Yikes!

And Canada? Bank (surprise) says no crash: here

27 comments ↓

#1 womp on 06.24.08 at 11:43 pm

Victoria’s premier waterfront property, the Villa Madrona, just reduced their asking price from 15.5 million to 11.25 million.

Whatever could be the reason?

#2 Al on 06.25.08 at 8:00 am

1 picture=1000 words

#3 Brian on 06.25.08 at 8:25 am

Hi, I can’t wait until this happens in Toronto. Hopefully 500 oz. of silver will buy me a downtown condo. After the hyperinflation kicks in.

#4 observations from ottawa on 06.25.08 at 8:39 am

Looked at condo for rent in Ottawa on week-end. Asking price $1850/mth; Purchased in my opinion at $288000 or less; condo fees at about $338/mth; taxes at about same, $338/mth. Open mortgage variable rates is 4.75% at Royal Bank. Total carrying costs: about $2050/mth. These investors are not subsidizing the rents by much, in my opinion.
However, the condo fees which include heat, air conditioning and hot water are lower than those generally are in Ottawa, by at least $200./mth.

With no money down, low prime, below market condo fees, a short speculative play is very attractive, isn’t it?
All these investors need is a bit of a longer run……

#5 Mylene on 06.25.08 at 9:28 am

We worry about the West….read this about the East Coast

Lost generation? Exodus of youth presents ‘scary’ challenge on aging East Coast

Mon Jun 23, 2:16 PM

By Michael Tutton, The Canadian Press

HALIFAX – Scott Wetton stares at a graph that depicts a grey-haired future in Atlantic Canada, shakes his head and says, “That is scary.”

The graph produced by the Atlantic Provinces Economic Council shows how the East Coast will become what one economist calls “a canary in the coal mine” for the country’s coming era of labour shortages, unless there are big increases in immigration or the birth rate.

Wetton, a 23-year-old engineering graduate form Dalhousie University, and his classmate Jacqueline Poushay, 24, are packing up their possessions and moving west, a move that is common among their generation.

By 2031, the council says there will be 671,000 East Coast residents over the age of 65 – almost double current levels – while the number of people aged 40-49 plummets by 80,000 people.

“Without the middle-aged people paying for those older people, how are we going to keep our hospitals funded? How will we pay for this?” asks Wetton.

Atlantic Canada is grappling with a potent combination. It is suffering an exodus of its young people during a time when there is a Canada-wide demographic trend of retiring and aging baby boomers.

Some economists say Canadians should see the region’s challenges as an early signal of what an aging country will face, and the response may provide some answers for the rest of Canada.

“We are an early warning system for the country,” says Donald Savoie, a professor at the University of Moncton who has followed and written about the region’s economic development for three decades.

Atlantic Canada must increase immigration, find ways to recruit and retain young workers, and plan for a big hike in its health-care bill, he argues, or “there will be a day of reckoning” when basic services won’t be available.

Brian Lee Crowley, a director with the Atlantic Institute for Market Studies, says the region faces a challenge as it adjusts to a new world of labour shortages.

“We are a canary in the mine, yes,” he says.

Crowley, who is working on a book about Canada’s coming demographic shift, said he’s found that twice as many Atlantic Canadians as other Canadians are migrating to other provinces.

“The big challenge for our economy will no longer be how do we warehouse these workers we don’t know what to do with, but instead, how do we encourage people not to retire and to upgrade their skills?” he says.

While various groups agree on the problem, they differ on the solutions.

Unlike the past 40 years, Crowley argues Atlantic Canadians must not expect higher transfer payments as “compensation” for the difficulties facing the region.

“If we pursue our usual strategy, which is to say that we are victims and it is all Alberta’s fault for luring away our young people and there is nothing we can do about it … we will only cause our decline to accelerate and we will not offer a model of anything except of how not to do things,” he says.

But New Democrat MP Peter Stoffer, who represents the Halifax-area riding of Sackville-Eastern Shore, says Ottawa needs to play a central role in helping the region cope with the demographic crunch.

