Bob Truman, First Place Realty

Tough to say. I will venture a guess of maybe 380-385K for a median by Dec 31, 369K seems like a bit of stretch right now. But then again, in this market anything can happen.

One question:

Why is real estate suddenly hot in a recession?

LOW interest rates.

AS long as rates stay low, buyers will buy.

As soon as interest rates go up (next summer?) sales will go down.

Will we see another steep decline such as in 2007-08?

Will prices go down again?

Or will prices stay same, sustainable?

No one knows...

$369G seems like a P90 guess to me (too pessimistic).  I think it will end up somewhere closer to $383G.  That assumes that the September to December decline is half of what it was last year.  Given that the absorption rate is a steady 3.1 compared to an increasing 5.4 last year, that feels about right to me.  Sales to new listings ratio has been above 50%, which is indicative of a slightly rising market, however due to seasonal effects and sales slowdown in the winter I would think there would be a modest price drop anyways.

Going into the winter usually is the worst time to try to sell a property.  I would think prices will fall maybe to 375k range.  Where did all the inventory go?!

The Sept stats are surprising to say the least.  I was thinking median price would be 385k by now.  How are people affording these homes?  Low rates.  Will rates go up sharply in the summer of 2010?  Probably not, but maybe the fixed rates will rise if the bond market suddenly dies.

Think about this... you are the BOC head who lowered rates to 0.25%.  Are you really going to raise them sharply and destroy all that you've created, though morally wrong, to bring things "back"?  No.  You'd be lambasted by every banker, investor, and business owner.  Also, by those in debt... and there are a lot of them.  Pretty much, raising rates sharply would cause economic depression.  I really don't think Carney is going to be doing this any time soon.  He was even talking of Quantitative Easing as a possibility if 0.25% rates weren't "enough".

If inventory levels remain the same, prices will be higher in Dec.

I don't think that we will see your prediction Bob.  As long as we are provided with cheap credit, people will continue to spend (overspend?) money that isn't really their own.  Has any else noticed the recent newspaper headlines. One will say that we have strong real estate sales, and the next will say that arrears and credit payment delinquency is sky rocketing.  When, if ever, will all this catch up?  

My own prediction is that inventory will be slightly lower in December (I think in mid December we will probably see about 3000 SFH inventory). Prices might be lower but the usual fall drop is not happening so far. I expect prices to bottom this winter at maybe a median of 380-90, price per sqfoot of 290ish. I have no idea what next year holds.

The driving force in this market is low inventory Newt, not consumer credit delinquencies. Prices dropped a ton last year when inventory was high and bankruptcies were still low. If I'm buying a house and have very little to choose from, I will probably have to pay more regardless of whether a few of my friends have credit problems. And if there are a ton of houses trying to be sold, I will get a good deal even if everyone is swimming in cash.

Recent developments that support my thesis for the past 6 months about inflation and looming dollar crisis:

http://www.marketwatch.com/story/potential-end-of-dollar-based-oil-deals-lifts-gold-2009-10-06

http://www.marketwatch.com/story/gold-hits-record-high-as-dollar-slumps-2009-10-06

If we start pricing things in gold look for massive rebalancing of global currencies.

worldclass

Here is a different take on the US dollar.

http://europe.theoildrum.com/node/5847#more

This guy is saying that the US wants to devalue their currency by 50%, but very slowly over the next 14 years. He says if devaluation happens to quickly the US will raise interest rates quickly to defend it.  Makes a lot of sense. He also thinks the US needs 4+% inflation for the next umteem years.

Looks like Canada is a different ball of wax, though, well except for inflation.  Here it looks like we will have to control our appreciating dollar, so it looks like we won't be able to raise short term interest rate for a long long time. If we do the dollar will appreciate even further and with that stifle economic growth.

All I can say is "Finally our commodity based economy is a big winner". Plus we can pay off a our appreciating assets and debt with cheap money.  We are sitting in the cat bird's seat. Yea Haa.

All the fears of Canada raising rates will be unfounded.  We are not Australia.  Australia is commodity heavy as well, but trades more with the asian economy, especially China.  We do 70-80% of all trade with the USA... we are trading with the Titanic.   How can we assume that raising rates, causing the Loonie to appreciate even further, is in the best interest of Canadians?  Exporting manufactured goods will be unfeasible, and only commodities will rise quick enough in price (based in USD's) to be feasible for export profits.  Guess where the golden goose for commodities is in Canada... the west.

