... Too many appear to be blindly following Americans down a path of excessive debt, enticed by low rates."

Oh my!

Even worse are the statistics that follow.

"The ratio of mortgage debt to household incomes in Canada recently hit a record 70%, up from 65% a year ago. And 40% of home buyers are opting for short-term, variable-rate mortgages, which will eventually ratchet up, leaving some owners in deep financial trouble."

Meanwhile the Montreal Gazette notes that we have gone 'From Great Depression to Bubble of a Bubble' in a span of only 12 months.

You don't say.

And with all these mainstream media musings, we should expect to see the regular cast of R/E apologists moving to crank it into overdrive to counter all this 'negative talk', shouldn't we?

Enter stage left...

First up: Canadian Real Estate Association economist Gregory Klump.

He pooh-pooh's the chatter and reminds us that "consumer confidence has been increasing."

Really? What about record levels of unemployment?

Balderdash says he.

In the United States they may view 10% unemployment as starting down the road to economic apocolypse, but our buddy Klump sees the glass as half full.

“If we have 10% unemployment, that means 90% of people are employed,” Klump said. “People are re-entering the market – they have the confidence to take advantage of bargain-basement prices. There's been a release of pent-up demand, and that has a long time to play out. Prices have gone as low as they are going to go.”

There you go!

Next comes the discrediting of the naysayers.

Towards the end of the Gazette article referenced above comes this little tidbit:

"One senior real estate industry veteran, who asked not to be identified, wonders whether economists are now calling for a crash to grab themselves headlines. 'They are all piling on the bubble story now,' he said."

Spotlight hogs, one and all.

The best of the week comes from our old friend Phil Soper, president and chief executive of Royal LePage Realty.

They conducted a survey of 1,225 Royal LePage real estate agents and brokers across Canada.

[No pesky, headline-grabbing, negative economists in that group]

Tell us Phil... what did your survey of folks with a vested interest in real estate 'consumer confidence' reveal for us?

Well... real estate agents/brokers tell us "20% of agents and brokers said they are not hearing any concerns from buyers."

[Gee. 20% of buyers believe they are doing the right thing. Does that mean 80% of agents and brokers are hearing buyer's say they are making the mistake of their lives? I digress, back to Phil...]

"Buyers remain nervous about the economy but few believe house prices will drop again."

[Hmmm... no jobs, no money, and 80% of buyers believe they are screwing up royally but they conclude real estate prices will keep going up. With that sort of irrational logic at play, I now understand why there are so many people buying]

"Canadian real estate markets are enjoying a strong recovery as 2009 draws to a close and appear poised for healthy growth in 2010. Our survey shows that consumer confidence is edging towards normal levels.

[Now... just to keep things straight... that's the same survey that says only 20% of buyers have no concerns about the economy?]

"Canadians clearly believe that the worst of the recession is behind them and that the real estate market is on the path to sustainable recovery."

[Wow... that's quite the leap]

"The most obvious sign that market conditions are improving is found in the significantly higher unit sales volumes. That said, we have seen some significant recent increases in home prices, which is unusual at this time of year. Paradoxically, the recession is contributing to the unexpected rise in year-end house prices. On one hand, Canada's low interest policy has stimulated demand. On the other, many Canadians who might otherwise feel comfortable putting their homes on the market don't yet have the confidence in the state of the economy's recovery to list their homes, which is contributing to the current supply shortage."

Sooo... the nervousness of the shepple had created an artificial shortage of housing which has duped a certain percentage into engaging in bidding wars for the reduced supply which has, in turn, created a sense of recovery?

Thanks for clearing that up for us, Phil.

The bottom line is that Phil has chatted with his coworkers and their enthusiasm conclusively proves we "are on the path to sustainable recovery".

Marvelous. Let's summarize Sopel's holiday message to Canadians, what is he telling us?

That realtors and brokers all seem to say... "throw cares away!"

How festive of them. I'll retire to bedlam.

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Vancouver: North America's Most Bubbly City

Local rock and roll legend Red Robinson was profiled in the Vancouver Sun this past week. And it wasn't his entertainment credentials or stories that were of interest. Instead, it was his views about Real Estate that caught our eye.

After 44 years on the North Shore, Robinson and his wife Carole, decided it was time to downsize. They sold their 4,000-square-foot home in Deep Cove and, rather than buy a new place, they opted to rent a 1,560-square-foot condo in Coal Harbour.