If federal transfer payments based on population levels decline and basic services like health or daycare fall apart, then Stoffer says the out-migration trend may worsen as young families flee.

He also suggests there are opportunities in having an older population.

“There’s job training needed for the future. … We could become a centre of excellence for geriatric care,” he says.

The recent analysis released by the Atlantic Provinces Economic Council – which was based on Statistics Canada data – says there has been a net loss of about 72,500 people to other parts of the country over the last decade. In 2006, Atlantic Canada’s population had dropped by more than two per cent.

Studies show a large percentage of those leaving Atlantic Canada are young and well educated.

The long-term trend is hard to stop for simple financial reasons, even among students like Jacqueline Poushay, who professes a love for the East Coast’s gentle scenery and ocean vistas.

“My heart is in Nova Scotia,” she says as she gets ready to pack for an environmental engineering job in Calgary that pays about $70,000 a year, about double her best offer in Nova Scotia.

The native of Sydney, N.S., says as young people migrate and become established, their siblings follow, increasing the migration.

“I’ll be the first in family to move out West, but now that I’m out there, my sister is coming out this summer to be with me,” says Poushay. “I have another sister in the nursing program at Cape Breton University and she’s already said ‘When I’m done, you guys are out there and I don’t want to be by myself.’ ”

Savoie says the most notable feature about the latest statistics is they show a sustained trend, unlike shorter bursts of departures in the 1970s and ’80s.

“In the past we had some peaks and valleys when it lasted for a year or two, what we’re seeing now is more sustained,” he said.

Areas where out-migration has been among the heaviest, including Newfoundland and Labrador and New Brunswick, may soon become regions in the greatest need of workers as large energy and mining projects come on stream.

The economic council study notes that Newfoundland and Labrador has felt the loss of workers most acutely, with a net loss of 42,000 people over the last decade.

With a surge in revenues from the oil and gas industry, the province needs workers.

Writing in Atlantic Progress magazine, economist Wade Locke recently estimated that a series of mining and oil projects in Newfoundland and Labrador could create 15,000 jobs by the first three months of 2010.

“The province is becoming a smaller scale or an earlier version of Alberta, at least in terms of its prosperity,” wrote Locke, a professor at Memorial University in St. John’s, N.L.

Jack Mintz, an economist at the University of Calgary, argues there is little cause for panic and Atlantic Canada may actually benefit from its demographic loss.

“You have all this oil and gas and mining. All of these things are there with fewer people. You become wealthier on a per capita basis,” he says.

Mintz says higher Western wages are countered by high housing costs, and many workers from Atlantic Canada are merely commuting back and forth, carrying cash home.

“It’s not necessarily all negative for the Atlantic in that unemployment is down and wage rates are going to have to go up,” he says.

The Atlantic Provinces Economic Council’s report also notes that Newfoundland and Labrador, New Brunswick and Nova Scotia gained more people than they lost over the last six months of 2007, though researchers are still waiting to see if that will become a permanent reversal.

Part of the possible turnaround rests on whether young engineers like Poushay choose one day to return to have a family in the Maritimes, and help build her profession.

But there is no guarantee she will return.

“The West is where I’m going to meet somebody and start a life,” said Poushay. “When you move into a neighbourhood and make friends, it gets a lot harder to uproot yourself and come back.”

#6 Mylene on 06.25.08 at 10:36 am

A stab at Garth’s predictions…

http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20080428_198701_198701

Old news. April mag, written in February. Sheesh. — Garth

#7 victorianSaurian on 06.25.08 at 11:37 am

It looks like we have two problems: 1) looming worker shortage 2) many boomers with insufficient retirement financing. Put them together and they solve each other. Anybody want to bet that the potential labour shortage won’t be at least partially offset by older workers staying employed longer because they can’t afford to retire?

