Unmasking the US Federal Reserve

A 35 minute video in which Joseph Salerno, Economics Professor at Pace University, speaks on the US Federal Reserve and exposes some of the fallacies regarding how the Federal Reserve functions, creates money, and controls the monetary system the United States.

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Tues Post #2: A Day Made of Glass

Saw this over on Mike 'Mish' Shedlock's blog and was wow'd by it so I thought I would share it.

It's a promotional video by Corning for Photovoltaic Glass and it's possibilities.

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Tues Post #1: Foreclosure Tours on Vancouver Island

As the housing situation worsens on Vancouver Island, foreclosure tours are becoming common place as this piece on CHEK news observes.

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Gold, Central Banks and Canada

CTV's Question Period talks about Gold, Central Banks and Canada's official holdings with Eric Sprott.

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Ottawa Citizen Newspaper chastises Federal Government on debt message

Yesterday the Ottawa Citizen newspaper chastised the Federal Government on it's mixed message about Canadian debt.

Here is the content of their editorial:

OTTAWA CITIZEN MARCH 10, 2012 

Why is the federal government warning Canadians about debt while it is encouraging aggressive mortgage lending?

When it comes to interest rates and housing prices, it's difficult to see the thread of consistency in federal government policy. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty frequently warn Canadians that levels of household debt are too high. At the same time, the Bank of Canada's low interest rates make possible the low mortgage rates that are fuelling the housing market.

The government encourages risky mortgage lending even more by facilitating it through the Canada Mortgage and Housing Corporation. The government-owned mortgage insurer charges a substantial premium to home buyers with less than 20 per cent to put down, a federally mandated practice that effectively takes the risk out of mortgage lending for Canada's banks.

As concerns about a contraction in Canadian housing prices increase, the CMHC is finally getting some long overdue scrutiny. This week, the Ottawa-based Macdonald-Laurier Institute recommended a thorough review of how Canada finances mortgages. The institute questioned whether home buyers are paying too much for CMHC mortgage insurance, a fee which can be up to 2.9 per cent of your loan, higher if you are self-employed.

This mortgage insurance fee costs home buyers thousands of dollars, and the institute asks whether the fees are unduly high. The fact that the CM-HC has returned profits to the federal government of $14 billion over a decade suggests that this is a cash cow.

Other organizations, including the International Monetary Fund and the C.D. Howe Institute, are worried that the publicly owned CMHC has taken on too much mortgage liability, exposing Canadian taxpayers to undue risk. While there is a debate about whether Canada has a housing bubble, housing prices have increased 44 per cent since 2006. The CMHC's total loan insurance portfolio is now $541 billion, up from $350 billion in 2007. The Howe institute has suggested encouraging private mortgage insurers to play a larger role.

The main question, generally unasked, is why a federal agency has to take the risk out of mortgage lending for Canada's big banks. It's particularly pertinent with banks lowering rates again this week as they fight for more lending businesses. Normal businesses take risks. Why not our banks?

Our financial leaders say they are against debt, but their policies encourage it, and the government makes a tidy profit off insuring it. As long as those policies persist, they should spare us the lectures.

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Polar Opposites

Meet Willow Tufano.

See's 14 years old and is going to give us a glimpse of what has to be the polar opposite of Vancouver manic real estate bubble. Fittingly she lives in the other corner of the continent... Florida.

Believe it or not Willow, at the tender age of 14, just bought a house in the Sunshine State.  

You read that right... she just bought a house.

In 2005, when Willow was 7, the housing market was booming. Home prices in some Florida neighbourhoods nearly doubled from one month to the next. Her family moved into a big house; her mom became a real estate agent.

But as Willow moved from childhood to adolescence, the market turned, and the neighborhood emptied out. "Everyone is getting foreclosed on here," she says.

After the housing market in the US collapsed, Willow's mom (Shannon) started working with investors who wanted to bid on cheap, foreclosed homes.

Sometimes Willow tagged along.

Recently her mom saw a two-bedroom, concrete-block home on auction for $12,000 — down from $100,000 at the peak of the bubble. Shannon was telling her husband about the house, when Willow piped up.

"I was like, 'What if I bought a house? That would be crazy,' " Willow says.

