Mon Post #2: Canadian Business Magazine's Overvalued Canadian Home Infographic

Excellent infographic from Canadian Business Magazine in an article titled: Infographic - Just how overvalued are Canadian homes? It depends who you ask.

The long-anticipated slowdown in Canadian residential real estate is now underway, and guessing how far national home prices might fall has become a popular pastime—scarcely a month goes by without a new estimate making headlines. The astute observer may discern some correlation between the tone of the prediction and the economic interests of its promoter. After all, it seems like the sunniest forecasts come from realtors and banks who are active in mortgage lending; leave it to the depraved journalists - particularly those pessimistic foreign ones - to envisage a fiery apocalypse in our future.

Hmmm... seems like Canadian Business Magazine is asking "who ya gonna trust?".  Those with a vested interest or impartial observers.

Wonder where depraved bloggers fit into this spectrum?

Hat tip Democrass on VCI.

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Canadian Business Magazine asks: How low will house prices go?

Canadian Business Magazine joins the media attention on our housing bubble with an article that asks: How Low Will House Prices Go?

Before every housing correction, there’s a Looney Tunes moment. In the animated universe, there’s a gravitational peculiarity that briefly suspends an overzealous pursuer in mid-air, just long enough to flash a HELP! sign, before plummeting off the cliff he failed to navigate. When it comes to overheated real estate, there is a pause that follows the outset of a correction, during which the market fails to realize there is nothing below but air.

Ahh yes, the Wile E. Coyote moment.  Two weeks ago it was Macleans insisting that we were there, now it's Canadian Business Magazine.

The pattern is familiar: it starts with slowing sales activity. Listings begin to generate fewer offers. Would-be homeowners start to see the sense in holding off. In Toronto, where less than a year ago a rundown semi-detached could sell for $100,000 or more over asking price, the era of the bidding war is fading. “Buyers are sensing that prices are going to come down, so why buy now?” says Thomas Neal, a Royal LePage agent in Toronto, where housing transactions in December slid by 25% from the prior year. In Vancouver, the number of homes sold last year trailed the 10-year average by 25%. It is in those two markets where the twin epicentres of the Canadian housing shakeup reside. But the ground is beginning to shift under the national market as a whole. Those kinds of numbers support the view that “a potentially severe housing correction is underway,” says David Madani, an economist at Capital Economics, who for months has been predicting a 25% decline in Canadian home prices.

Which brings us to where we are now... the denial stage where sellers refuse to acknowledge the shifting market.

The real estate industry insists sellers will hold firm forcing buyers to capitulate and continue to pay higher and higher prices.  Canadian Business has a different take:

As usual, one-half of the market refuses to look down. “We’ve got a number of sellers who say, ‘If we’re not going to sell for a particular value, we’re not going to sell at all,’” says Victoria real estate agent Tony Joe. “A lot of people are still pricing their properties based on yesterday’s market.” So, even though demand is weakening, prices have yet to fall for most of the country.

The reluctance of sellers to compromise is understandable, given recent history. For more than a decade, real estate in Canada appreciated almost without interruption. Even the financial crisis and ensuing Great Recession registered as little more than a blip. Meanwhile, most economists take the current trends as indicative of a “soft landing” for the sector, with just a slight moderation in prices afoot. But asking a bank economist or real estate market insider about the likelihood of a soft landing is like “asking your barber if you need a haircut,” says George Athanassakos, a finance professor at the Richard Ivey School of Business, who expects a “severe correction,” and soon. The current resilience in home values could simply be the brief mid-air pause before physics brings about the plunge fated for inflated housing markets and cartoon coyotes alike.

People tend to have short memories about real estate, Neal says. Since 2000, the average home price in Canada has shot up by 125%, which has reinforced the perception that residential real estate is infallible.

So what will trigger a slide?

Just as excessive faith in home appreciation can overheat a market, so too can a change in sentiment accelerate and intensify the downside. With the rate of home ownership now close to 70%, and with household debt at a record high, much of the financial health of Canadian households is inextricably linked to home values, making it the kind of dominant concern that not only affects household finances, but consumer psychology and confidence.