Until we see reasonable conduits for Canada to trade with the rest of the world, I do not foresee our overnight interest rates rising as quickly as other nations in the G20.

DaBull, I fully agree with everything in your post.  It would seem that I am not the only person on these blogs that is realizing this big-picture that is coming down the pipeline.  Usually I get met with "worldclass is a realtor" as a response.

If they attack Iran, prices will go hiiiiiiiigh.

Oil price will go to at least 200 $ .

So, my prediction is prices will continue to rise.

I don't know at which pace. The big potatoes know it.

worldclass:

Usually I get met with "worldclass is a realtor" as a response.

Why? Because you bear drifting from site to site and giving people advise:"Buy now or will be priced out forever!!!!" that's why!!!!!

DaBull, one reason Australia raised rates is to cool it's real estate market. At least they're able to do that because they have a different export market.

Given we've failed to re-orient or diversify our economy, if the BOC keeps rates low, it will exacerbate a hot real estate sector into a similar real estate asset bubble that is still imploding in the US.

Eventually when interest rates will rise, the bubble will deflate.  The 2.5% variable rate mortgages re-adjusting higher will be our version of their sub-prime meltdown.

As for the comment about oil going to $200, Oil will be lower if the talk about pegging oil to a currency basket becomes reality. And I doubt anyone sane in the US wants to be yet another war.

Now TD is offering 2.25% 5 years closed variable rate as well.

Bob, any thought regarding Brentwood TOD development? what's the impact on values of houses close to the development?

Prices haven't been affected any differently in the area of close proximity compared to other areas. I noticed there are no active listings in that immediate area, so it doesn't seem there's a panic to sell if you're in the pocket which is close to the development.

Here's a link for anyone interested in TOD (transit oriented development) - Bob

Mike..... Worldclass is giving you good advice...take it!!!!!

Mike,

I never have said the phrase "buy now or you will be priced out forever"... I do not know where you came up with that accusation.

It is clear that you have made up your mind about the market direction, or are in severe denial.  As much as you'd like to whine about how things are unfolding, you cannot change the reality that is upon us.  

I am not saying to buy real estate... let me say this again... I AM NOT SAYING TO BUY REAL ESTATE.  All I am saying is that you better have something else tangible to your name like bullion, foreign bonds (other than USD), equities in real life companies heavy in commodities, or ... real estate.

With your poor command of the English language I am fully expecting some half-baked response, so if you are thinking of responding remember the following:  "Think before you type".

Frnk Wrote: one reason Australia raised rates is to cool it's real estate market

No they didn't, the central bank raised rates because they knew the jobless figures before they were released the other day.  Jobless rate is decreasing.... This means their economy is starting to pickup steam ahead of all other OECD countries.

http://www.bloomberg.com/apps/news?pid=20601081&sid=aJlTmyIGLPBc

Besides a quarter point increase isn't going to do squat to the real estate market.  And Yes I agree, in Canada we have the 800 pound gorilla (US) holding our manufacturing sector down.  Aussie land has China, India, Japan and the rest of Asia to trade with.

Aussie Mortgage rates are extremely high already compared to North America.

http://www.canstar.com.au/interest-rate-comparison/compare-home-loan-rates.html

Hopefully the high dollar will light a fire under the Canadian manufacturing sector who need to learn that to stay competitive in this new World they need to invest more heavily in technology.  In the past they just relied on a cheap devalued Canadian dollar to stay competetive.  That's not going to work anymore.

Worldclass:

I'm convinced that "Mike" is a troll intended to make bears look bad which is a shame because you need to respect both sides of an argument. Maybe he is someone's alter ego?

Anyway unemployment surpisingly improved and more importantly a business market survey was more optimistic so we might see those interest rate increases sooner than I thought. If employment is increasing it kind of takes away the risk of a high dollar. I would actually expect this to dampen this weird runup.