Willow wound up splitting the house with her mom and plans to buy her mom out in the next few years, and put her name on the title when she turns 18.

The place was a mess when they bought it. They cleaned it up and rented it out to a young couple for $700 a month.

Think about that for a moment.

Houses are so cheap in some parts of the United States right now that a 14 year old can buy them.  And the monthly rent that the 14 year old is collecting would equal the cost of the house in less than two years.

Compare that to the west side of Vancouver.

Multi-million dollar homes here command about $3,000 per month in rent. It would take you between 55-80 years of monthly rent to collect the cost of these homes.

I imagine, dear reader, your jaw is hitting the floor regardless of whether you are reading this in Vancouver or in Florida. Yet each reader (be they in Vancouver or Florida) is muttering the exact same thing about the other city:

"That is just whacked!!"

Indeed it is.

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I can see clearly now...

There is an old saying that goes "hope clouds observation."

A wise saying to remember as events heat up on the real estate front.

As the 2008 Financial Crisis took hold in early 2009, real estate watchers in Vancouver eagerly anticipated a housing implosion.

But ultra low interest rates and the on-going expansion of CMHC's balance sheet resuscitated a real estate dependant economy.

The anticipated collapse morphed into a small correction.

And it was not by chance.  Our government purposefully intervened to make it so.

It was a huge gamble for our federal government. The Conservatives gambled that if Canadians could be nursed through the worldwide recession (which normally last 4-5 years, at most), then economic growth would mitigate the huge surge in debt that the government stimulus would create.

One small problem.

Not only has this not been your garden variety recession.  It isn't contained to being a severe recession (on the world stage - the efforts have rendered the worldwide recession a curiosity in Canada).

The worldwide situation is turning out to be a once-in-a-multigenerational downturn that may well last 10-15 years (if not turn out to be something worse).

But this turn of worldwide events has transformed what had been an 'economic plan' into a quandary.

As bears sit on pins and needles waiting for a condition that defies economic sense to collapse upon itself, the Canadian federal government now shifts their focus from blowing up the housing bubble to now trying to engineer a 'soft landing' without triggering a housing crash.

From Carney (the Bank of Canada governor) and Flaherty (the Minister of Finance) we have endless jawboning about the hazards of the massive household debt they were responsible for creating.

Both men huff that the number one risk to the Canadian economy continues to be household debt  - which currently stands at a record 153% of disposable annual income.

The dilemma, of course, is that interest rates must be kept low to try and stimulate business spending and give businesses a break on their borrowing. But it's the consumer who continues to do all of the borrowing and the money is funnelled into the housing bubble - aided and abetted by a banking industry addicted and dependant on the revenue generated from these mortgages.

So jawboning moves to small steps to 'engineer' the soft landing.

The 0% down/40 year mortgage conditions were eliminated.

And it's replacement, the 5% down/35 year amortizations, were subsequently axed as well.

Now the 5% down/30 year amortizations are supposed to be doing the job.

But still no soft landing. Rumours now swirl that we will have 5% down/25 year amortizations at the end of the month... or perhaps even 10% down.

Meanwhile a tight rope is walked trying to prevent participants in the housing bubble from panicking.

Bank economists issue reports and forecasts attempting to ensure public confidence doesn't collapse and trigger a wave of sellers without buyers.

Each bank echo's statements like this one from Bank of Montreal's chief economist Sherry Cooper and senior economist Sal Guatieri who said last month that there is no housing crash coming, rather Canadians should......

“Expect the housing boom to cool rather than crash… While the housing boom is unlikely to continue unless mortgage rates drop much further, neither is it likely to bust… In our view, the national housing market is more like a balloon than a bubble… While bubbles always burst, a balloon often deflates slowly in the absence of a pin.”

But a curious dynamic is developing,  the 'soft landing' is quickly morphing into signs of a collapse. It's difficult to see outright, because statistics skew what is happening.

 Sales are plummeting but what little sales that are occurring are at the high end of the market and the numbers distort the averages.

Witness what we are seeing in Greater Vancouver right now.

March sales throughout the Lower Mainland region are on track to collapsed 30% from March of 2011. Sales of detached homes in Richmond are off 55%. On the west side of Vancouver (HAM central) sales are down by 50%.