Even most bank economists believe Canadian housing is overpriced somewhere in the range of 10% to 20%, perhaps more so for the hottest condo markets. That’s manageable as long as interest rates and unemployment remain low, says Doug Porter, deputy chief economist at BMO Capital Markets. Absent an external economic shock that would ultimately put Canadians out of work, there is no reason to expect markets to correct hard and fast, he argues. “What would force people to feel that they have to sell at much deeper prices, given that the interest rate environment is likely to remain quite benign at least through next year?” Without a trigger, there should be no national housing crash, Porter says.

Ahh yes, the lack of a national trigger. That's been Tsur Somerville's argument.

But there are some mortgage professionals who argue that the catalyst for a national reaction has already arrived by way of the federal government, which deliberately cooled the market by tightening mortgage regulations. Those changes would have disqualified almost 10% of all 2010 homebuyers, according to a report by Will Dunning, chief economist for the Canadian Association of Accredited Mortgage Professionals. “That’s taking a lot of demand out of the market,” Dunning says. “You’re putting the housing market at risk, and the broader economy.” Now Dunning says the market is “weak enough it could result in prices falling in many places across the country.”

And under these conditions, which group of seller's might panic and bail on the market?

In 2011, Toronto had record condo sales of more than 28,000 units. “The kind of construction we’ve seen is absolutely off the charts,” Porter says. “It is the kind of market that is so heavily supported by investor demand, we could have a temporary spell of a pretty serious correction.” Investors are potentially more likely to sell when prices decline, which could ultimately flood the condo market with resale listings. With 240,000 more planned condo units yet to be built in the Toronto area, many are worried about a burgeoning supply-demand imbalance. Already, investors are backing away from the Toronto condo market, which reported a drop in third-quarter unit sales of 30%. Developers reacted to both slowing sales and a record high level of unsold inventory by launching just five new projects in the third quarter in the 416 area, which typically sees 15 to 20 new projects per quarter. 

Investment demand also looms over Vancouver, where the condo market spent most of the year in full retreat. Since May, the benchmark condo price in Vancouver has already fallen by 13%. If the expectation of appreciation disappears, another layer of demand could shrink from the market. Ohad Lederer, an analyst at Veritas Investment Research, calculates that investors buying condos to supply the rental market are accepting annual returns of less than 4%. “That only makes sense if buyers believe that prices will go up.” But if prices in those two markets fall significantly, as Lederer believes they will, condo investors could face some tough decisions. “That’s where the intestinal fortitude of those investors will be tested,” he says.

The market has 'softened', to use the R/E industry phrase, but it has not crashed hard - yet. So we still have a saw-off in analysis which each side firmly sticking to their positions about where we are going:

The stability of housing in Canada relies on a Goldilocks economy—not too strong and not too weak. Economic expansion could lead to rate hikes, which would expose the unsustainable finances of many indebted households. On the other hand, a destabilizing economic event could trigger the housing crash Canada avoided in 2009. The historic crash in the United States is not likely to be repeated here. The U.S. bubble was more a product of risky lending. “A lot of people were allowed to take on debt with little or no prospect of paying it back,” Porter says. In Canada, debt is better distributed among middle and upper-income borrowers, he says. “There still is a relatively solid credit-vetting process in Canada.” Still, many Canadian homeowners are stretched thin. According to a Euro Pacific Capital report, high-risk mortgages make up more than $500 billion of Canada’s $1.1 trillion housing market.

The average home price, at more than $350,000 (which is double the median existing home price in the United States), now sits at about five times the average household income. Housing investment is close to peak levels at more than 7% of GDP—about the measure reached in both the late 1970s and late 1980s, Athanassakos says. “Right after that, the market collapsed in both cycles.”

Canadian demographics no longer support inflated prices, Athanassakos argues. The proportion of Canadians of the age when homes are typically purchased is at a turning point and is set to decline, which historically has been a powerful indicator of housing trends. “The long cycle is most of the time affected by demographics,” he says. And a very long cycle it could be. He foresees a 20-year span of declining home prices. There need not be an explicit economic trigger for an acute housing correction. The imbalances are already there. Changing sentiment could be the spark, Lederer says. “When it turns, it turns very fast.”

