But a symbol

Sue lives on Vancouver’s east side – not the best part of town – snapped the photo above on her cell (close to her house), and sent it to me. So, I asked in a note back, what’s the story in your hood?

“I paid the ‘crazy amount’ of $425,000 for a renovated house here in 2003,” she says. “Then the ‘evaluation’ shot up to $750,000…. and now maybe $650,000 ish….????”

And she points to this home, across the street:

“In May 2010 it was listed for $849,000 and didn’t sell, even though it had an offer for $725,000. Family said stupid realtor, got him fired, renovated — put in suite, more stainless, etc. Now it’s priced at $629,000 and the family had an offer below $600,000. Now this realtor has been fired and they are going to wait for prices to rebound before they list again.”

Have you noticed the decrease in listings lately in most Canadian cities? Without a doubt many people are thinking like the owners of the ugly half-a-house Van Special above – that the soft market is but an aberration and housing prices will resume their ascent in September.

Of course, that will not happen. In the last few weeks the evidence has become overwhelming that the entire western industrialized world is deflating faster than Tony Clement. And at the core of this – real estate.

Here’s Adrienne Warren, for example, one of my fav economists over at Scotiabank. She irritated Bay Street this week with a blunt assessment of the Canadian housing market, calling its recent choke “the most dramatic” on the planet. “Sales, while still at a high level, have trended steadily lower alongside reduced affordability and exhausted pent-up demand.”

And as we all know on this blog, recent sales declines (8.2% nationally in June from May) are just the start. The number of house deals being done has fallen in the country’s 70 largest markets, and buyer confidence has evaporated in the summer heat.

Here’s Australia, meanwhile, where a Canada-like housing bubble is bursting at about the same time. This week came news that mortgage lending has just plunged to a nine-year low. Fewer than 47,000 Australians borrowed to buy houses in June, the lowest since February 2001. That’s a big drop from the 64,000 who were borrowing for housing before six interest rate rises and the phase-out of incentives for newbie buyers

Here’s Britain, where real estate prices have taken the first tumble in a year as the economy sputters. The slowdown comes as the country battles a mountain of public debt and a tightening up of credit. About a third of all real estate agents now say they expect prices to keep eroding, while another report claims the gain in house prices during the first half of the year “will prove to be a ‘sucker’s rally’ as an increase in properties for sale causes values to fall this year. The market won’t recover until 2012.” Doubtful.

Hmmm. And here’s America where (as you now know) the central bank just announced it would suck up more bonds in an attempt to resuscitate the economy. But hard to see how more public money will make people want to buy houses when there aren’t enough jobs, and real estate’s viewed as dangerous. As I said yesterday, neither cheap rates nor cheap prices work when everybody knows it’s dumb to grab something which will cost less in January.

So there ya go. From East Pender to Melbourne. For more reasons than anyone expected, real estate is well and truly cooked for a while. This is a world in which we’d all better get used to living on less. Housing is but a symbol. The future is in financial assets, not real ones.

Back to Sue. “Love the blog think it is a bit too gloomy sometimes, but generally you have been correct in your prognosis. REALLY appreciate your honesty, you helped convince me that I don’t need to spend $600,000 for a recreation property in Whistler for enjoyment and investment. It won’t pay. Didn’t buy the property — took equity out of my house and have been chipping away at the market buying quality investment with dividends north of 5%.

See you in September in Van.”

Just heard my event in downtown Vancouver next month has sold out. Imagine that.