The Empire Strikes Back

The first two weeks of 2012 have given us a plethora of bearish items on Real Estate.

From the nation's largest bank, who tells us it is so concerned about a significant real estate correction that it has stress-tested itself for a 25% collapse... to the uber-R/E optomist Ozzie Jurock who exhorts to his followers:

• "if you are a seller - list now! If you are a buyer, take your time, the market will not run away from you."

The damage all this negative press must be doing to that all important metric known as 'buyer confidence' must be immense.

Let's face it... who wants to catch a falling knife?

So it should come as no surprise that we would see some push back in the media from those most affected by all this negative hype.

And - almost as if on cue - along comes real estate giant Royal LePage to counter these damaging developments to it's business.

Headlining "More Gains in Home Prices Expected", LePage's CEO Phil Soper is quick to dismiss all this negative talk which might lead some to hesitate from buying (and subsequently hurt his company's commissions).

"Widespread calls for a major real estate correction in 2012 simply can't be justified," Soper said in a statement. "The industry has significant momentum entering the year, and buoyed by the stimulative effect of very low interest rates, we expect the market to continue to expand — albeit at a slower pace."

Soper is adamant that Canada's housing market will continue to be strong this year, with rising property values expected in ALL major markets and his company is forecasting prices to rise 2.8% nationwide by the end of 2012.

And bucking the consensus of virtually everyone else, Soper insists that even the pricey housing markets of Vancouver and Toronto will see continued price appreciation this year.

I suspect Royal LePage et-al will now strike back with a massive - and none too subtle - media campaign to influence that all-so-important 'buyer confidence' in a desperate attempt to negate the negative outlook currently being propagated.

Let's see how long before the major papers are 'influenced' into running those cutsie little profiles of prospective buyers who see this as an 'awesome' opportunity and time to buy.

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There will be no US-style housing correction in Canada, or so says Royal LePage

Just 'cause we wanna refer to this down the road, we bring to you today the latest from Phil Soper, president and chief executive of the real estate company Royal LePage.

• "Canada is not set for a U.S. housing crash. Canada’s housing market will cool off in coming months, but a U.S.-style housing crash won’t happen."

Gee Phil, how comforting to know the raison d'etre of your business isn't a concern.

This comes, naturally, as many real estate observers have appeared in mainstream media predicting Canada’s housing market is set for a major correction as record low interest rates have spurred buyers to take on more debt than they can afford,

But Soper doesn't want you to be concerned.

He says prices in some markets are over blown, but "the Canadian economy is structured differently from that of the U.S., making a collapse unlikely."

Ahh, yes... Phil tells us it's 'unlikely'.

It brings to mind David Lereah, the man who was the chief economist of the US National Association of Realtors when the US Housing Bubble started to implode.

For those of you who don't know him, Lereah gained eternal notoriety when he brashly told everyone that - despite overwhelming evidence to the contrary - the US housing market was going to keep on chugging forever.

And Lereah did more than issue rosy forecasts.

Not only did he regularly trumpet the infallibility of housing as an investment in interviews and on TV... the brash Lereah even wrote a book in 2005 titled, Are You Missing the Real Estate Boom?.

Lereah says he grew concerned about the direction of the market in 2006, but that didn't stop him from re-issuing the book under the new title, "Why the Real Estate Boom Will Not Bust."

Even in January 2007, when the crash was picking up steam, he boldly stated: "It appears we have established a bottom."

Lereah is infamous for his cheer leading efforts during the height of the bubble and then later when he was denying that the industry was going bust.

Four years after that fiasco, as concerns spread that the Canadian Bubble is unsustainable and on the crest of imploding, the head of one of Canada's largest Real Estate companies tells us a collapse is 'unlikely'. 

Wouldn't care to publish a book telling us that, would you Phil?

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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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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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