And Canadian Business Magazine gives Athanassakos' prediction prominence making it clear where they think we are going:

(hat tip VMD)

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Confidence

Everywhere, it seems, there are now media stories on the housing bubble and the worsening conditions. Hell... Global TV in Vancouver is running bearish stories.

In a story re-run everywhere, Reuters proclaims: “Canada braces as housing slowdown takes hold."

Garth Turner recently noted:

At some point, which is probably now, all this becomes a self-reinforcing event. Real estate can’t function without investor confidence, and when people perceive that other people are getting freaked at housing risk, it’s over. Market momentum turns negative, sales slump and in due course prices follow.

This, of course, is of grave concern to the real estate industry.

The last thing they want is for "investor confidence" in housing to wain and for people to bail and wait on the sidelines.

And in what will surely be only the first in a theme of articles on the subject, Canadian Business attempts to address the issue of "Housing markets and market timing" with those contemplating getting out.

Naturally the advice is not to do it:

Market timing appears to be alive and well in the housing sector. Some homeowners have sold their dwellings and taken up renting because they expect prices to fall. Similarly, a number of first-time buyers have delayed purchases in hopes of buying later at lower prices. But speculating on price fluctuations is a tricky art that can end up doing more harm than good.

Ahh yes... staying out of a falling market will do 'more harm than good', so don't do it, okay?

You can see the prevalence of market timing in the housing articles now popular in the media, especially in reader comment sections. A large number of the posters say they are renting in order to avoid price declines. They also express support for price tumbles of as much as 50%, which would allow them to buy back in at cheaply. 

A number of these commenters even appear, regrettably, to be trying to encourage a collapse in prices. For example, on one site a poster wrote: “Home prices will follow sales declines. If you own a home and want to get ‘top dollar,’ sell now. Don't hesitate.”

If you are concerned about the market, buy and hold - don't bail:

Market timing is a discredited practice in financial markets. Countless studies have found that it does not work compared to simply buying and holding over the long run.  

Legendary investors express similar views. Take Benjamin Graham, author of the classic Security Analysis. Near the end of his life, he declared: "If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market." 

House prices may at times go into reverse, but they historically have enjoyed a long-term upward trend, like stocks. Even the infamous housing corrections of the early 1990s in Toronto and Vancouver have long ago been recouped.

The article then pushes real estate as an inflation hedge with all the printing in fiat currencies going on:

As long as the world operates on fiat currencies, there will likely be inflation in houses and real assets. And as argued in one of my previous columns, "Real estate as an inflation hedge," we could be nearing a resumption of the inflationary environment given the historic amounts of currency that have been printed by central banks around the world.

In past housing cycles, many first-time buyers acquired properties that needed fixing up or could be partly sublet. This approach provides protection against inflation yet offers some comfort against market setbacks. In the case of fixer-uppers, renovations boost market value. As for subletting part of one’s house, the rent provides a supplementary stream of income. 

Buying a property with an income suite may have an edge over the fixer-upper in the event the tail risk of a housing crash materializes. In the aftermath of the U.S. meltdown, the ranks of renters swelled, which caused rents to escalate. 

Instead of worrying about market timing, homeowners can stay focused on the long-term tendency of real-estate prices to appreciate and ignore the media noise.

The bottom line, as always, is that it is always a great time to buy real estate.

So what are you waiting for?

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Canadian Business Magazine proclaims "Canada's Housing Crash Begins - The Vancouver market has cracked.”

Canadian Business Magazine is out with an article proclaiming "Canada's Housing Crash Begins" Some excerpts:

In just one year, Vancouver house prices have dropped by 12%, and unit sales are plummeting in both Vancouver and Toronto.

In August, the number of sales in Greater Vancouver fell 21.4% from the previous month, after dropping 11.2% in July and 17.2% in June. The Real Estate Board of Greater Vancouver chalked it up to a “summer lull,” but the numbers suggest a trend that can’t be dismissed as simply seasonal. Last month, unit sales were the lowest for any August in the past dozen years, and nearly 40% below the 10-year August norm. Even more worrying, the average home price in Vancouver is now down more than 12% from a year ago—a worrying sign for the country’s priciest city.