Frnk you suggest that variable rate increases will cause a meltdown similar to the US. The US mortgages only got to be a problem when counterparty risk evaporated. That never happened in Canada despite what bear internet blogs will tell you. Percentage equity in US homes was in the 43% earlier this year while it was 72% in Canada (that was in April at the bottom of the real estate market)

This statistic is still highly underreported:

http://www.canada.com/business/fp/Canadians+taking+less+equity+their+homes/1523462/story.html

Jimmy, counter-party risk does not affect the average home owner. It's an inter-bank transactional risk. The foreclosure default in the States is primarily due to interest only mortgages with low monthly payments  that reset higher. With the new rates home owners can not afford their new payments and hence walk away.

The bottom line is at the moment we're seeing homes purchased at low variable rates. At present anyone with income can qualify for a 2.5% variable rate. What happens if the rates adjust higher? Do these buyers have the extra income to cushion an increase in payments? With a run away housing market will we end up the same way as California before their housing bubble burst? With the entire economy dependent on the energy sector, what happens if energy prices go lower?

What I don't understand is the extreme volatility in the western housing markets. It's almost as bad as the OTC penny stock market.

Frnk:

In the absence of counterparty risk a bank can give you any mortgage and not worry about it going bust once its been bundled and sold to someone else.

That's why people who had little or no income got those mortgages. Counterparty risk was reduced by derivative products that never existed to the same extent in Canada. That's why our home equity percentage is almost double that of the US.

If those buyers who are getting the low rate mortgages don't have the income, the bank can tell immediately because they need 2 or 3 years of proven income in tax returns. Banks generally try to make money and not lose it by giving bad loans.

Calgary is up less than 5% year on year. I wouldn't call that volatile. In other markets I would agree with you about the volatility though and we are at risk of that happening here unless inventory increases.

Frnk said:

The bottom line is at the moment we're seeing homes purchased at low variable rates. At present anyone with income can qualify for a 2.5% variable rate.

No they can't!!  To get a 2.5% variable you have to have excellent credit or a ton of equity.  That's the problem with information it's only as good as the source and your sources are out to lunch.

Frank said:

"DaBull, one reason Australia raised rates is to cool it's real estate market. At least they're able to do that because they have a different export market."

Exactly!

"Given we've failed to re-orient or diversify our economy, if the BOC keeps rates low, it will exacerbate a hot real estate sector into a similar real estate asset bubble that is still imploding in the US."

I don't think BOC is going to be able to hold interest rates low without Canada incurring too much inflation.  The FED in their lack of wisdom don't care if American citizens get wiped out by inflation, so the American dollar might tank much further.  But it seems the BOC "does" care about Canadians' wealth and are very reluctant to let it be destroyed by inflation.  Ultimately, the USD certainly will go Bangladesh, but there are analysts out there like Bob Prechter who are predicting a temporary surge in the USD for at least a year, before the dollar crash starts up again, and this time for good.  When you listen to his reasoning, it makes sense.

"Eventually when interest rates will rise, the bubble will deflate.  The 2.5% variable rate mortgages re-adjusting higher will be our version of their sub-prime meltdown."

I don't think we're going to have enough time for the bubble to inflate much more from here.  The BOC is really stuck with a dilemma, aren't they?  On the one hand they don't want to raise rates because by doing so, they strengthen our dollar and that results in further damage to our economy.  But the alternative is to let inflation run amok and inflation is the dirtiest hidden tax of all time.  Income taxes are taxes on what you make.  Inflation is a hidden (and ongoing) tax on "everything you have".

"And I doubt anyone sane in the US wants to be yet another war."

For sure, but it's the "insane" ones we have to worry about, and unfortunately they're the ones who control Obama's puppet strings.  The global banking elite... the owners of the owners of the FED.  It's they who funded every war in the past 200 years including both world wars, and every war since then, too.  God only knows why they want to attack Iran. Israel is a far more dangerous threat to the region that any other... but that's a topic for a different site I guess.

Dabull, right now Var rate mortgages are about 30% of homes being sold. Which means 30% or more homes will reset within the next 5 years. It does not matter how much down or how good the credit is,with a stronger CAD, incomes will never rise as quickly as inflation to adjust for higher monthly payments.

-----------------------

http://www.canada.com/business/fp/Canadians+taking+less+equity+their+homes/1523462/story.html

CAAMP says 28% of Canadians have variable rate products that are tied to prime. The number is rising with 36% of new mortgage orientation in the past 12 months going into variable rate products

-----------------------

I expect the BOC to increase rates to slow down the money velocity entering real estate. Otherwise we'll be back inside another unsustainable run-up.