#8 SMWhite on 06.25.08 at 11:44 am

observations from ottawa, why pay 1850 to live in a two bedroom condo when the Civic hospital area in Ottawa has at least 6 for rent signs I’ve seen just in my walks ( 2 block radius) around the hood for 2/3 the price.

These are semi-detached post WWII homes, all brick, all hardwood. Don’t be shy on offering a lower price on the rent as well, the longer a unit sits the more anxious a landlord becomes. Asking 1850 and getting 1850 are two different things…

Professor Shiller’s work once again shows that the USA housing market isn’t anywhere near bottom. He predicts another year like the USA just had( -15%).

I’d hold off until next spring for that second vacation home in Florida… Maybe 2 years… Canadians that bought into the USA have nobody down there to sell to. This isn’t just a one year thing, this is Japan (and 1990) all over again. And its coming to Canada, stay tuned!

What we’re witnessing is the last squeeze for many boomers that are near retirement to pump their savings into the “next big thing” (housing, commodities). Many got scared by the .com bust and started investing in a “sure” thing. Yeah, its a “sure” thing alright.

How many will have to spend a few more years working when they can’t sell Gen X their over priced bungalows?

http://ap.google.com/article/ALeqM5hL1BztOWFNmmcLQ6aOP-BAz9FlMgD91GLH200

http://www.marketwatch.com/news/story/four-years-home-price-gains-wiped/story.aspx?guid={EB1B0595-37FA-4542-88A2-CE470ACAF101}&dist=msr_13

http://www.latimes.com/news/local/la-fi-homes25-2008jun25,0,6459220.story

http://money.cnn.com/2008/06/24/real_estate/home_prices_CaseShiller_April/?postversion=2008062413

http://www.bloomberg.com/apps/news?pid=20601087&sid=asYfRcWIdTsU&refer=home

#9 JB on 06.25.08 at 11:50 am

To the Ottawa condo guy:

You’re numbers are off.

To be paying 388 a month in property tax you’re looking at a unit worth around 375,000.

#10 JB on 06.25.08 at 11:53 am

Sorry, 338 a month = ~325,000, including the education portion you get charged.

#11 David on 06.25.08 at 12:28 pm

Global Recession Watch: A Dozen Significant Economies are at Risk of a Hard Landing
Nouriel Roubini | Jun 25, 2008
Which countries around the world are at risk of a hard landing, i.e. a sharp growth slowdown and an outright recession? Following the U.S. the list is now growing. Countries now at risk of a hard landing now include: the U.S., the U.K., Spain, Ireland, Italy, Portugal, Japan, Canada, New Zealand, Latvia, Estonia and a few other central-south European countries.

Canada may also be headed towards a recession. Its GDP actually fell by 0.3% y/y in Q1 because of falling inventory and residential investment. 75% of Canada’s exports go to the U.S; thus a U.S. recession has significant effects on Canada, even if rising commodity prices have benefited the commodity exporting provinces of the country. In addition to the U.S. contraction there are other negative factors slowing down Canada: high credit costs and a strong Canadian dollar crowding out non-commodity exports; are offsetting strong commodity exports and buoyant domestic demand. Also with inflation rising the Bank of Canada is now constrained in its willingness to cut further policy rates.

http://www.rgemonitor.com/blog/roubini/252848/

#12 Rob M on 06.25.08 at 12:29 pm

Yawn … more US numbers.

Are there any visuals that map in a timeline sense where the Canadian market it is now, relative to the US a few years ago? While approximating it, the Canadian bust is not going to 100% blindly mirror the US experience.

Apologies to Garth, but don’t we have a Shiller in Canada?

Why are academics [read: objective studies] supported RE bears hiding or not being illuminated nearly enough?

#13 Future Expatriate on 06.25.08 at 12:46 pm

Villa Madrona needs to keep going. You can get the exact same house in Las Vegas without ever worrying about a Tsunami washing your furniture out to sea for $6 million tops.

Oh. WITH AIR CONDITIONING.

