Macleans Magazine: Don't believe the housing hype!

Back on June 7th, I made a post that questioned the validity of the 'affordability' argument being used to hype homes. That post (So what happens when it's time to renew?) can be seen here.

This week Macleans Magazine has come out with an article reminding Canadians that "there are plenty of signs that the Canadian housing market is still on some very shaky ground."

And just like my July 7th post, Macleans questions the affordability argument as well. (see the Macleans article here)

Looking at the PR coming from the Real Estate Associations, the magazine notes the Industry is trumpeting how sales are up 16% this year and how, in May, sales hit an all time monthly high.

The article pinpoints exactly what is being insinuated by this statement; "that Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed."

Macleans isn't buying into that malarky, and neither should you.

The magazine notes that there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.

Just like we have profiled in yet another post, the magazine notes household debt is still an astonishing problem in Canada. "There is one particular statistic that suggests trouble could be brewing. Unlike in the U.S., Britain and most European countries, household debt in Canada is, incredibly, still growing."

The magazine notes that the rising debt being accumulated by Canadians is being driven largely by record-low interest rates.

"Canadians have been buying homes not so much because they can afford them, but because many believe there’s never been a better time to buy, with lending rates so low."

Macleans sees what we have been harping about... that real estate is not more affordable, but that cheap money is more plentiful. "Houses are barely more affordable now than they were during the market peak. And as people keep buying, houses may only become less and less affordable."

The article also notes that not everyone agrees with the Canadian Real Estate Association figures that suggest the market has managed such a quick and painless turnaround. According to the Teranet-National Bank housing price index, Canada’s housing market is not recovering yet. Home prices have been falling for the past eight months, according to its latest statistics. Vancouver, Calgary and Toronto have each experienced significant price drops compared to last year. This would seem more in line with what one would expect after an unprecedented six-year housing boom in which home prices shot up 80%.

And what is the doomsday scenario looming on the horizon?

"If mortgage rates go up sharply then affordability will get crunched. Things could get much, much worse. And that’s not an unthinkable scenario. Some banks have already boosted interest rates twice this year. Then there is the possibility that job losses continue and the economy doesn’t recover quickly, putting further strains on household finances. The low interest rates and continued debt problems mean that Canadians could find them themselves badly over-exposed."

BMO economist Sal Guatieri, in a newsletter last week wrote, “it’s worth remembering that the further house prices go up and the longer household finances get stretched, the greater the risk of a painful correction. Anyone who doubts that should talk to an American or British homeowner.”

The article headline says it all. "Don't believe the housing hype!"

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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