The poor global economy is souring foreign investors’ appetite for expensive property overseas. The federal government, meanwhile, is trying to tame the market by tightening mortgage lending standards and warning the public at every opportunity that Vancouver is a risky city for buying real estate. Interest rates are still low, but the Bank of Canada keeps promising to raise them, which would quickly lower affordability. All of which leads David Madani, an economist with Capital Economics, to conclude: “The Vancouver market has cracked.”

Vancouver won’t be the only one. The next market to crack will be Toronto, starting with the city’s overheated condo segment.

For months, policy-makers have expressed concerns about the country’s two biggest real estate markets. Now it’s clear that trouble is ahead. The weakness in both cities marks the start of a reversal in the long boom for Canadian real estate.

What’s surprising about the weakness on the West Coast is the absence of any change in economic fundamentals, such as a spike in unemployment, to explain it. The Vancouver market was cooling even before the latest round of mortgage tightening by Ottawa, which took effect in July.

A change in buyer psychology may also be occurring, says Madani. “I don’t think there are enough people now who believe we can continue these outsized price gains we’ve seen over the past decade,” he says. “As those expectations change, potential buyers step back.” With Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney constantly warning about Vancouver real estate, it’s not surprising their pleas for restraint are being heeded.

If this change in mindset truly takes hold, the entire Vancouver market will be affected, not just the multimillion-dollar homes.

The city’s real estate has always been mind-boggling to outsiders, but reached a particularly confounding peak this year in terms of affordability. The median house price in Vancouver is 10.6 times greater than the median income, according to urban policy consulting firm Demographia. That makes it the second-most-unaffordable major city on the planet after Hong Kong. The only way to account for the market becoming so detached from fundamentals, in Madani’s view, is a pervasive belief among buyers that prices will keep rising.

Of course, easy access to credit is necessary for people to act on their beliefs. Interest rates have been at record lows since the financial crisis in 2008, making it relatively easy to obtain large mortgages. Rates have, in fact, been falling steadily since the 1990s, helping push the home-ownership rate in Canada to a record high of 68.4%, according to Statistics Canada. Household debt has ballooned, whereas wages have not. “If home prices rise substantially above income growth, the only way you’re bridging that gap usually is through mortgage debt,” says Ben Rabidoux, an analyst with boutique research firm M Hanson Advisors.

While the average resale home price has jumped nearly 128% since 2000, rents have risen by just 16.7%, as measured by the Consumer Price Index. “In order to sustain prices at these elevated levels, you need a continuous supply of new buyers willing to take that mortgage debt, and [able to] get it cheaply,” he says. Those buyers may not be forthcoming. Interest rates will inevitably rise, as the Bank of Canada keeps pointing out, and the federal government has instituted numerous changes over the past few years that will make a home purchase more difficult for first-time buyers.

“It seems like Vancouver is past the tipping point,” says Sonya Gulati, a senior economist with Toronto-Dominion Bank. Gulati estimates the market is overvalued by 15% to 20%, and says prices could fall by an equivalent amount over the next two to three years. Rabidoux foresees an even greater decline, perhaps a 30% to 40% fall in average price. The weakness in sales and the rise in inventory is uncomfortably similar to the market drop in late 2008, he says. Back then, the Bank of Canada slashed interest rates and the federal government launched a program to repurchase mortgages from the banks, which sent the housing market rallying. This time, the authorities are taking away support for the housing market. In the past four years, the maximum amortization period for government-insured mortgages has fallen from 40 years to 25. Such tightening makes an immediate rebound unlikely.

What’s happening in Toronto and Vancouver today marks the start of a much broader slowdown in housing. Affordability is becoming an issue in other cities, especially Montreal, Kelowna and Abbotsford, B.C.

After past housing booms in Canada, the subsequent hangovers lasted many years. The average price in Vancouver fell by more than 20% in real terms between 1995 and 2001 after a steady run-up.

A price adjustment may sound scary, but some say it’s necessary to restore affordability to the housing market and stop Canadians from piling on debt. “We’ve had a very good run in housing over the last decade,” Madani says. “At some point, it just runs out of gas.”