#14 Cam on 06.25.08 at 12:53 pm

I’m not sure if anyone has read this before, but it still makes me laugh, just as true for the housing market (especially condo flipping) as it is for the stock market.

How the stock market works.

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort.

He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms.

The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers; “Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each.”

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!

Now you have a better understanding of how the stock market works.

#15 PBrasseur on 06.25.08 at 1:01 pm

@victorianSaurian

Very good point, the fact that boomers do not have enough to pay for retirement will force them to keep working longer and this will certainely help an economy affected by the dropping activity rate caused by rapid aging.

Same goes for high debt levels, they will force people to keep working and/or to work more, also good for the economy.

Take the opposit, a country like France for example, there fewer people own homes and they save more. But they also work less invest less and retire early, in fact activity rate among seniors is almost non-existent. This is in good part why their economy has been (relatively speaking) declining for years and France is becoming poorer and poorer.

Look at what happened when the tech bubble popped, many people who were planning early retirement had to change their plans and stayed working. Also despite the pain to investors and layoff workers that bubble yielded a lot of innovations and businesses that are still with us today. All good stuff for society.

The point is bubbles seem to be part of human nature and have a role to play, they do hurt some people when they pop but overall they may bring more positive than you think. Just be careful not to be the sucker buying at the wrong time…

#16 Keith in Calagry on 06.25.08 at 4:14 pm

US news and numbers are our future. That is why they matter…..saying they are not so is sticking your head in the sand. So, do you know what part of your body is exposed when you do that ?

I am 48 and have been thru a couple of economic cycles….every single thing that happens there, happens here a little while later. The only thing separating us is our border….economically and socially we are the same. We do what they do, and vise versa. Sub-crime mortgages, ABCP, etc, etc….

Did you guys see the lies put forth by the BoC yesterday in Banff ? It was the greatest crock of sh_ _ I have ever read. Liars, all of them.

#17 Robert B. on 06.25.08 at 4:42 pm

@Cam: Too funny!

Actually, when you look at it real estate is a commodity and is traded like most commodities on the open market where supply and demand dictate the price.

Like playing stocks, it is emotions that are trader’s undoings and that’s true for real estate as well. No stock ever goes up forever and correct. Neither do real estate prices.

#18 brazer on 06.25.08 at 8:24 pm

‘Overwhelmed’ U.S. consumers suffering confidence crisis
http://www.reportonbusiness.com/servlet/story/RTGAM.20080624.wheinzl0625/BNStory/SpecialEvents2/home

“Unfortunately, there’s nothing funny about how quickly the U.S. consumer is falling apart. Consumer spending accounts for about two-thirds of gross domestic product, so when people stop spending, the whole economy pays the price. And that includes the United States’s neighbour to the north.”

AND THAT INCLUDES THE UNITED STATES’S NEIGHOUR TO THE NORTH…

#19 GenXer on 06.25.08 at 8:29 pm

Rob M – how about this for a Canadian wakeup call?

Hall Monitor: Toronto a city in decline?

Toronto is a city in decline, the Fraser Institute said today in a new report co-authored by former Ontario premier Mike Harris, and Toronto residents place the blame for the decline squarely on city hall.

So far there has been zero response to the swipe from Mayor David Miller’s office, despite the fact it often blames the Harris Conservatives for Toronto’s financial woes because of the downloading of services from the province in the 1990s.

Toronto lags behind other cities when it comes to key economic indicators like median income and is seeing the number of management jobs dwindle, according to the conservative think tank.

Toronto’s median income grew by just 4% since 2000.
Perhaps predictably given the western oil boom, Edmonton, Calgary, and Saskatoon all saw median income growth of 20% or slightly more over the same period.

But Toronto didn’t even stack up with the rest of Ontario, where median income rose 10%.

So – a 4% increase in median income supports a 60% advance in housing prices?? Yikes indeed…

#20 poorguy on 06.25.08 at 8:50 pm

When a real estate agent says “Its buyer market in GTA” then we have to believe that!

http://toronto.en.craigslist.ca/tor/rfs/732602553.html

#21 patriotz on 06.26.08 at 1:17 am

With no money down, low prime, below market condo fees, a short speculative play is very attractive, isn’t it?