It's certainly been interesting to watch!

Just to note though, apparently there are 19 sales pending that are $1M or more. Without those, the average pending price would be $447k.

There's no denying that the atmosphere in the real estate market is 180 degrees from last October.  I remember right about now people were wondering if a house would ever sell again in Calgary.

It's funny, last year at this time there was the 'perception' of the recession hitting people in the pocketbook, although in reality I don't think the effects of unemployment, cutbacks, etc, were truly hitting people just yet.  It was in this environment that sales froze to a halt, prices dropped, etc.

Then when that perception became reality, as unemployment grew, hours were cut back, etc, that's when there was an explosion of sales and price increases.

I guess it just shows how much of the marketplace is driven by emotion.

One other useless tidbit, the median price of rent for a 2 bedroom apartment in Calgary dropped another 4% today.

http://tinyurl.com/yfln9zh

07/09 - $1200  

08/25 - $1150  

10/14 - $1100

I knew that with the passage of Plan-IT Calgary, combined with the need for more inner city density would equate to a future shortage the detached SFH.

Perhaps some other folk are starting to realize this.

How are sales of SFH's in the inner-city compared with the past Bob?  I've been seeing homes go quickly in areas like Killarney, Altadore, Garrison, Etc.  They were on the market for about 1 month.

Going back to my prior theme, we are seeing the weakness of the USD$.  As I had previously predicted, fiat money is going out of style...and investors are clamouring for tangible items like gold, oil, and property.  Just look at the recent moves in the markets and compare with 6 months ago.  In Weimar germany, when inflation got out of control, those who had homes still had those homes.  They lived through the tumultuous times and passed on those homes to their children.  Those who were in cash and bonds lost it all BIG time.  The prudent investor spreads his/her risks out, with a combo of stocks, bonds, real estate, inflation hedge (ie: gold, copper, oil).

Not saying this will happen in Canada, the probability is pretty much 0%... but using that as an extreme example of what can (and I believe will) happen to the USA and likely to Canada.  Why aren't we insulated you say?  Well we do too much of our trade with USA.  If we had adequate time to redo our trade agreements, build infrastructure (like out to Vancouver)...then we could trade with Asia like Australia can.  But alas, we are stuck with this sick elephant to the south and our Loonies, though strong compared to the USA, will be ever weakened compared with the rest of the world.

Those in 3% GIC's may be laughing now with the low inflation numbers, but the gain is tiny compared to the potential loss you may have if you have 100% of your money in "cash" and the sh!t hits the fan.

"How are sales of SFH's in the inner-city compared with the past Bob?  I've been seeing homes go quickly in areas like Killarney, Altadore, Garrison, Etc.  They were on the market for about 1 month."

@worldclass: I ran across an interesting map today, of the absorption rate by community for September 2009.

http://www.andrewkyle.com/mlsca/home_page.php?page=community_maps&map=1

It looks to me like the burbs are what is in hot demand right now?

CM, I live in Victoria Park so I decided to focus in on that particular neighbourhood. Its absorbtion rate on the map is 3.69, or high. I think the reason here is that there are a good number of high-priced properties just sitting there without buyers. I bought a property here in June for 300k, close to 1000aqft and 2 br and 2 full bath rooms. If you look for properties like that under 350k, there isn't much. But if you look from 350 upwards, there's tonnes of stuff. There are also a lot of properties with just one bathroom in the under 300k range - but often with high condo fees. My conclusion is that good properties in the sweet spot go pretty fast, but there is a bulk of real estate that is arguably over-priced that just sits there at any given point in time. I wonder if that would explain the higher AR in the much of the inner city.

Vlaid:  Bob's 'Absorption Rate By Price Range' stats would support that theory:

http://www.bobtruman.com/Absorption_Rate_by_Price_Range/page_2184951.html

The $300-$400k price range really caught fire in the spring & summer.

I know for us personally, both the quality & quantity of inventory coming on to the inner city market took a *serious* nosedive starting in spring.

However, it could just be that the inventory coming on to the market last fall/winter was exceptionally good  ?   We have nothing to compare it to, since we've never really watched the inner city market before last year.