In Burnaby sales are on pace to be off by 40%.

In the midst of this carnage there have been 5 sales this week of properties which changed hands for over $7 million, including 2 for over $10 million.  This will trigger a record average price for a single week of real estate sales.

See what I mean... the statistics are going to be royally skewed.

But the mortgage divisions of the various banks are not fooled... they can clearly see through the aberrant  numbers... and they are concerned.

Bank of Montreal (BMO) has suddenly brought back its 2.99% special mortgage, a half point drop off it's five year term. 

BMO has also slashed their 10-year mortgage to just 3.99%.  This is the first time a major lender has ever offered such a low rate for a 10 year term.  What was it BMO's Sherry Cooper said about the "housing boom being unlikely to continue unless mortgage rates drop further?"

On Thursday afternoon TD Canada Trust matched BMO's 2.99%, but for a four-year loan. Other banks are sure to follow in a desperate attempt to stimulate the market and match the competition.

Which brings us back to where we started this post.

"Hope clouds observation."

Many bears are all hyped up in anticipation that the crash has started. As Sean Connery said in the movie, The Untouchables:

"Don't wait for it to happen. Don't even want it to happen. Just watch what does happen."

There are still many twists ahead. 

But if you are a bear, take heart by this recent quote from BMO chief economist Sherry Cooper. 

Cooper - who told us that unless rates dropped further, the housing market would deflate rather than burst - has suddenly had a change of heart (not too surprising since it is her own bank that has launched a new mortgage war with the lowest rates in Canadian history):

“We’ve always said the market remains vulnerable to a correction in the face of a shock. It could also 'pop' in the absence of a shock should current frothy trends persist.

The next few weeks will, no doubt, generate significant 'froth.' Watch what happens, don't be disappointed, don't be surprised.

Just watch what does happen... and allow events to play out.  Don't let hope cloud your vision.

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Real Estate Inventory

Inventory continues to build for real estate in the Village on the Edge of the Rainforest.

As you can see by the graph to the top right of the blog, the total for yesterday hit 15,305.

Inventory has increased each and every day of the year with the exception of February 29th. But even on that day, new listings outpaced sales 249 to 145. The reason total overall listings dropped that day was because a large number of listing contracts had expired at month's end.

The jump to 15,305 yesterday (+144) was the 3rd largest single day inventory increase this year. The daily average inventory increase over the last month has been 60 per day.

As noted by b5baxter in the comments section over at the blog Vancouver Condo Info, if the current pace of inventory increase is maintained we could reach 16,000 listings in approximately 11 days (March 19, 2012) and 20,000 listings in 78 days time (May 25, 2012).

That would double the total inventory available for sale at the start of the year.

Real Estate watchers are following this trend closely.

You have to wonder if we will see more speculator panic like we profiled yesterday if supply continues to outstrip demand.

Everyone seems to know a handful of people who are dabbling in the real estate speculation game.  Is it a stretch to imagine there are at least 1,000 hard core real estate speculators at work right now (with 4+ properties on the go) and another 2,000 with 1-3 properties in play?

Could it be that half the current inventory on the market is held by speculators?

It's my understanding that later today, Garth Turner's post (www.greaterfool.ca) will focus on how half of all sellers of Vancouver condos who purchased since 2008 are now selling at a loss.

With changes looming in the mortgage rules later this month, are we reaching a tipping point in the Vancouver market?

Will genuine panic grip even a small portion of all those speculators as they scramble to cut their losses?

Interesting times indeed.

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More speculator panic? - Updated

In our last post we related that CIBC economist Ben Tal had come out with some very bearish comments about Real Estate.

He had said his bias leans towards...

"an expectation of more significant price declines. This is basically a stagnating housing market, 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. In Vancouver, prices are already falling from sky high levels a year ago, especially in the once bustling condominium market."

So you have to wonder if there is any signs of concern amongst speculators.

Last week we profiled speculators who had bought a west side home to renovate and flip... but were desperately seeking to bail mid-renovation.

But what of those condo speckers, the ones who signed up for pre-sales.  As some of them see their completion dates near (and the balance beyond their 10-15% downpayment looms), are any of them affected by the plunge in sales and explosion in listings we have seen so far this year?

