Friday, July 17, 2009

Into hibernation we go...

OK bears, I think we need to go into hibernation for a while. Nothing I see in the numbers is bearish so far, so there is no point dissecting every little twist and turn in the market.

When the market turns down again, it will be obvious. Now is not that time.

The market needs a jolt to send it back down, like it had from the events of last fall.

What will that event be?

1) Rising interest rates. Possible, but I would be surprised if we go much higher. Inflation is fairly tame at the present. In fact we just had negative yoy rates, down 0.3% from last June. The drop was caused by gas prices dropping. Without the gas price drop we would be up over 2%. I don't think the economy can withstand higher rates.

2) The Provincial Government slipping further into deficit and having to slash spending, just as the big projects..bridges, Olympics-related, Canada line come to an end.

3) The World economy having escaped financial Armageddon, just sinks into a very severe recession, hitting commodities and bringing fear back into the minds of asset buyers.

I think 2) and 3) are more likely. Despite the fact that we have unprecedented rate cutting and stimulus packages around the world, we are sinking deeper into recession daily with rising unemployment and lower government tax receipts. The governments which were blowing the horn of stimulus, will soon be panicking about the burgeoning deficits, and will be looking to make cuts.

So I don't think we need to look at every statistic hoping for signs of a change. When it comes, it will be unmistakable. Until then I am going to enjoy the summer, and wait for the jolt.


  1. We had a jolt last fall, but RE started sinking much earlier, at the end of spring 2008. I don't think we need another jolt. Unemployment is edging up and crazy first time buyers are being absorbed. We will start sinking again shortly, but this time there is nothing left for anyone to do. I'm with Garth on this one - market peak!

  2. On one hand, nobody (even bulls) talks about huge price gains anymore so I don't think people generally expect. But, despite that, people are buying at these sky-high prices.

    I find it sick how desperate people are to own real estate. Its so sad. These people are in for long-term pain. For some it will start sooner when someone gets laid off, and for others it will be a few years from now when they try to renew at higher rates.

    Our city is damaged for a long time by this. :(

  3. I think we will start seeing flat prices or declines soon. Unemployment is up, and every month that 0.1-0.4% of people will be out of the market for a while. Once all of the would be buyers from last winter and fall have bought the demand will fall.

    I have said before I am not concerned when this happens. I am almost sure prices will drop significantly. If this happens today or in 2 years or slowly over the next 4 is not really an issue for me. I am in no rush to own a home.

  4. I think we have flat to lower prices and then a major drop after the Olympics. By then we will have wrung the last cent out of the Prov Gov and the 'green shoots' have withered away.

  5. German Guy had two excellent links over at Robs blog. I think the graph and table 2 show clearly that the inevitable is coming to Canada, but with a lag. We cant escape it.

  6. Anon- thanks for the links.

    The second one especially demonstrates why the bears dislike the CHMC. The purpose of CHMC seems to be to help squeeze those who cannot afford housing into owning.

    While this may seem like an admirable goal, what it has done, has helped fan the flames of speculation enriching developers, speculators, realtors, mortgage brokers etc.

    I have nothing against these folks making lots of money. However the result is:

    1) The gains are privatised, but the losses will be paid for by the public,including the prudent.

    2) The rise in prices has meant that FTB will be paying an unnecessary 'premium'..lets call it the CHMC premium, which will put them in a more precarious position to hold on in a down-turn.

    Onc again I think we are in the eye of the storm. It is amazing how fast the general psyche has changed from.."the world is going to everything is just fine".

    Something doesn't add up.