Perhaps the inner city home absorption rate is improperly skewed because some people just put their homes on the market, overprice them, and hope they sell due to location.

The ones I've seen in the inner city seem to be going fast if its a single-detached and priced in the 450-550 range, as long as it has an R2 lot.  Some of the homes that are new infills are going for 700-900k on half the lot size, but are still being bought up.  Maybe if it is "priced right" for the quality of home, or the land size and location...then it goes fast.

There is now "mount royal university" nearby Altadore as well.  I wonder if this will affect the community, and if so good or bad?  From what people have been saying, it looks as though some higher educated professor types may look at Altadore and Garrison Green/Woods as potential places to settle down.  Definitely too pricey for the student population.

"Perhaps the inner city home absorption rate is improperly skewed because some people just put their homes on the market, overprice them, and hope they sell due to location."

You would then be inferring that inner city home owners overprice their homes by a greater percentage margin than suburban home owners.

Somehow I doubt that, I think people everywhere likely attribute/rationalize all sorts of reasons other than just location for why their home should be worth more than it is, and I'm betting that homes in the inner city sell for an average of 97% of their sale/list price just like they do in the suburbs (maybe Bob can shed some insight on that)

This year is definitely a lot different then last year... thanks in large to consumer overspending and an economy being propped by government stimulus.  I know a lot of people that are maxing out credit and living well outside of where they should be.  It is only a matter of time until this bites them...

I know that these are fighting words on this blog... but, it looks to me like we are setting up for a correction.  I would guess that if 5 year closed rates get into the 6% area, there will be a drop in real estate values of up to 20% on the average price.  I have been reading Garths page with mixed feelings - sometimes I disagree, but most of the time I agree with his thoughts.  

Newt

Newt,

Valid arguments.  Unfortunately, the conclusion of drops about 20% may be a little far-fetched.  You are talking about -80k on your median home price of 400k here.  I doubt we can see a Calgary metro median of 320k with the current low BOC rates, high oil prices, and eventual printing of money by the BOC.  Those who cannot lock in at today's rates will likely have increased yearly income due to the increased supply of money floating around a few years from now.  With commodity prices rising (due to international demand), and our Loonie being kept low vs. USA... the companies here (especially OIL companies) will report record profits.  They will be hiring more people, giving raises, and awarding bonuses.

Today the BOC head talked about the high Loonie, and the dangers of it.  He made valid arguments about Australia vs. Canada, especially about our trading differences (China vs USA).  Looks like we may see Canada printing money in the future and buying up USD's in order to lower our Loonie.  This will happen until we find a way to trade significantly with Asia.

Rates by the BOC will rise over the next few years (is there any other way they can go?!)...this will be offset by the loose creation of money supply.  It's all a delicate dance.

WorldClass: We all saw what happened to real estate in the US and UK after a period of low interest rates were followed up with a dose of quantitative easing.

Can you remind me again why it's different here?

Worldclass and Bob -

It's impossible to convince some people that the economy can turn around or that house prices will go up after they go down.

Many people I know still aren't convinced house prices are up this year - people are very surprised when I tell them.

"I thought we were in a crash - isn't this another depression? Unemployment is 20% in Canada and the government is lying- Garth Turner said we were just like the US" "The banks are all failing" "Look at all the vacant offices"

It's interesting to see how the stages of denial show up - first the argument was "it's a seasonal increase in price" in the spring, "prices must go down - look at the 40$ oil", "we lag the US market by 2-3 years" then "it's only going to go down because unemployment is high", "look Natural Gas is $3" then "it's going up but because houses are kept off the market" then "it's going up but people are so in debt" "look at the high Canadian dollar".

Some say the stats are all made up by realtors. These people will never be convinced that prices go up. Of course the stats were right on in 2008 when prices went down though.

So its hopeless to argue really. For every fact you have, there's an anecdote or something that Garth said.

I actually think that house prices are near the limit of affordability at 2009 Calgary wages but I agree worldclass that when the next boom hits and we see year-on-year income raises of 10% again, people will wonder how stupid they were to sit this out.

