Monday, March 18, 2013

"Little chance of correction in Vancouver real estate market" - shades of David Lereah?

Meet Roslyn Kunin.

Making the rounds this morning is an article she wrote which appeared in Troy Media titled "Little chance of correction in Vancouver real estate." (hat tip Many Franks)

Kunin stresses that when she says ‘Vancouver’ she means the greater Vancouver area, sometimes referred to as Metro. She also adds that she defines a crash as "a large and sudden price decline where prices do not recover to previous levels in the short to medium term." Noting that housing prices did crash in the 1980’s, a major difference then was that at that time many homes had been bought by speculators on very small margins and interest rates soared well into double digit levels.

Of course it's different this time around.  Here are excerpts from her argument of why we won't crash:
[Today] very few homes are held on spec and any anticipated increase in interest rates is expected to be very modest. Mortgage rates may even go down. Canadian banks make a significant share of their profits from mortgage lending and it is a low risk part of their business since their prudent lending standards reduce the chance of default. Also, many mortgages are guaranteed by the Canadian Mortgage and Housing Corporation (CMHC).  
The cost of housing in Vancouver is not likely to change dramatically for the foreseeable future.  
February sales in Greater Vancouver and the Fraser Valley are still below trend, but are higher than they were in January and attendance at open houses has been rising. The housing industry has been expressing optimism about housing sales and prices.
Retirement age baby boomers across Canada hope to spend their golden years in this small corner of Canada where you don’t have to shovel snow... They [are] one of the main reasons why a housing crash will not occur. Any drop in prices will lead to retirees entering the Vancouver housing market, putting a floor under prices.

Those in the international community do not seem to mind our house price levels. When looked at in a global context, home prices in Vancouver are not unreasonable. Ask anyone from London or Hong Kong. And people from around the world see not only good value in our real estate, but also an open society, a pleasant climate and a stable political environment.

Finally, the majority of people in greater Vancouver already own real estate, benefit from current housing values and would be hurt by a crash or any serious drop. They do not want to see the value of their biggest asset decline. Home equity often forms a large part of retirement savings and people count on it in their financial planning.
The assumption in her last paragraph is that the majority of people in Vancouver won't sell their homes for below market value. You can click the link above for the full article.

I wonder if Ms. Kunin has ever heard of David Lereah, chief economist of the US National Association of Realtors.

in 2005, 2006, 2007 and through most of 2008 when bubble watchers were warning of the dangers of the blowing housing bubble, Lereah was there to counter each argument and calm the masses.

In this March 1, 2007 article on CNN titled Mr. Real Estate: 'All systems go, pockets of pain', Lereah discounts any chance of a housing crash:
Even though the market contracted, 2006 still didn't bring the first yearly price drop since the National Association of Realtors started tracking the statistic in 1968. 
Leerah: Nope. It's amazing isn't it? People thought we'd get it because they thought the bubble was going to burst, but it never happened.

Do you think it will happen in 2007?  
Lereah: I don't because we're already seeing some parts of the real estate market picking up again. It looks like we've bottomed out. The worst was the fourth quarter of 2006.  
For the past two months now the inventory numbers actually improved for the country. Mortgage rates are still low. The Fed is going to behave. So there are a lot of good signs that the worst is over for housing.

So when it's all said and done, this contraction in housing is probably going to be the least severe contraction we've ever had, which is going to surprise a lot of people.

But many think we still have a long way to go
Lereah: If you look at local areas, that statement is true. California has a long way to go. I expect them to continue to experience pain all throughout this year. Southern Florida, same thing. Las Vegas is probably going to take a little longer to correct as well.

A quarter of the country is still feeling pain, and I can't guarantee that it's going to be over by the end of 2007 for some of those areas.

So they could decline into 2008 or longer? 
They could. It's hard to tell right now. The real key for some of these areas that are having problems is prices. Prices need to come down to bring buyers back to the market. And until they do, they're going to experience drops in sales. California is experiencing some serious drops in sales - 30% drops in some places.

So when we talk about real estate are you talking about local or national? 
Lereah: If you're talking about national, I think we've bottomed out, and it looks like we're going to come back very modestly throughout this year. And then in 2008, it will be back off to the races again in my opinion. But for a quarter of the country, that's not the case.

So you don't think California and Florida could bring the whole country down? 
Lereah: They'll bring themselves down. But will it bring the whole country down? No. The real key here is the economy. The difference between the contraction today and any other contraction we've ever had is that the economy is healthy.

But Robert Shiller, author of "Irrational Exuberance," says we might have gotten so far out of whack that it has to come down no matter what. 
Lereah: I know. That's Bob. That's what he says. We disagree. He thinks psychology will play a major role here, and my view is no. We haven't strayed from the fundamentals. The only part where we strayed from the fundamentals was the speculative investors coming in during 2005. And that exaggerated everything in real estate.
What surprised you about the boom?

Lereah: The share of second home buying. It was 40% of the market in 2005. I was in shock. When you have a lot of second home buying, that's volatile, whereas when people buy a primary residence, they're buying it to live in.

I never anticipated that type of market share in second home buying. That proved to be the end of the boom.
Somehow I don't find Ms. Kunin's argument all that comforting.


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  1. And who the F%*# is she? Another expert with no bias.

  2. What's Troy Media. Never heard of it. Does anyone read it?

  3. Well, the accolades she has received are outstanding...

    "She has been awarded the Crystal Ball Award by the Association of Professional Economists,"

    Who's going to argue with her? Who else here has a crystal ball?

