Entries from January 2009 ↓

One giant at a time

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In a world where governments toss around billions like pennies, it’s not much.

But for 100 people, this means the end of their jobs. For some commercial landlords, it means 12 more Big Box stores will be empty soon. For suppliers, it means $5 million in bad debts at a time nobody can afford any. For southern Ontario-based Giant Carpet, it’s lights out.

This is how the economy is dying, one retailer, one parts manufacturer, one exporter, one rig company, one shop at a time. And it’s just really starting. Brave words by the Bank of Canada won’t bring rug-buying customers through the door. Misleading statements from politicians and bankers in newspapers too few people read anymore won’t do it, either. This is the big one.

Ford reported on Thursday it lost almost $6 billion in the last three months – and it’s the healthiest of the car companies. New home sales in the US crashed by 15% to the lowest point on record. Brand new houses are now selling for an average of $206,000, down another 9%. If not another new house were built for a year, no buyer would go unsatisfied.

Gold has broken through the $900 mark and its boosters are calling for much more. Oil is sinking again, now back to the $40 mark. The Obama rescue package looks like it may sideswipe Canadian products by permitting only US-made stuff to be used in public works projects. And in Canada, one day after the budget, the new debt and deficits, nobody feels more confident.

In the last two hours I received three emails from career realtors asking me for personal advice. They’re all in their fifties, all successful by industry standards, all owning multiple properties, all of them scared. While the people in charge of their real estate associations madly reassure the public they should buy now before prices vault higher, the folks on the street know otherwise.

So, is it all doom?

Of course not. In every reversal there’s opportunity. Real estate is becoming more affordable. Governments are relearning the fact they can’t tax without end. Regulators are realizing how much they screwed up. Bankers are waking up to the crisis their lax lending policies caused. MPs, I hope, see how careless they were in gutting mortgage standards and pissing away our nation’s budget surplus. Now when citizens need help, we must borrow to do so.

Recovery and growth will come. They’ll be led by financial markets, lagged badly by housing markets. Jobs will return, but in tens and dozens, after being lost in hundreds and thousands.

Between now and then it gets worse.  But maybe when we get there, the world will be a more honest place.

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Today’s blog: Chain of Fools

Journey into oblivion

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Lion’s Gate Bridge. Wish me luck.

I’ll be in BC in a couple of days, land of the Giant Mistake, where they still believe granite countertops and glass sinks can buy you love. Or at least respect. Or Ozzie Jurock’s steamy embrace.

In fact, you might have noticed the results of an international survey published in the past few hours which compared housing affordability in Canada, the US, Australia, Britain, Ireland and a few other places. The criteria was whether or not real estate was affordable to the people who live there, or just a big joke (download the report as PDF document).

Here are the most “severely unaffordable housing markets”, ranked from the worst:

1. Sunshine Coast, Australia
2. Honolulu
3. Gold Coast, Australia
4. Vancouver
5. Sydney
6. San Francisco
7. San Jose
8. Victoria
9. San Luis Obispo
10. Bundaberg, Australia
11. Los Angeles
12. Adelaide
13. Melbourne
14. New York
15. Belfast
16. London
17. Santa Cruz
18. Kelowna
19. London exurbs
20. Taraunga-W. Bay, New Zealand
21. Abbotsford

Big cities even more livable than Abbotsford include Dublin, San Diego, Miami and Boston. But, what’s to compare, eh? I mean, unless you’re a turkey.

Meanwhile, in the Top 20 most affordable international cities are these Canadian places – Cape Breton, Thunder Bay, Chatham, Windsor and Moncton.

Strangely enough, I am about to give financial lectures in every one of the least affordable Canadian communities over the next week (well, not exactly in Abbotsford, but close enough.) Will they stone me? After all, I am a pariah these days with the real estate community, especially in Western Canada where they think citizens are dumb enough to be deluded into believing press releases without news and arguments without facts.

In reality, as the study here concluded, Canadians who live in those cities have made a choice to feed the bulk of their income to their houses – up to 80%. In other words, many families in Vancouver, Victoria and Kelowna have virtually no disposable income after housing costs, which means they’ve a giant stake in justifying the unjustifiable. This will make the trip back down to reality even more painful than it’s already been. No more average $772,000 house price. No crappy $900,000 bungs. No $600,000 concrete boxes in Yaletown.

This corner of North America, in fact, is likely the last remaining genuine real estate bubble on the continent – a place where people value an address more than financial security and are ready to assume the debt of small nations for… just a house.

I think there are a few ringside seats left to witness my public evisceration. Please come. Bring sponges.

Victoria, Saturday 9 am, Convention Centre downtown on Douglas Street.
Nanaimo, Sunday 9 am, Convention Centre also downtown.
Parksville, Monday 7 pm, email [email protected]
Surrey, Tuesday 7 pm, Northview Golf Club.
Kelowna, Wednesday 4 pm and 7 pm, Ramada Inn.
Vancouver, Thursday 7 pm, Plaza 500 Hotel, W 12th St.

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Today’s blog: iPod of the Wind