Entries from May 2013 ↓

‘The day it died’

sick

In 2008, GTA realtor Ross Kay invented an ‘engagement index’ to statistically chart house horniness. For five years he’s been diligently amassing data, filtering and weighting it, and watching in fascination as 60 to 90 days later changes in his index appeared as official published real estate data.

His track record (he says): 100%.

ross kay  Hours ago he released what he considers ‘drastic’ results, in a warning to his clients. “Over the course of the last 9 weeks, our index has revealed a downward spiraling real estate marketplace, with results that will not reveal themselves in MLS sales data until finally reported by Organized Real Estate Associations,” he wrote on his site.

In a note to me, he adds:

“On May 19th, 2013 we recorded the lowest value of Canadian consumer engagement in real estate since 2010.  What is scary here is that on April 8th 2012, we reached an all time high engagement value.  The May 19th numbers for 2013 represent about a 72% decline over that peak number.   This massive decline raises grave concerns not being reported in newspapers across the country.

“So we project 60 to 90 days from May 19th that MLS sales will be reported that will reveal the market died on May 19th. Our numbers have not been wrong since 2008. So as it turns out the peak of the real estate market in Canada was April 8th 2012, as posted here on Greater Fool.  Peak pricing was established and as recorded MLS sales prices now show, anyone who bought in competition around that date paid too much.”

Is this credible? Obviously we’ll find out in a couple of months, but it’s consistent with the market news reported here daily. Fewer buyers are chasing fewer houses, rendering average prices almost irrelevant – certainly eliminating them as a leading indicator. The overwhelming advice to potential buyers: don’t.

Meanwhile, here’s Claude. He moved back to Canada after living in China for several years. He landed in Vancouver, and was struck by this big slowdown in the real estate market, but not a corresponding drop in prices.

Real estate’s sticky. Once prices in a hood go up, everybody living there figures the new valuation ceiling is suddenly the floor. An instant permanent benchmark is established and homeowners great creamy thinking about their windfall net worth. But when markets turn ugly and sales slide away, human nature says the reversal’s temporary. Listings fall as owners wait for bull conditions to return, and those people selling stick to their pricing, because ‘that’s what it’s really worth.’

This can go on for a long time. Six months. A year. But once it becomes obvious the market may continue to weaken, rather than recover, prices tumble and listings swell. Have no fear. This pattern will repeat.

But Claude’s eyes bring another valuable epiphany. He writes me:

I also observed upon my arrival in this city that even though small bungalows were searching a million or so, Vancouver was the home of many ‘dollar’ stores and food discount stores. I had lived in China for several years prior to coming back to Canada and the city where I lived there was crowded with Benzes, Audis, BMW, a young man who lives in my building even owns a yellow Ferrari. Also that City ( Guangzhou) is the host of  many luxurious shopping malls occupied by very expensive stores, such as Hermes, Dior, Chanel, Louis Vuitton to name but a few.

My observations in Vancouver were that the majority of cars were, Hyundai, Chevrolet, Nissan, nice but ordinary cars. This didn’t add up in my eyes. How can a city with so many expensive houses  be inhabited by people driving ordinary cars and shopping in discount stores? Vancouver doesn’t in my opinion project an image of wealth there.

Could it be that people here kept buying each other’s houses, creating an artificial demand for properties? If this is so, then someone is without any doubts going to be left holding the bag. Could you comment on this?

He’s right. Many a time has this pathetic blog compared and contrasted the average household income in Van ($83,300) with the cost of the average SFH ($1,100,000). The latest RBC home unaffordability survey shows it takes close to 90% of pre-tax family income to buy a bungalow in that city. And BC has had a negative savings rate ever since the median detached house passed the seven-figure mark. Currently folks in the province spend an average of 108% of income, and are so invested in real estate that it’s turned into a Kia and Wal-Mart paradise.

Making things worse is the urban myth that foreign money’s been responsible for jacking Van prices. Now every time eight Chinese-Canadian couples born in Richmond line up for a new condo opening, we get a “HAM alert”, suggesting an Airbus full of horny industrialist millionaires from Guangzhou has landed at YVR. But while some Mainland Chinese dudes have scooped higher-end properties around the city, there’s zero evidence it’s been enough of an impetus to boost market values. Claude’s correct. This is a Van-on-Van creation (as is the case in Victoria), aided and abetted by the country’s most gullible and bush-league media.

How will it end?