I first thought that prices would only increase a bit next year at best. But think about this:

1. a stalled manufacturing and tourism economy from a high dollar with RE bubbles in almost every city

2. oil at 80 and rising. Nat gas at 5 dollars and rising. China and even Korea buying into the oil sands

(China I expected but Korea made me sit up and take notice)

3. Interest rates held low for a long time with massive monetary supply stimulus from all over the world

4. A provincial government sitting on a bank acoount of billions (instead of billions in debt)

There isn't a better setup for everyone from the rest of Canada and the US to inject the Calgary RE market with a good dose of bubble gum next year...

The difference here is that the Canadian government has eliminated a lot of the subprime loan originations.  In Canada, you need a minimum 5% downpayment, as compared to no down in the US.  Also, for those that understand the credit score system, a subprime consumer is typically regarded as an individual with a credit score less than 620.  In fact, in July 2008, the Canadian government proposed that all borrowers had to have a minimum credit score of 620.  This would have effectively ENTIRELY eliminated any subprime borrowing.  At the peak in the US market no less than 33% of loan originations were subprime and Alt-A.  This compares against 5.4% of mortgage origination in Canada at the peak.  Since most of the subprime lenders left the market last year AND CMHC's tightened mortgage regulations have taken effect on October 15, 2008, sales volumes have climbed.

I still acknowledge there is a lot of confusion in the market such as this article ( http://thetyee.ca/Opinion/2009/10/22/BubbleWillBurst/ ) that states, "But what few Canadians realize is that the housing market has avoided collapse (prices are down 32 per cent in the U.S.) because the Harper Conservatives directed the CMHC to change the mortgage rules to effectively make the Canadian government the biggest sub-prime lender in the world."

The Conservatives have actually tightened mortgage regulations as of October 2008, and almost entirely eliminated the entire subprime spectrum for our housing market.

I find it incredibly intetellectually dishonest that despite having the worst financial crisis in decades, that someone STILL does not understand what a subprime borrower is.

As Bob Truman, has stated above there are a whopping 44% less new listings than at this time last year.  Obviously, there is vast differences in the lending that is not leading itself to a foreclosure crisis.  It has also been over 2 years since the start of the correction, and instead of the US experience correction started in 2006 and by 2008 was a rapid decline, the Calgary real estate market has actually already reversed the price declines that started in mid 2007.  If we were tracking the US, then we should be staring right into a gaping bottomless pit right now.

I actually don't think that house prices are going to appreciate by much for awhile, but I don't think a bust is in the cards either.  

People need to look at their household cash flow and determine what they can afford including maintenance costs, taxes, and any fees plus mortgage costs and potential interest rate increases.  They also need to look at their cash flow, monthly income after tax, and incorporate risks like what happens if I or my partner loses a job, plus look at any preexisting financial obligations, and have a financial plan that invests a healthy portion of your income.  Renting is also a good option, and likely going to be cheap for awhile as vacancy rates stay relatively elevated compared to previous years and rents become more competitive.

Radley77

That opinion article on "thetyee.ca" is not really about the CMHC or mortgages, it a shot at Stephen Harper.  The Author of of that "thetyee" opinion seems to hates politicians of in general, well except for the Green party.  He is a board member of Canadian Centre for Policy Alternatives, a left wing greeny think tank.  He started out his opinion pieces in 2003 slagging Paul Martin, so the Liberals aren't his friend either.  Just read his last 20 opinions to see how many times he mentions Harper. The guy is obsessed with Harper.  It's almost scarey.

There was a good artocle in the Globe & Mail a few days ago...

While it's tempting to think of a “housing correction” as a continent-wide phenomenon, National Bank Financial says the Canadian and U.S. markets couldn't be more different.

“The two have absolutely nothing in common,” senior economist Marc Pinsonneault wrote in an economic update Monday. “In Canada, the correction got under way much later and lasted nowhere as long.”

Mr. Pinsonneault said “prudent lending practices” in Canada prevented the housing market from falling as hard as its American counterpart, and pointed out that Canada's crisis was a side-effect of its recession rather than its cause.

Here are four ways the markets have differed:

Duration of slowdown

The Canadian market began to slide in Octobe,r 2008, while the American slump has lasted 2 1/2 years.

“People wishing to sell their homes either cut their asking price or quite simply took their property off the market,” he said of the Canadian market. “Lower interest rates, lower home prices and renewed consumer confidence led to a quick recovery in sales, so much so that as early as last May, these had surpassed pre-recession levels.