Amazingly... so many will insist they never saw it coming.

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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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Canadian Business Magazine on the Housing Bubble

As if to follow up on yesterdays post, Canadian Business Magazine hit the newsstands today hilighting the Canadian Housing Bubble.

And it's an excellent read.

The magazine hits all the key points we've been talking about for the last year and a half.

They zero in on the central causes of the massive rise in home values the last 10 years: the Canadian Mortgage Housing Corporation (CMHC).

Canadian Business Magazine (CBM) cuts right to the chase and points out how the federal government stoked the housing market for an extended period and that "Canadians should brace themselves accordingly for a more jarring correction in residential real estate."

Do tell?

CBM attempts to outline how CMHC played its "critical, if underappreciated, role."

As we noted yesterday, CMHC over the last decade has dramatically lowered its minimum qualifying standards for insuring mortgages. CMHC sets the bar for home ownership through those minimum qualifying standards.

Lowering standards for acceptance, insuring mortgages with no downpayment and increasing amortization periods from 25 to 40 years for that insurance had a profound effect on housing prices.

• "If people were able to purchase houses with zero down, they were doing that," says Jerry Marriott, a managing director at bond-rating agency DBRS. "If people were able to purchase houses with longer amortizations and therefore have a lower monthly payment, they were doing that...That was partly what was supporting an increase in house prices."

CBM also notes the Bank of Canada's role:

• "The Bank of Canada did its part. Officially, it sets the overnight rate (the short-term interest rate at which financial institutions lend among themselves) primarily to keep inflation in check. That rate stood at 5.75% a decade ago but has trended lower ever since. Interest rates are a powerful influence on consumer behavior: lowering them encourages citizens to borrow and spend, while raising them rewards savers and punishes debtors. The housing market is particularly sensitive to interest rates: they're critical in determining a mortgage's monthly carrying costs."

And like the naive car buyer who is lured into buying a new car based, not on what they can afford, but upon whether or not they can make the monthly payments... so too have millions of Canadians been hooked into buying houses based on a mortgages monthly carrying cost.

And in the process they set off a decade long bidding war for real estate.

It was a purposeful strategy by the federal government.

Between September 2008 and April 2009 the nation was spiralling down into the recession that was gripping the world. In an attempt to cushion Canadians from the recession, CBM notes that:

• Ottawa electro-shocked the housing market. "There was this absolutely massive assault on the recession by focusing on the housing sector," says David Rosenberg, chief economist and strategist at Gluskin Sheff. "And probably that wasn't an unwise decision, when you consider all the powerful multiplier impacts it has on the rest of the economy." Housing-related spending — a broad category that includes not only home purchases but also furniture, appliances, renovations and a host of other items — accounts for one-fifth of all economic activity. Rosenberg says federal measures to stimulate housing markets accounts for 100% of Canada's economic recovery.

As we know, the government attacked the problem with two key tactics. First the Bank of Canada instituted rock-bottom interest rates (0.25%). RBC economist Robert Hogue called the resulting low mortgage rates "undoubtedly the rally's most powerful driver."

Next Ottawa authorized CMHC to buy up to $125 billion in mortgages from banks and other financial institutions under the Insured Mortgage Purchase Program (IMPP). We talked about this move here, and it lays waste to the myth that Canada never bailed out it's banks.

They did, big time.

• The idea was to ensure lenders had a ready source of funding when traditional methods had been closed, which in turn allowed Canadians to keep borrowing. "This was a very good thing," says Tsur Somerville, an associate professor at the University of British Columbia's Sauder School of Business. "Financial system meltdown is a whole lot worse than governments taking on some additional mortgage-default risk."

These actions allowed credit to flow and gave the housing boom it's fuel to ignite a massive R/E bonfire. In Vancouver home prices have more than doubled since 2000.

More importantly, family incomes have not doubled.