Let us turn to craigslist.

Here we have a CL posting from someone who is trying to dump a pre-sale assignment for a townhouse at 277 Thurlow Street in the very upscale Coal Harbour of downtown Vancouver by Stanley Park. (click image below to enlarge)

Due for completion at the end of this month, it seems he is most certainly feeling the heat of those 'falling prices' Benny Tal was referring to.

The craigslist headline screams:

"Panic Sale - Reduced to Cost"

Offered is a luxury townhouse at the new Three Harbour Green development. With a closing date of March 31st, 2012 fast approaching, the burden of moving a 2,303 sq ft, 2 Bedroom + Den (with private roof top Patio and 2 full, 1 half bathrooms) seems to be weighing on our dear specker.

Asking price (which is advertised at being at cost): $3,500,000.

Promoted as 1 of only 2 townhouses available in the development, it seems our eager specker is in worse shape than you might have noticed at first glance.

Not only did he snap up this unit in the presale, but the CL notes he also has the 2nd townhouse for sale as well (listing for $3,000,000).

Yikes!

The contact person is in the CL ad goes by the first name of Alok (contact number 604-664-9915).

A search of that phone number comes back as belonging to Alok Kansai, a manager of the Vancouver (Surrey) branch of the countertop, flooring and cladding company Hari Stones Limited.

So it seems our speculator works in the R/E construction industry.

Clearly, as he services the real estate bubble, he couldn't help but try to grab himself a piece of the speculator pie.

But with the market turning, and with only 15% down for the assignment, one can only wonder at the mounting stress as he grapples with coming up with the remaining 85% of the $6.5 million due on these two townhouses.

Interestingly the CL advises that the GST is included in the advertised price on "these units only".

How many other units is this supplier is dabbling in, I wonder?

How will he be affected by the changes to the Canadian 'liar loans' to the self employed as banks no longer accept undocumented statements as to their 'income'?

Even if he can managed to pull off following through on the $6.5 million in new mortgages these two town homes require, what happens when he has to complete on the other units he has acquired in pre-sales?

More importantly... if Tal's predictions of "more, significant price declines" come to fruition how ugly are things going to get for him and other speculators in similar positions?

Me-thinks the 'panic' is only just starting to set in. I suspect we will be seeing a lot more of these 'panic sales' in the months ahead.

(ht to SunBlaster in Vancouver Condo Info comments section)

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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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Mon Post #2: The shifting sands in China spells bad news for those in real estate relying on HAM

One of the arguments you hear from locals who dismiss concerns that our real estate prices have surpassed what local incomes can support is that Vancouver is in high demand and endless streams of wealthy Asian investors will buy what locals cannot afford to purchase.

As we have noted here before, China's history is replete with boom and bust cycles. In addition, the policies of the US Federal Reserve have been exporting inflation to the far east.  At some point China is going to react and begin focusing their economy inward.

Few people believe this is going to happen. Fewer still fully understand the repercussions this will have on the world economy.

Evidence that this trend is starting in earnest comes today from Reuters who report that Chinese Premier Wen Jiabao has cut his nation's 2012 growth target to an eight-year low of 7.5%. Wen Jiabo has made boosting consumer demand the year's first priority as Beijing looks to wean the economy off its reliance on external demand and foreign capital.

"We will improve policies that encourage consumption," Wen told nearly 3,000 delegates of the Communist Party-controlled legislature.

China has vowed to wean the economy off dependence on exports, smoke-stack industries and government-backed infrastructure, and promote balanced growth that will elevate the incomes and spending of farmers and workers.

The lower growth numbers just reflect the reality that growth is going to be slower because the rest of the world is going to be weaker. China is in for some rough times ahead. And rough times means less money for entrepreneurs to spend overseas.

China could be headed for its slowest full-year of growth in the last ten years. The economy ended 2011 with its slackest quarter of growth in 2-1/2-years at 8.9% as it felt the chill of the euro area debt crisis and a sluggish U.S. economy.

The outlook for the real economy remains cloudy, according to the latest surveys of China's vast factory sector and the burgeoning services industries that are key to rebalancing growth and generating more stable domestic-driven demand.

