Seeking bottom

Numbers this week show inflation went up as the HST came in. Hell, it damn near doubled. At the same time, realtors everywhere (even where the tax does not exist) have blamed it for a sales collapse.

So there ya go. Price inflation (the cost of living jumps) along with asset deflation (the value of houses plops). Welcome to the future. Scores of homeowners are about to learn what the word ‘illiquid’ really means.

Sadly most people don’t get it, including a lot who read this debilitating and unruly blog. The common wisdom is that house prices will flame out in a Hindenburg kinda way, lighting up the night sky in a giant cathartic symbol that the buying can begin anew. But that would be a mistake. Because while housing is about to take a major hit, the pace of comeback might just shock you.

We now fly to the Lower Mainland:

Garth-inator :) I’ll be at your seminar in Vancouver 100% this September and I have tickets.

The question: A few years from now (2-3), is it safe for me and my husband to buy a house in the far burbs (45 mins from Vancouver)? Something with a basement suite? Or by that time in 2012ish when the economy is a total joke in Canada do you think it’s wiser to just keep renting for still a few more years? We are a little confused if you are saying that real estate is not a good investment even when the market tanks in a couple years.

We’re in our twenties, no debt. We have 15,000 in the bank and are able to put away a few grand each month, and make $70K between us.

We rent for (yes, this is crazy…) 450 a month because it’s my parents above-garage suite.

One day maybe 10 years from now my husband will be making in the 80,000 ish we hope with a bigger airline. I will be a stay at home mom by that time living off his income.

Keep renting for a couple more years and pocket the savings? Get the money (our very small amount of money) into investments? or rent for even longer.. like 5-7 more years? We can be patient and rent…but we’re going to have to rent a bigger place once we start having kids in a couple years. I appreciate your blog and we both read it daily.

Sincerely, Patience.

Well, kids, above a garage has got to be better than in a basement. There are already far too many people in the Vancouver area walking around with mould on them and, of course, the price is right. So what’s the hurry to buy?

Here’s what I now suspect will happen.

Lots of homeowners in Vancouver, Calgary, Toronto, The Peg and Montreal who think the housing market will rebound next month (because their realtors say so) will throw their houses on the block then. Listings will shoot higher. The Bank of Canada will raise its key rate again September 8th. The equity markets will be scary. Unemployed people will still be that way. Buyers will stay home. By Thanksgiving, average prices will be heading lower. By the winter the decline could be 10-15% nationally – and certainly in the major urban areas.

Phase one.

But that’s just the easy part – a real estate correction. More important is what appears likely for the period commencing in the Spring of 2011 and lasting for a few years. Maybe five. Maybe ten. This is the melt that I’ve referred to often – the one that’s gripping America and provides such a rich template for us.

That melt will enter its fourth year in April, after US housing sales peaked at the end of 2005, and prices peaked in early 2006. The catalyst for the collapse may have been sub-prime loans, securitization, a credit orgy, falling lending standards, unethical bankers, GWB or sheer greed. Whatever. It’s what’s come after which wrought the real damage, and to which we should pay attention.

The American market has yet to hit bottom, for 10 key reasons (that we share). Sales are tumbling. House construction is faltering. Mortgage lending is drying up. Lending standards have tightened. Household debt’s at an all-time high. Asking prices are still unaffordable. Interest rates are higher. Unemployment is endemic. Higher taxes have arrived. And the media’s turned negative.

So long as those factors are at play, real estate is toxic. And while the US market is sick, it’s now four years closer to a bottom than is ours.

So, Patience, you know what to do. Save, wait and be thankful.

I hear Van house sales dropped 62% in the last thirty days.

Suddenly a garage never looked so good.