• The value of outstanding mortgages surged from $427 billion to nearly $930 billion during the same period, which helped catapult the average debt-to-income ratios of Canadians to 145%, just shy of current levels in the U.S. and Britain. The Bank of Canada is mildly concerned. "Household balance sheets are still a significant source of risk," it reasoned in its latest review of Canada's financial system, "since the rapid expansion of consumer and mortgage credit implies that a greater proportion of households are likely to become vulnerable to adverse income and wealth shocks as interest rates rise from their exceptionally low levels."

CBM notes that the unwinding of the powerful housing-market stimulus is already underway.

• Ottawa terminated the IMPP on schedule in March. It has tightened CMHC's lending standards, albeit modestly. And the Bank of Canada began ratcheting up interest rates this year. Renewed government intervention cannot be ruled out, but it would be expensive and only delay the reckoning.

The magazine attempts to temper how bad the reckoning will be. They say that when Canada's correction arrives, it'll likely prove less traumatic than America's.

I disagree.

Canada's lenders generally have legal recourse to borrowers, meaning they can pursue a borrower's other assets in court in the event of foreclosure. That makes it more difficult to simply abandon a home that has become a financial albatross.

Many argue that this will keep Canadians from defaulting on their mortgages.

We will see.

I suspect that as values start to drop, the number of people who bought the maximum amount of house they could at emergency level rates will find that they are seriously underwater when mortgages come up for renewal.

Even if interest rates never rise, this will be problematic.

But bump interest rates up just a few percent, and I forsee enough Canadians being forced into foreclosure that it will cause a devastating domino effect - especially here in Vancouver.

I seem to be in the minority on this issue, even amongst R/E bears.

And I seriously fear what this could do to our country. As we noted yesterday, CMBC is on the hook for $770 Billion dollars in mortgages and only has $9 Billion in assets - a condition which CBC noted was "more leverage than any U.S. bank or lending institution ever had."

If CMBC has to pay out even only 10% of that $770 Billion, it would require a taxpayer bailout of $60 Billion.

It took our nation over 10 years, and the introduction of the GST to get rid of a then-record $40 Billion deficit a decade ago.

If the dominos fall as I worry they will... Canada will be in serious trouble.

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The Real Estate Bear Market Trap

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It was a leisure Wednesday morning, dear reader, and your faithful scribe was enjoying breakfast at the local White Spot, the requisite Pacific Press rags at arm's reach.

The solitude was not to last.

Tossed at me was the above pictured Canadian Business Magazine, it's cover trumpeting that current real estate conditions constitute the "buying opportunity of a lifetime!"

Fuel for the fire was one of the aforementioned P.P. rag's spread open to an article announcing that 'Vancouver house prices slide for the eighth straight month'.

According to the Teranet-National Bank House Price Index, Vancouver's house prices slid in February for the eighth straight month to rest 10.2 per cent below their peak.

"Well...?", a close friend asked in an accusatory tone. "Are you prepared to admit that now is a good time to buy?"

Ignorance, as they say, is bliss.

The stock market has a name for the current real estate condition... it's called the Bear Market Trap.

A Bear Market is when stocks undergo a protracted period of severe declines. The trap occurs when a short period of rising prices reverses the bearish trend and carries on long enough to convince a large number of people to be sucked into plunging headlong into the market. In reality, the market has only head-faked a reversal. Suddenly, and without warning, it crashes again.

As we have already detailed on this blog, Canada is shedding jobs at a faster rate than the United States. The Bank of Canada is embarking on a program of quantative easing just like the US and UK. Household debt is at it's highest levels in history, equal to what it is in the United States.

The American economy has crashed by a stunning 6.2% in the last quarter while ours has crashed by 7.3%. On average our American cousins were spending six times their incomes for houses at the height of the bubble. In Vancouver we have been spending 10 times our incomes. The American housing collapse has been underway for 4 years, ours for a mere 11 months.

Yet the real estate pollyanna's continue to insist that conditions in Canada are so much better than the United States that our housing collapse is now over in record time compared to the USA.

Dear Reader, do not get sucked into this malarky.

Our economic conditions currently are, at best, just as bad as those in America.

Central bank interest rates are at zero, prime rates the lowest in living memory, and there is an appearance of affordability which is temporarily driving values up.

What we are seeing is the classic stock bear market trap transposed to the real estate milieu.

Don't be one of those sucked into it.

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