The Premier also pledged to curb speculative demand in the property market. The government will continue to defuse rising local government debt, regarded by many investors as the key risk to fiscal sustainability (and the source of the liquidity for the exploding Chinese real estate market). Government figures show about 10.7 trillion yuan ($1.7 trillion) was owed by local governments at the end of 2010.

Chinese investors (who have been spending money like drunken sailors on Vancouver Real Estate) are about to experience huge cash flow issues. Somehow I suspect what money is available for investments, that money isn't going to be spent in a real estate market that EVERYONE can clearly see is overvalued and ripe for a major correction.

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Mon Post #1: Like ripples from a rock cast into a still pond...

On Saturday we shared with you a blog post by well known US blogger Mike 'Mish' Shedlock as he compared the bubble in Vancouver with the bursting bubble in Ireland.

In a reflection of the power of the global village that is the internet, the story has been picked up by a number of sources including the website Business Insider.

Headlined 'See What $890,000 Buys in a Housing Bubble and After the Bubble Pops', it's further evidence that Vancouver's reputation as a city firmly ensconced in a housing bubble is now solidifying in the mindset of investors around the world.

It is only a matter of time before investors, even potential wealthy Asian HAM buyers, begin to completely shun our market. Catching such a public and well known 'falling knife' is not something savvy investors do.

You can almost hear the ticking of the housing time bomb, MOPE not withstanding.

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It's not the news per se that's important... it's how you spin it.

Managing perception.

The concept has become so crucial in modern society that managing perception has become an art form.

Commodities trader Jim Sinclair is famous for deriding all the MOPE he sees in the press today.  That's the acronym he utilizes for all official attempts to put lipstick on the pig of a declining economy: the Management of Perspective Economics (MOPE).

Blogger Charles Hugh-Smith wrote about the practice last month and noted immediately in his post why the great game of perception management is so important:

"The economy will expand if you believe it is expanding - because you'll be 'animal spirited' into buying a lot of stuff on credit that you can't afford."

Smith observes that economists speak of these magical "animal spirits" that fuel economic expansion, but that this is simply a colorful term for perception management: when people perceive others reaping outsized gains in profits or pleasure from taking risky bets and freely spending borrowed money, then they will feel an overpowering urge to follow the herd and leverage their capital (if any) and disposable income (if any) into risky bets and zealous over-consumption, i.e. "animal spirits."

Conversely, when said risky bets blow up and participants have lost their ever-loving derrieres by following the herd, then "animal spirits" quickly dissipate as the herd thunders off a cliff to its financial demise.

The task of the financial/political/media Status Quo is to convince people to overlook the abundant evidence of economic deterioration and focus on heavily juiced "evidence" of robust "growth."

The game plan is this: if the Status Quo can convince you that the economy has righted itself and from here on in everything will get better and better, every day and in every way, then we will abandon financial rationality and start buying homes we can't afford on credit, cars we can't afford on credit and boatloads of stuff from China that we don't need on credit (of course looking cool is a "need," i.e. having an iPad to carry around).

In other words, believing it is so will make it so.

Which brings us to the latest media reports of February's Real Estate results.

The Vancouver Sun headline blares, "Metro Vancouver market balanced, board says: Price for residential properties up six per cent in a year according to report"

The article regurgitates the press released cranked out by Real Estate Board of Greater Vancouver (REBGV) president Rosario Setticasi. It heralds a "pre-spring hike in sales.",

Pre-spring hike in sales?

Haven't we been hearing constantly about how real estate sales are tanking in the Lower Mainland the last 2 months? How is it that we have a "pre-spring hike in sales?"

According to the REBGV:

“With a sales-to-active-listings ratio of over 18%, we see fairly balanced conditions in our marketplace as we move into the traditionally busier spring season. Sales reached 2,545 in February, a 61.4% increase over the 1,577 sales in January.

Wow! A 61.4% INCREASE in sales!!

With a headline like that and opening statements like that, it certainly appears like the market is rip-roaring hot, right? I mean sales are up over 61.4%... holy crap!

Of course that's the perception you're supposed to gleam from glancing at the article.