Why rent?

"We sold our place for over a million - I'm not going to go into the exact figure, but well over a million. And . . . it's tax-free! Now wouldn't I invest that, while I'm waiting to see whether the prices are going to go up or down?"

Sound advice.

Robinson, you see, isn't being sucked into all the hype by the BC Real Estate Association, Canadian Real Estate Association, et al that 'now' is the time to buy.

And he is following the exact advice that we 'whisper' to every soul who will listen.

Our market is at the absolute pinnacle of it's bubble right now. When interest rates start going up (and they WILL go up), our market is going to crash in stupendous fashion.

So Robinson wonders, why buy now?

And with good reason. Property values are way out of balance.

Consider this this little gem.

Here is a house located on the west side of Vancouver, in Marpole. It is located at 541 W. 64th Ave (hattip to 'bestplaceonmeth' at RET).

What a dump! How much is this piece of crap on the market for?

$1.5 million dollars!

I'm not making this up. Here is the MLS listing. I'm going to also post an image of the listing for future reference (click on the image to enlarge)

How whacked is that?

Now let's compare that to a worldwide resort destination like Hawaii.

Two weeks ago, in Molokai, the Hawaiian estate of software mogul John David McAfee (of McAfee Virus Protection fame) was auctioned off.

The estate is 5.34 acres of oceanfront property, zone agricultural and equestrian, contains bridal and hiking trails throughout, and is a short distance to Papohaku Beach which is one of the longest white sand beaches in Hawaii.

The 4 bedroom home has a mastersuite that opens onto a large covered deck that faces the ocean, a huge walk in closet, a large jacuzzi in the master bath surrounded by black granite, a glass block shower, his and her sinks and an ocean view.

Bedrooms 2 and 3 have 18x20 foot walk-in closets and full bathrooms. Bedroom 2 has a whirlpool bathtub and a seperate shower. Bedroom 3 has a loft area. Both bedrooms open up to the large covered deck which faces the ocean. Bedroom 4 is slightly smaller with a full bathroom and its own deck.

Here are a couple of pictures. As always, click on the image to enlarge.

You can see the brochure advertising this auction here.

And what did this palatial oasis go for?

You guessed it! $1.5 million dollars (you can see a reference to the auction result on page 2 of this New York Times story).

Now let me ask you a question.

If you had $1.5 million dollars to spend on a house, would you really buy that piece of shite in Marpole instead of something like this Molokai estate?

The answer is not only obvious, but it seems profoundly laughable to even be asking it.

The people who are buying real estate in Vancouver this year, even those who are 'only' paying half a million dollars for a house, will very shortly be wondering how they could have been so shortsighted to consider... and then act on... their decision to buy in this market.

They will regret not doing exactly what Red Robinson is doing; waiting it out.

The popping of this bubble is going to be nothing short of stunningly spectacular.

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Who ya gonna trust?

Canadian Real Estate Association president Dale Ripplinger tells us “the worst of the recession may be behind us.”

On the basis of this heady news, "potential buyers who moved to the sidelines late last year when economic uncertainty peaked are returning to the housing market."

The government engineered cheap mortgage rates have created a mini real estate frenzy and, according to the CREA, prices have just reached a new all-time high, surpassing the record set in the second quarter of 2008.

To these shills, er... economists... buying at the peak right now is the thing to do because tomorrow there will be a new peak.

So, faithful reader, who are you gonna trust? These salesmen... or your own logic.

Is the recession behind us?

There will be no recovery in Canada until there is recovery in the land of our largest trading partner, the United States.

And what is happening in America?

The US Bureau of Labor Statistics preliminary estimate for job losses for June at 467,000, which means 7.2 million Americans have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

The first major mistake these 'salesmen' are making is viewing this recession like previous ones.

This isn't like past recessions. If you are going to compare circumstances you have to compare this recession to those that started with the bursting of a giant speculative bubble. When you do you, see slow recoveries. The reason you see slow recoveries is that asset values at bottom are so low that investor confidence returns only gradually.

But even those who predict a more gradual recovery as investors slowly tiptoe back into the market, will be proven to be wrong.

This recession is very deep.

And in a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70% of the U.S. economy. Consumers have been crushed in this recession and until they start spending again, you can forget any recovery.

The problem is, consumers won't start spending until they have money in their pockets, or until they feel reasonably secure.

