I’ve been asking myself this question quite a bit today as I’ve been some perusing news stories from this past week.
First let’s start with the must-read of the day. Check out this fantastic blog post over at ‘Whispers From the Edge of the Rainforest’, where the author asks, “How can we be so blind?”
Excellent question and an excellent read. That blog has many of the same goals as this one. We may not agree entirely on the inflation vs deflation debate, but we certainly agree 100% on the state of our housing market and broader economy.
On to other almost comical news:
Seriously? We need a task force for this? Behold….the Rabidoux two step solution:
1) Mandatory financial planning course in grade 12
2) Every Canadian must watch the following SNL skit.
Problem solved. Kind of ironic that our financially savvy politicians need to spend tax payer dollars on a task force on financial savvy for Canadians.
Back to real estate for a moment. It seems that the Olympic Village condos have turned into a $700 million taxpayer nightmare. They can’t move them! Now the city of Vancouver is involved in some closed-door meetings with developers to try to offload the units at substantial discounts.
I can’t believe this is an issue given the massive amount of ‘Hot Asian Money‘ supposedly pouring off mainland China. Where are all these rich Asians?
It’s becoming increasingly obvious that our made-in-Canada housing bubble is correcting as you read this. The mainstream media is finally picking up on this, though the general c0nsensus is that it will be a ‘soft landing’. I find it interesting that the bank-employed economists who were saying earlier this year that house prices should correct only a couple percent in 2011 are now changing their tune. They now envision a 7 percent correction in 2011. Of course their estimates will slowly come into line with reality. With so much exposure to real estate backed and unsecured loans, the banks can’t have people panic sell their homes. So they must slowly revise their estimates downwards.
The media is finally recognizing that the party is over:
“Prices haven’t declined sharply yet, but there are clear signals that the mean reversion has already started. First, sales volume has dipped sharply. According to the Canadian Real Estate Association (CREA), nationwide home sales declined by almost 7% from June to July, and were down 30% from July, 2009.”
“A great buyer’s market is hurtling toward us. Get used to it.”
And then there’s this piece from my main man David Rosenberg:
“By my calculations, every basis point of the Canadian economic recovery was the result of the boom in the housing sector. That goose is no longer laying any golden eggs. In fact, from recent peaks, single-family housing starts have plunged 32 per cent, residential building permits have sagged 17 per cent and home prices on average are down 6 per cent. In the absence of an export resurgence, which seems unlikely given the ongoing sluggishness in the U.S. economy, the downturn in housing is bound to keep the pace of domestic activity rather sluggish in coming quarters.”
“At the peak of our own mania last fall, home prices soared more than 20 per cent on a year-on-year basis and home sales skyrocketed 70 per cent. These data points all have a “U.S.A. circa 2005” feel to them.”
“The ratio of total household debt to income has surged to 146 per cent, right where the U.S. peaked at the height of its credit bubble. Anecdotal evidence suggests that the home ownership rate has risen to record levels of 70 per cent, also close to where the U.S. peaked out during the housing bubble.”
Gotta love Rosie for saying it like it is. So are people finally getting it? A few might be. I think most would still like to bury their head in the sand and listen to the baseless ramblings of people like Mr. David Olive, who recently penned this ‘brilliant’ piece:
First of all, I love the attempt to portray all housing bears as ‘doomsayers’. Like I’ve said all along, the sky won’t fall. We won’t see house prices gutted by 80% a la Japan. But the inevitable realignment of housing prices to better reflect fundamentals will be painful and will have far-reaching economic impacts. This is a pretty pitiful attempt to silence those warning of the economic fallout of irrational exuberance.
“The current U.S. spectacle is unique. No discussion of the second-worst economic downturn in America’s modern history is relevant without accounting for the stagnation over three decades of middle-class U.S. incomes. The median U.S. male worker today earns less, adjusted for inflation, that he did 30 years ago. To make ends meet, American homeowners sucked an incredible $2.3 trillion (U.S.) in equity from their homes between 2002 and 2007 to cope with spiraling healthcare, tuition and other basic costs of living.”
Yes, thank God we didn’t tap home equity or go into debt like those foolish Americans.
“America now is in a Catch-22: Until house prices recover, tens of millions of financially distressed American households will be unable to help reboot an anemic U.S. economy. But until Americans’ income levels break out of their long-term decline, there will be no one to buy the huge inventory of unsold homes built during the record housing boom of the 2000s, which is keeping prices down.”
I see….so incomes in Canada have kept pace with house prices, unlike our neighbours to the south.
“Obviously that detracts from the argument of the anti-homeownership crowd that there are countless more profitable places for your investment dollar than mortgage payments. And, typically, buying is better than renting after six years. You can punch in your own cost and income figures at www.nytimes.com/interactive/business/buy-rent calculator.html to determine when it’s time to consider becoming a homeowner rather than feeding the landlord.”
Hey, we actually agree here. I think that home ownership is one of the pillars of financial security. It is better to own than to rent….provided that home prices are at or near their historical norms when valued against the rent they would generate. When that ratio is low, it’s a great time to buy. When it’s high, it often makes more sense to rent. When it’s at a historical high WAY above the long term average, well….
Give it up, Olive. While you may think we’re dumb enough to swallow this line, I’d like to at least hold out some hope.