Dig a little deeper and you see that those 'rip-roaring' February sales actually constitute a DECLINE of 17.8% from the 3,097 sales that were recorded in February 2011.

Which means compared to last year, February 2012 was dismal. Yes they were a huge improvement over a disastrous January 2012, but they were still atrocious.

How atrocious?

The February 2012 sales in Metro Vancouver were the third lowest February total in the region since stats began to be gathered in 2002.

But the headlines and the press statements don't shriek sales are down 17.8% from last year, do they? Nor do they proclaim that February sales were the third lowest total in the last decade.

Of course not! Instead you are fed the line that sales are UP 61.4% from last month.

Then there is the benchmark price.

Not only are such measures highly skewed in a market with low sales volumes (as several sales of high end homes completely distort the averages) but this month's benchmark price comes on the heals of the industry radically changing the way the benchmark is calculated.

With that change put in place during the middle of last month, the REBGV is happy to tell you that the the benchmark price for detached properties increased a whopping 10.5% from February 2011

But as Garth Turner noted two weeks ago, the CREA changed the way the numbers are crunched so that the public accepts a new House Price Index that now masks the evolution of a national housing decline.

Gone will be average prices, replaced by a benchmark number – expressed relative to 2005 pricing, and taking into account property differences and the social aspects of a piece of real estate.

"It’s an even better tool for local real estate boards to mask evolving market realities, hide the early signs of a correction and remove raw data from the hands of consumers. It’s bad enough that the public MLS already omits vital information, such as the number of days a house has been on the market, price changes during a listing or previous sales history. But now being given a broad, homogenized index-based McNumber for a wide area is nothing but soma for the masses."

So don't listen to all that negative press you've been deluged with the past month or so.

It's a shiny happy world out there in bubble land.  Open that wallet. Plunge yourself into debt. It's a great day to buy a house...

... all you need is the right perspective.

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Sat Post #2: Another Vancouver comparison, this time with Ireland

Well know US economic blogger, Mike 'Mish' Shedlock, paused today to take another gander at Vancouver's Real Estate mania and held up a comparison to a recent sale that just completed in Ireland.

As faithful readers know, Ireland has already seen it's massive credit induced housing bubble collapse.

Prices on the Shamrock Isle continue to dramatically correct. At the height of its' bubble, Ireland was very similar to Vancouver with it's huge disconnect between fundamentals and bloated real estate prices.

With today's post, Shedlock takes a look at what $899,000 will buy you in Vancouver vs Ireland.

There is this 1 bedroom beauty at 2119 East 3rd Ave, Vancouver, MLS® Number V934050, listing Price: $899,500

Or we have this tear down at 1016 East 7th Ave, MLS® Number V930461, Listing Price: $899,000 (In Detroit you could pick up a piece of crap like this in a similar neighbourhood for $250 - $500... see yesterdays posts).

Or you could have bought this property in Donegal, Ireland for $860,000.

It's a stunning 55 room hotel sitting on 3.2 acres of land overlooking the Donegal coastline and set against spectacular scenery. The hotel sold yesterday at a cut-price property auction for the jaw dropping equivalent of $860,000 CDN.

It's truly amazing.

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Sat Post #1: The higher end of the Detroit market...

Yesterday we took a look at the American housing market and how prices are so cheap that people are starting to buy in bulk.

In some places in Detroit, an entire city block of homes can be purchased for $50.  There are literally pages of homes on website available for under $500.

The immediate reaction is dismiss this because these areas aren't places you would want to live.  And as true as that may be, are the so-called 'million dollar crack shacks' we have seen profiled in areas of Vancouver places you really want to live?

Consider the other end of the spectrum in Detroit.

This 10,395 sq foot 7 bedroom, 5 bathroom mansion in prestigious Palmer Woods is described as being "a lovingly restored Baronial Tudor home boasting gigantic room sizes w/spectacular finishes T/O. Lrge walnut paneled central great hall w/frplc & art tiled flooring opens to huge living room w/carved marble frplc, dining room w/stenciled beamed ceiling & quartersawn oak lib w/frplc. Terrific bedroom suites w/art-tiled BA's & Ballroom & Billiard rms on 3rd flr. 2BR apt over garage."