Well no it’s not. What’s so attractive about taking on a negative cash flow property in an asset class – RE – that is seeing a global bust?

Ottawa is not nearly as overpriced as other big cities outside Quebec, but it’s still overpriced. Condos are only worth 100x monthly rent. That’s what multi-unit rentals sell for.

#22 Another Albertan on 06.26.08 at 1:45 am

If there is a Shiller in Canada, he/she isn’t marketing their intellectual property very well.

The lack of people like Shiller – either pro, con or market-agnostic – should underline some of the risks in the Canadian system. Individuals making decisions in the marketplace are left with information sources that may be accused of or may actually have inherent bias.

At least having a broad sample of opinion gives people the option of digesting multiple views.

But in the interim, Canadians aren’t going to get a roadmap placed in front of them. The American experience is our guide and will continue to be the best set of charts until someone can prove otherwise.

#23 Geoff on 06.26.08 at 10:41 am

@ #6 Mylene / Garth – something more current about Toronto house prices.

http://www.wdunning.com/docs/2008-06.pdf

Garth – please let me know your thoughts on some data that’s a lot more current.

I have to say though Garth that in reading through your comments on postings, that you tend to belittle or mock anyone who disagrees even slightly with your viewpoint, rather than trying to engage them. (“sheesh” above is not professional even for government work nor warranted). My father always said to dismiss anyone who uses insult instead of argument and I’ve found that to be sound advice.

#24 kabloona on 06.26.08 at 12:07 pm

About 10 or 15 years ago, I thought Frank Clayton’s Real Estate advice was pretty relevant. Lately what I’ve heard from him is the usual RE Industry boosterism, unfortunately….

I would concur that the US experience is probably our best indicator of what lies in store for Canadian RE markets.

#25 Rob M on 06.26.08 at 12:10 pm

thanks GenXer.

I’ll pretty much take what I can though I never thought I’d be having to read garbage from the Fraser Institute, let alone Mike Harris chicken-scratch dictated while golfing.

Politics aside, the lack of income growth is true but like all stats in a mixed sentiment market like we’re in now, seems to be getting skewed by different messengers.

As credibility is at the heart of the matter in my opinion now [witness Garth one of the few on this side drawing attention to it, rather darkly for obvious reasons], having ol’ Mike spout off might actually hurt the cause rather than help inform. No one believes anything he says.

Also as Another Albertan states:
“The lack of people like Shiller – either pro, con or market-agnostic – should underline some of the risks in the Canadian system.”
…the void is filled just the same by the RE and banking industries. This exposes one massive blind spot in the our free RE market structure – lack of transparency and policing. If it’s caveat emptor, then by all means, the government and opposition should be stepping into the breach to at least issue some press releases tempering the real estate BS we’re exposed too – if this sounds too nanny state I apologize, but all too often the herd mentality we’re seeing can be mitigated [and could have been].

For starters, when all this comes down hopefully we’ll look to other markets for changes to how sales go down:
1. bids are transparent and on the spot – a la Australia
2. unethical agents aren’t allowed to lower the listing price AFTER a bidding war has taken place, artificially creating and magnifying the illusion of a raging market.

Perhaps Garth can have some influence on this, so he’s not just selling books.

#26 Rob M on 06.26.08 at 12:14 pm

BTW see this from last year [page inset]:
‘The Australian way: Auction the house’
http://www.thestar.com/comment/columnists/article/238280

#27 nonplused on 06.26.08 at 2:48 pm

If we had a Canadian Shiller, he’d be edited out of the news just like they are doing in the US. Nobody likes the bearer of bad news.

Besides, Canada is a tiny market by comparison. California by itself has a higher population and GDP. That’s the real reason Canada can expect to avoid a real estate downturn! We’re too small to be noticed by the economic winds that blow….