They don't have the money, and it's hard to see where it will come from.

In recent times, Americans found myriad ways to fuel spending, even as incomes stagnated: borrowing against the once rising price of their homes and tapping plentiful credit cards.

No longer. They can't borrow like that because one out of ten home US owners is under water - owing more on their homes than their homes are worth. American homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings.

The paycheck has returned as the primary source of spending, and pay is eroding even for those who have jobs. This process is nowhere near complete, and, until it is, the economy will barely grow, if at all, and may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of the excessive debt has been completed. Until then, the private economy will be deprived of adequate profits and cash flow, and businesses will not start to hire. Nor will they race to make capital expenditures when they have vast idle capacity.

US unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.

Meanwhile in Canada unemployment is also rising quickly, over 2 million people are out of work and household debt equals almost 140% of disposable income.

A new federal report warns our budget deficit will top $50 billion for at least a couple of years, and then Ottawa’s finances will be in the red for a decade. This, says economist Dale Orr, will add $200 billion to the federal debt, wiping away what 15 years of the GST and higher taxes were supposed to eliminate.

Don't you remember those times?

Our immediate future will be one of slashed government spending. And as our goverment must borrow more and more, interest rates will soar back to double digit rates as the mushrooming debt becomes more expensive to finance.

Economic growth alone (if there is much) won’t balance the books so governments will have to raise taxes – BC is already pounding the war drums on cutting services in health care due to lack of funds.

And this economy can't get back on track because the track we were on for years -featuring flat or declining median wages and mounting consumer debt - simply cannot be sustained.

Low interest rates and government stimulus can only delay an economic reckoning until the economy begins to recover. But that economy won't "recover" because it can't go back to where it was before the crash.

It means there is still a lot of "economic adjustment" ahead of us, regardless of what these polished R/E salesmen... err... economists may say.

In other words, there are many more reasons today to expect the downturn to continue than to expect a turnaround.

You only have to look at what is happening around us to see this yourself.

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You Cannot Fool All The People All The Time.

The last week of February are been a difficult one for BC’s Real Estate Pollyanna’s.

Desperate to create the illusion that BC’s housing market is immune from the worldwide economy, we have seen various entities repeat the ‘consumer confidence’ mantra ad nauseam.

Conferences were held by leading members of the Industry to tell Joe Q. Public that everything will be OK and that we really do not have a housing recession.

But the media barrage continues to buck the R/E Pollyanna playbook.

Last week, in addition to Scotiabank and developer Bill McCarthy, we could read in Friday's Vancouver Sun an article in which RE/Max Westcoast realtor Patsy Hui said, "I don't think anybody in this world, and I'm talking about the world this time because it is a worldwide thing, can really tell you what's going to happen and when it is going to stabilize."

The article also quoted Tsur Somerville of the UBC Sauder School of Business who said, “My sense is they [prices] haven't stabilized yet. They have further to fall.”

But perhaps nothing so eroded the credibility of the Pollyanna set more than this article from Macleans Magazine: The Shocking Truth About The Value of Your Home: New evidence shows that Canadian prices could go down, and stay down, for a decade.

Macleans completely exposes the P. T. Barnum approach taken by the Real Estate Industry during the current 'non-housing collapse'.

Noting that the Canadian Real Estate Association (CREA) numbers are riddled with problems, the article quotes Robert Shiller, an economics professor at Yale University and an internationally acclaimed expert on housing markets. “There was a lot of cleaning on their data to be done,” he says. “Their data is actually physically inputted by real estate agents as they sell the houses. And obviously, as a real estate agent, it’s in your best interest to show that prices are not falling too much because that’s how you make your living.”

He was also nervous about the fact that CREA depends on the co-operation of real estate boards across the country to gather the data, and some weren’t thrilled about taking part.

To gain a more accurate snapshot of what is really happening in the Real Estate market, the article cites another data source that adopts a more rigorous number-crunching methodology. The Teranet-National Bank House Price Index. This Index tracks the resale prices of individual single-family houses in selected metropolitan areas, while CREA uses Canada’s Multiple Listing Service (MLS) to add up all the money spent on houses in a given area, then divides it by the number of houses sold.

The Macleans article goes on to say the real estate industry’s data can be misleading because "cities that have a higher level of sales activity have a disproportionately large influence on the national average. In other words, if there’s more sales activity in Calgary than there is in Ottawa one month, then the higher prices in Calgary will tilt the numbers up, even though there are roughly the same number of homes in each city."