  4. Interesting bc the headline says "correction" and the article says "crash"...which are two different things to me.

    Interest rates going down? How far can they go?

  5. Back issue - anyone know the real estate agents involved with these two sales?

    Our last offering for you is the condo development at 2300 Kingsway. This is the site of the old Eldorado Hotel and Mulhern's Irish Pub.

    Ya gotta feel for the Mulhern's, the simply waited too long to make the real estate play here.

    The townhouse at 4858 Nanaimo (1228 square feet) was listed for $499,000 and sold for $395,000.

    Another at 4878 Nanaimo (40 square feet smaller) listed for $499,000, reduced to $449,000 and sold for $401,000.

    With over 50 units left to clear out in this development, it's fire sale time.

  6. Chrystal Ball Award?

    The BCREA should give her the Chrystal Meth Award.

  7. I have been trying to figure out the impetus for the latest round of animal spirits jacking up prices to new highs in Calgary, Edmonton and Toronto. On the weekend I took a look at The Economist for any hints and came across their recently published chart on global stock markets near their highs:

    What stood out is that most markets are nowhere near their highs despite a few out performing.

    Animal spirits are selective now. We see that in Canadian real estate where only a few select cities and certain markets (SFD & Townhouse) are getting any joy.

    I think that the 2008 financial crash which took Canadian real estate into the pit of gloom in March 2009 was more significant than people like Ms Kunin understand. Not all markets have bounced back.

    Earlier this month a put together a mashup of charts as Mr Flaherty was tipping the press off to the insider information that Canada is going to take a big hit to revenue (March 21 is when he brings down the new budget; women and children should leave the room):

    Late last night I caught a piece out of Bloomberg “Australia faces a “massive hit” to government revenue, pushing the nation further into deficit ahead of an election in September, Treasurer Wayne Swan said.”

    Hey… that’s the same thing that Mr Flaherty said!

    Note to resource exporting countries: the dingo has your baby.

  8. I'm going to guess they mean "Little chance of FURTHER correction in Vancouver real estate.". Last time I checked the HPI for Greater Vancouver was down 3.3% YOY. Some of the quotes in this article made me laugh.

    "[Today] very few homes are held on spec..."

    uh... what? I'd say most homes are held on spec.

    "Mortgage rates may even go down."

    to where? zero?

    "When looked at in a global context, home prices in Vancouver are not unreasonable. Ask anyone from London or Hong Kong."

    Vancouver is not London or Hong Kong, these are major business hubs of their respective countries and thus command a high price. Vancouver was like 7th or 8th in terms of $ in the local economy in Canada. Making a direct comparison here is ridiculous.

    "a pleasant climate"

    Wow, compared to where? Yellowknife? Siberia? Maybe it was sunny the day she left her Vancouver hermitage to pick up her award.

  9. If she's talking about spec built houses, I'd say they are pretty much all being built on spec for the Asian market. In Burnaby, any 1950's bung that's sold is demolished and an opulent mansion is built in its place. Trouble is, these opulent mansions are not selling and are sitting listed and vacant. Oops! Also, interest rates are irrelevant now. We are well past the point that low rates make any difference.

  10. Whisperer,

    You spelled David Letterman wrong.

  11. Roslyn Kunin has been a very well known cdn economist for decades. Back in the day when I met her (I was a junior economist working for the BC gov't) she was the fed's main labour economist. I have always respected her, for being a female pioneer in her field, and also for her skills, insights and professionalism.

    Boy, has she ever jumped the shark with this malarkey! I hope she isn't getting feeble minded or something (maybe she is just over-exposed to residential RE investments....? :-o

  12. Pleasant climate.Ha!
    Our climate sucks! It sucks big time.There.I said it.
    What ever happened to summer anyway?I remember back in the 1980's August would actually be hot.Sometimes.

  13. I never heard of her. Not sure if the comparison with David Lereah is fair.... to Lereah.

    Obviously, Can Muir is BC's official version of Lereah. His funky patch drawl will be remembered.

    The GVREB keep changing their Lereah each year so it's hard to build up the same rep.

  14. Why did yesterday's post disapear?

  15. Whisperer - Where did the post from Tuesday 3/21 go?

  16. Two missing posts... No mention of it... No explanation... Have the black helicopters of the RE cartel visited the Whisperer? Is he currently held incommunicado with bamboo slivers burning under his fingernails?

  17. Controversy!! Whats going on???

  18. Good question.....are lawyers circling since Garth Turner put a link yesterday to this great blog??.....

    The truth will not set anyone free.....just guessing.


  19. First South Korea, now whisperer!!


  20. Yes, what happened to the 2 previous posts that were on here, about the real decline in RE price in Vancouver. I hope the RE cartel isn't censoring Whisper for posting truth...what happened to freedom of speech.

  21. This could be my chance to get published. Looks like anyone, regardless of how camera unfriendly they are, are getting published! A new cottage industry of ordinary average grinning hopium guzzling anyone to get their mug in the paper. Yeeha!

    And yeah, where are the posts? Is it getting a bit legal around here? A bit of a tip off that the wheels are coming loose...

    1. It's an old picture, she's hotter now ;)

      Seriously though, what kind of 'respected' economist writes an entire column based on her opinion and not facts? It really sounds like a realtor wrote it, or worse!

      I don't see any stats in her writing, just what she feels...sounds like she has a condo to flog

  22. You guys are paranoid

    1. No we're not....maybe we are. Are we??

  23. not a feng shui expertMarch 22, 2013 at 12:00 PM

    If you're not paranoid about a real estate bubble here, you should be ...