That’s easy. Prices will indeed fall considerably, and stay low a lot longer than many owners will stay solvent. People will look back at 2010 and 2011 – when speculation was rampant, realtors cried ‘buy now or buy never’ and a yellow peril was invented to whip the locals into a buying frenzy – in awe. This was right out of the Phoenix playbook, circa 2004.

There’s simply not the income in Vancouver (or Toronto) to support current prices. Homes have climbed a wall of debt. Without a giant leap in household earning, it’s a mirage.

May 19th. Write it down.

Mr. Wonderful

DISABLED1

I told ya so. Seldom do I use such immodest words, but there comes a time when even I must acknowledge my omniscience. Like my brother Ted says, if I were a little more humble, I’d be perfect.

First, don’t bet against America. Every time I’ve made that caution over the past three years the gold nuts, Yank-bashers and doomers have jumped down my throat claiming US unemployment is 24%, half the country is on food stamps, the stock market’s a giant ponzi, and without central bank stimulus it would just be another Zimbabwe. But with iPads and iPhones. And, of course, Beyoncé.

Well, suck it up. America is back. Not only is the Dow Jones up 19.42% this year and the S&P 500 ahead 19.1%, but corporate profitability has remained robust and employment is rising month after month after month. Markets have obviously benefitted from central bank policies keeping bonds on a leash and rates in the basement, but they also reflect an economy which has crawled back from a mauling four years ago. Like there was any doubt.

Still more to come. There will be no recession in the US this year or next or likely the one after that. Consumer confidence just hit a five-year high, largely because people can see more and better jobs being created. So many new vehicles are being sold the car companies just cancelled summer break. Within months, maybe weeks, the US Fed will start easing back on the stimulus spending. Markets will correct (of course), but as billions of worried dollars find their way back into growth assets, it’s hard to see downturns as anything but a chance to go shopping.

Still hiding in the orange guy’s shorts? Only you are to blame.

Speaking of interest rates, more abject humility. I told you they have but one direction in which to move, and that it would be the bond markets – not central banks – making it happen. History will prove I’m right, and the myopic weenies who say rates will fester at historic levels forever, wrong. Hell, it’s already happening.

As stocks go up, bonds wobble. Yesterday, for example, US 10-year Treasuries (the safest thing in the world) had their worst day in almost two years, with prices falling and yields jumping to the highest levels of the year.

Why? Because things are getting less scary. And as the American economy revives (see above), it means the Fed can wind down bond purchases which have kept rates artificially depressed. So, Treasury yields have risen a dramatic 50 points since the beginning of the month, and were pushed further on news of rising confidence and a real estate renaissance.

Whazzat, you say? Didn’t Garth two years ago tell us to buy America and sell Canada?

In fact, I did. Since then housing starts have rebounded back above the million-per-year level. Resale homes are selling at the best clip since 2006. In the past year Phoenix houses have gained 22% in value and Vegas is up 20%. Even Miami properties are worth 19% more. This week the Shiller-Case S&P index recorded the largest year/year gain since silly bankers were handing out Ninja loans to Oakies buying McMansions.

Nationally, house prices gained 10.9% in the past year. Yes, prices are still down 25% from the bubbly peak, but recently values have been rising about 1% a month. Sales are up. Prices up. Construction up. Demand is steady and a huge whack of the inventory of distressed properties has been absorbed by the vulture class, people who’ve made solid capital gains which are likely to double over the next four years.

So much for the housing ‘dead cat bounce’ the America haters on this pathetic blog said explained the numbers. Because if you want to see a true fetid feline, just head north of the border.

Canada’s third-largest market is the antithesis of what’s happening in resurgent US cities. Here, thanks to blogger ‘Patiently Waiting’ are the tell-all numbers for sales of SFHs in all of Vancouver and the Lower Mainland (Van and Fraser Valley boards):

In the last 30 days there have been 969 deals. That’s a 53% drop from the same period last year (2,056), a 61% decline from 2011 (2,510), a fall of 58% from 2010 (2,300), 63% less than in troubled 2009 (2,599), and 49% fewer than in 2008 (1,918).

“Despite what the main stream media is telling people, the real estate boards’ own computer data demonstrate that sales are currently still trending significantly lower than previous years, as we move further into the 2013 year,” our correspondent reports.

By the way, sales year/year are down in Halifax, Montreal, Toronto, London, Winnipeg, Regina, Edmonton and Vancouver. Every market is unique. And all real estate is local. But this was not the spring tens of thousands of emaciated realtors were hoping for.

But it’s the spring I forecast.

Now, wanna hear about gold? Forget it. Even I have limits.