Monday, August 2, 2010

A stunning statement by Greenspan

Local blogs continue to ruminate on the pending release this week of the R/E sales statistics for the month of July.

(And for those who are interested in such numbers there is a breakdown at the bottom of this post of the Unit sales per municipality and the percentage drop experienced from July 2009 vs July 2010)

But there was something mentioned on Sunday morning political TV that will ultimately impact Vancouver Real Estate far more profoundly than the start of this current downward trend.

For those of you who believe interest rates will never rise again because the government will not allow it - heed these words of former US Federal Reserve chairman Alan Greenspan;

"There is no doubt that the federal funds rate can be fixed at what the Fed wants it to be but what the government has no control over is long-term interest rates and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment there is no sign of that because the financial system is broke and you can not have inflation if the financial system is not working."

In other words, we will be in deflation until the broken financial system is unbroken. And when it does start to repair - look out - because we will then have severe inflation.

And THAT will make this months declining sales numbers look like a selling bonanza.

You can see the Greenspan clip here.

For those are interested, statistics by area from the same source as yesterday:

Real Estate Unit sales comparing July 2009 to 2010

Burnaby East: -64% (57 to 20)
Burnaby North: -47% (215 to 112)
Burnaby South: -52% (257 to 123)
Coquitlam: -45% (304 to 166)
Islands-Van. & Gulf: -75% (12 to 3)
Ladner: -77% (79 - 18)
Maple Ridge: -36% (215 to 136)
New Westminster: -52% (170 to 80)
North Vancouver: -42% (273 to 158)
Pitt Meadows: -46% (41 to 22)
Port Coquitlam: -50% (152 to 75)
Port Moody: -47% (119 to 62)
Richmond: -53% (632 to 292)
Squamish: -3% (31 to 30)
Tsawwassen: -56% (55 to 24)
Vancouver East: -42% (461 to 267)
Vancouver West: -37% (880 to 553)
West Vancouver: -20% (97 to 77)
Whistler: -45% (35 to 19)



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Please read disclaimer at bottom of blog.


  1. "In other words, we will be in deflation until the broken financial system is unbroken. And when it does start to repair - look out - because we will then have severe inflation."

    That's not what he said, but spin it in any way you like if it makes you feel better.

    Oh yeah, RBC drops mortgage rates because the yield on the long bond is falling.

    You would have reported that if you wanted to be balanced. Wait a second...

  2. Whomever 'Anonymous' is (likely connected to the R/E inductry in some capacity) should also know that at this point low interest rates will not save the day. Sentiment has changed and so goes the market.

  3. The ability of consumers to take on further debt and consume had reached it's peak. The market is saturated. You can drop the rates to 0% and you'll still have no takers. Game's over.


  4. Anonymous said...
    Oh yeah, RBC drops mortgage rates because the yield on the long bond is falling.

    true, until long bonds rise due to a future outlook where bonds are unattractive and cannot be bought to fund future development.

    key thing is we know we need inflation to get rid of this debt and keeping rates low will only cause deflation or at best a economy saddled with debt for years because wages cannot increase to create more spending power.

    I figure there will be an event, out of our control , that will create savings hourding and force higher rates on long bonds. If this creates a stampede watch out for hyperinflation. This is ugly for economies and savers but great for debtor's.

  5. My two cents: Too many investors, world wide, see the US gov as a safe place to store money right now to spark hyper-inflation or even inflation right now.

    I think we're heading into deflation in the near future. That will put quite a bit of downward pressure on housing prices this fall (and late summer).


  6. There is not a single instance in the history where the hyperinflation does not destroy the economy and the political system. This is a very well know fact and the governments will try to do anything to stall it. Thus it is out of the question. This will be bad for savers, but even uglier for the debtors since their debts will be remembered and re-indexed to something that makes sense. (i.e. using a hyperinflationary period as a reference). In reality we might have an inflation in a future, but that will not do any good to the debtors, since they will be forced to renew at the interest rates reflecting the inflationary reality. (unless of course you have a locked interest rate for the duration of the loan.)