Asking price is $750,000 and it has languished on the market for over half a year...

Too rich for you? How about this 4,387 sq foot 3 bedroom, 3 bathroom home also in Palmer Woods. It's promoted as a mediterranean villa boasting "exquisite art tile, elaborate woodwork & wonderful stained leaded glass. magnificient newer kitchen & master bath, originaly restored conservatory w/ fountain tranquil stone koi pond w/ fountain and gorgeous grounds."

Asking price? $445,000.

Asking a mere $275,000 (and languishing on the market) you can pick up this 2,626 sq foot Palmer Woods  3 bedroom 4 bathroom  home described as a classic all brick colonial on a quite cul-de-sac. New granite stainless kitchen, newer furnace, central air and a new roof.

Fannie Mae foreclosed on this 6 bedroom, 3 bathroom home sitting on a 22,300 square foot lot and they're hoping to get $289,900...

They aren't homes you can buy outright with one paycheque, but I think you'll agree... the disconnect is still profound.

Meanwhile... back in our neck of the woods the Financial Post commented yesterday on 'Why we're in trouble if housing craters.'

Increasingly it is becoming clear that we have not escaped the fate of the US, Spain, Italy, Ireland, the UK... and now Australia and China. We have only delayed it.

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Homes for under $500? - Updated

Update: $500 homes link corrected

While we await Real Estate data for the month of February in the Village on the Edge of the Rainforest, one can't help but cast an eye to our neighbours south of the border and watch with utter amazement.

On a national scale experts predict that the bottom of the housing market collapse is still several years away, but that is not stopping buyers from plunging in oblivious to concerns they are not timing the exact bottom of the market.

And why not. In some cases prices simply can't go any lower without giving the houses away.

CNBC describes it as the greatest real estate fire sale in history, and it's not hard to understand why.

In some of the most foreclosure-ravaged parts of America, investors are buying up property and treating the housing market like it was some big box store and they are anxious shoppers wiping out whole shelves at a time.

Hedge funds and private equity shops like McKinley Capital Partners have started to quietly become landlords by buying up inventory. Joining them now are Main Street investors.

in Forest Park. Illinois, Condo units that sold for $180,000 during the boom are now going for as little as $13,500. People don't just buy one... they buy five at a time to rent out.

In California, Waypoint Homes, which has already purchased 1,000 single-family homes, got $250 million in funding in January from Menlo Park private equity firm GI Partners for more bulk buys.

The trend has accelerated as Fannie Mae releases a bulk sale of 2,500 homes. The conclusion of the robosigning scandal means bulk buying is about to undergo a quantum change. The coming auctions will not only put mammoth amounts of inventory up for bid; they will also streamline and automate current procedures.

In Charlotte, North Carolina, Cheryl and Bob Littlefield, who have five children, are already making the bulk buy work.

Two years ago they bought a lovely little house for $16,000. After putting in a few grand, they cleared $600 a month, after taxes. It went so well they bought another house. And then another. Now they own eight and are in the midst of exploring financing to do a bulk deal for several more.

Property management outfits have popped up all over the place, from the high-end down to online companies like gorenter.com, which charges as little as $25 a month.

But nothing holds up a mirror to our real estate market like what is going on in Detroit, Michigan where last year Business Insider profiled homes that you could buy for less than $500

Less than $500 each!

In fact, the 1,500 square foot home pictured above was listed for sale for only $250.

On February 12th of this year (2012), Business Insider profiled 13 Detroit homes you could buy for less than $100!

Granted, they are pretty sketchy looking homes... but when locals will drop $120 for a pair of Lululemon pants, what's $100 for a house?

In Vancouver you can't find a 1 bedroom basement suite where you could pay $500 for a month just to RENT.

The disconnect is beyond words.

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Thurs Post #2: ISDA rules Greek restructing NOT a default

The ISDA has just announced that they have ruled that the recent Greek restructing deals do NOT constitute a default which will trigger payouts on the Credit Default Swaps.

More info on this later on.

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Thurs Post #1: Where's the HAM?

For those who follow Vancouver Real Estate, you may recall back in the third week of January there was great media speculation that there would be an influx of Asian buyers to the Lower Mainland for Chinese New Year.