Beyond the quality of the data, Shiller is quoted as saying there’s another, more common-sense reason why you should trust the futures market over what the real estate economists tell you: the Teranet investors aren’t trying to sell you houses, and the real estate agents are. “The predictions from those guys are very biased,” he says. “They know that in a declining market, the volume of sales falls dramatically and real estate agents lose their jobs. So they don’t want to say anything that could be seen as contributing to a falling market. If their economist predicted a decline in the market—and then it happens—that’s deadly. The guy would have to watch out for his life.”

As Abraham Lincoln is so famously quoted as saying, “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”

Words of wisdom that are apparently lost on the likes of BC's R/E Pollyanna set. A group intent on trying to 'fool all of the people, all of the time'.

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Email: village_whisperer@live.ca

A Tale of Two Predictions: Part (b)

Mainstream media often provides Real Estate 'insight' from builders, bankers, developers and realtors. For years this Real Estate ‘cabal’ has insisted that the Vancouver market was not in a bubble. Now that prices have started to decline, they insist this drop in prices is only a ‘momentary dip’ attributal to a ‘lack of consumer confidence’. Their prognosis: price declines are relatively muted and upward momentum will return in short order.

For several years now, the Vancouver Housing Blogger has been a counterpoint to this view. Recently VHB offered his prediction for the immediate future of Vancouver Real Estate on Housing Analysis ; a blog whose stated objective is ‘providing thoughtful analysis on the housing market’.

Noting that current Canadian labour market statistics predict a very bleak picture for 2009 and that the prognosis for BC in the coming few years is for extremely hard times; VHB points out that circumstances are, in reality, far worse than the predictions. January statistics already show BC is down 35,000 jobs - a pace that will blow most economist’s predictions for 2009 job losses right out of the water. And one week into February, the torrid pace of corporate layoff notices has continued unabated.

More importantly, BC’s labour market boom has been based on construction and as that construction boom continues to collapse, massive job losses will continue to mount. A situation which cannot help but mortally damage BC’s housing market.

“When the bubble started to burst in Spring 2008 in the midst of a strong economy, it burst mostly because there was a psychological change--people stopped wanting to pay the inflated prices because they didn't have confidence that they could find a greater fool to whom to unload their property in the future. We've seen 15% or so come off prices, but the main effect really has been that properties have just sat around not getting sold. Aside from a few flips gone bad, there hasn't been a lot of urgency on the sell side. So it didn't sell in 2008--just rent it or try again in 2009,” said VHB.

“What will be different going forward is this. As unemployment approaches double digits in BC (we'll get there shortly after the Olympics--if not earlier), there will be thousands of people who cannot make their mortgage payments on their primary residence--not to mention their inability to feed the monthly bleed from their condo 'investments.' These properties will be thrown back on the market first by themselves, and later by banks as foreclosures.”

VHB goes on to note, "When will this happen? When people lose their job, it takes some time before they get irreversibly behind on their bills. It then takes some time for the bank to foreclose and get the thing on the market. So, the 'have to sells' are not going to seriously start hitting the market until late 2009. But in 2010, this will be a dominant part of the housing picture."

VHB paints a very compelling picture. Record new housing inventory on the way and a cascade of 'have-to-sell' people driven by job losses.

Meanwhile speculators have vanished from a collapsing market, home ownership rates are at record level (with those owners unable or unwilling to upgrade and no new customers coming into the picture) and the evaporation of U.S. and Asian buyers due to the world wide economic collapse

It’s a toxic mix: exploding inventory with no customers to fill the void.

The end result? VHB predicts 2009-2010 will provide a tremendous amount of pain for those who are overexposed to Vancouver real estate because we have the creation of a perfect storm which will send real estate values into a downward spiral: rising unemployment levels leaving many local Vancouverties unable or afraid to commit to real estate purchases for themselves, the evaporation of speculators who cannot turn a guarenteed profit and the evaporation of U.S. and Asian buyers - buyers who have always kept the market artificially high.

VHB - along with a ‘mohican’ - post their statistical case on a regular basis on the Housing Analysis blog. Its worth you while to check it out.

Meanwhile the coming two years will play out as a tale of two predictions: the CREA's or VHB's.

Who are you inclined to believe?

Even for Karnac the Magnificent, this would be a 'gimmie'.

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