The Vancouver Province headlined on January 19th: Chinese cash buyers may be about to spice up choice neighbourhood real estate market and for sale signs sprouted everywhere on the West Side like those in the picture of Granville Street above.

Julia Lau believes sales are about to spike in certain neighbourhoods, in conjunction with the three-week holiday associated with Chinese New Year. Lau’s clients are wealthy Chinese businessmen who set their families up in tony areas of Vancouver and West Vancouver that offer multi-million dollar homes with top schools. These investors like to buy Vancouver property while visiting the wife and children at this time of year, Lau says. “In Chinese culture we buy one home for living in and a few for investments,” Lau said. “Most of my clients buy in cash, so they don’t need the bank. They would not be forced to sell (due to changing financing conditions.)” Lau predicts that in the Chinese investor season from January to May this year, she will sell ten luxury homes per month — a little slower than last year’s frenetic sales pace.

Hyped up by these expectations, Vancouver homeowners rushed to the market with a surge of real estate listings in the first two months of 2012.

But sales fizzed and the boom seems to have busted before it could even get started.

High end HAM target homes on the westside of Vancouver (over $2.5 million) stalled as months-of-inventory have ballooned to over 10 months of stock.

What gives?

Could it be that Lau's clients, who "buy in cash, so they don’t need the bank", might be having liquidity problems?

CNBC is out with a story reporting that 'China's Home Prices Have Fallen for the Fourth Consecutive Month'

Compounding the problem is the fact that the strident clampdown on the housing bubble is sending the Chinese stock market plunging as Bloomberg noted yesterday.

Thus the expected influx of wealthy Chinese - those investors whom Lau said "like to buy Vancouver property while visiting the wife and children at this time of year," - suddenly find themselves 'cash poor' as the imploding markets at home take hold.

Surprise, surprise... suddenly there's no money to splurge on Vancouver Real Estate.

But as the market on the West Side of Vancouver stagnates on the sale of properties valued in the over-$2.5 million category, it's a different story entirely in the under-$2.5 million category.

Local Speculators have been snapping up properties like hot cakes with dreams of capitalizing on what has been a redevelopment cash cow the past few years. Massive profits have been made as HAM snapped up redeveloped West Side homes at ridiculous prices.

But is the tide starting to turn? As the over-$2.5 million market grinds to a halt, are there strains developing in the ranks of the speculators?

Ads are now appearing on Craigslist from developers attempting to bail on properties they are in the middle of renovating.

Here is one such property at Blenheim and W. 23rd

(click on image to enlarge)

The speckers outline what they have done to the property so far:

Already spent $500,000 for the works. Will need about $250,000 interior works for your personal choices of flooring, kitchen and MBR bathrooms fixture, paint and partition layout, sprinkler & sewage upgrade. Permit with floor area 3497 sf plus bonus open space 400 sf of crawl space 3'11" high in the basement. Roof top has some winter water view with a flat roof in drawing for a potential roof top deck.

And the incentive is laid out for you to take this off their hands:

Quick $2.1m price for handyman or contractor who can do some finishing works and resell it easily for $2.6m-2.8m and up once completed.

So why are they selling?

Reason to sell - my partner and I have different tracks for our train of thoughts now.

'Different tracks for our train of thoughts'?

Sounds to me like the prospect of an imploding Vancouver housing bubble is starting to spook these speckers.

Is this the start of a trend? It will be interesting to see how the under-$2.5 million market on the West Side of Vancouver evolves if the evaporating HAM situation fails to reverse.

On that note, the situation in China is being driven by deliberate tightening by the government as officials implement an array of measures to curb growth in the real estate sector.

Will tightening continue?

Yesterday Reuters

quotes Wang Shi, founder of Vanke (China's biggest developer by revenues) in Hong Kong just after he completed a one-year study tour in the United States:

"If China does not control property bubble, once it bursts, the country cannot withstand. I truly hope tightening will continue."

I have a feeling there aren't too many in China's government who will disagree. That means you can expect further drops in the Chinese Real Estate market, further drops in the Chinese stock markets, and a lot less money available for Asians to 'invest' in Vancouver Real Estate.

The speculation game on Vancouver's West Side is about to get very rocky.

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