The American market still faces challenges – the number of sales has to increase 70 per cent “to return to levels in line with a normal situation.”

Price declines

According to Teranet, Canadian home prices fell 8.9 per cent from their August, 2008, highs to their recessionary lows eight months later. In the U.S., the S&P/Case Shiller index shows prices slid 33 per cent in 33 months.

“In Canada, in three of the six metropolitan areas covered ... namely, Halifax, Montreal and Ottawa, the correction was rather ephemeral, lasting from three to six months,” he said. “In addition, it proved pretty light, with prices retreating less than 5 per cent. Moreover, since the market trough, prices in these three areas have already made up the ground lost during the correction.”

While prices in Vancouver and Calgary took harder hits, they still did better than the worst U.S. markets.

“Prices there fell in a measure comparable to that registered in the U.S. cities least affected, that is, Denver, Dallas and Charlotte,” he said. “The market began recovering only recently and, therefore, a return to pre-correction price levels is not imminent.

Delinquency rates

Canadian banks have seen delinquency rates climb to 0.4 per cent, compared to the 0.65 per cent high reached in 1992. The number is far greater in the U.S., at 3.67 per cent.

http://www.theglobeandmail.com/report-on-business/why-the-housing-market-didnt-crash/article1329497/

There seems to be some intelligent folks posting on this blog, so I was wondering if someone could explain something to me.

In layman's terms, what would the ideal outcome be (going forward) for our country ?

Worldclass mentions quantitative easing, which seems to me is just a euphemism for 'negative interest rate'.

Is the hope that our country is able to generate enough a certain amount of growth over the years to offset the inevitable rise in interest rates?

At some point, won't people realize that they've simply invested too large of a percentage in one asset class?  An investment even more dangerous than your usual asset class bubble, due to the leverage involved.

At some point, won't people shift their money into investments that truly generate returns, investments in ideas and progress?  Will they see that there's a reason real estate only appreciates at the rate of inflation over long periods of time?

Will they wake up and realize how much $$$ they've sunk into management expenses for this asset class by purchasing granite countertops, stainless steel appliances, and hardwood floors that all begin depreciating the moment they're installed ?

Will Canadians finally admit we really weren't any more prudent than our neighbors below us?  Did we not all obsess over our homes, become addicted to real estate reality shows, and chat incessantly at cocktail parties about our rapidly rising investments?

Will there ever be a day again where people are tired of such talk?  When people are tired of visiting real estate blogs (sorry Bob) ?

Will there come a day again when real estate advice is not touted by our waitresses?

Will we look back at these excesses in the same way we now look back at the dot com bubble of the 90's ?

Carl: Here's a rebuttal to that article  ...

http://americacanada.blogspot.com/2009/10/when-home-prices-rise.html

Most people don't look at their house as an asset class.  You may but most don't.  They simple look at it as a place to live and that one day they will own it outright.  It's that simple.  Different metrics with housing than with other asset classes.  One being a sense of ownership.

The US really is a different story.  That really was a speculative bubble and when it collapsed it made it's way into the general real estate market, thus magnifying the collapse.  That type of speculative market does not exist in Canada and even during the boom times.  Most real estate purchases are made because the person wants a place to live and something to call their own.  Yes I know they don't really own it, but they have hope that one day they will, unlike a rental property.

Even though you may think the Dot.Com era was a bubble it really wasn't, it was actually an asset class too, but just of ideas.   Everyone thought they had the next great business idea.  A few did, like google and ebay but most failed.  That's how most investments work out.  Some are good, most are bad.  The trick is to find the good ones and not get burned too bad by the bad.    

Interesting conversation going on here.  CM, I read your post questioning the rationality of people but from what I have learned, you cannot count on the masses being rational.  This is the same reason by head-smashed-in buffalo jump exists.

I am not saying that the current financial practices are leading us to a cliff... but that there are ENOUGH people in power with money in "the game" that those whom are prudent cannot hope to change things.  When the river is flowing fast downhill, isn't it better to make the best of things vs. swimming against it?

"Worldclass mentions quantitative easing, which seems to me is just a euphemism for 'negative interest rate'"   -CM

When I say quantitative easing I mean the EXPANSION of our BALANCE SHEET.  Literally creating more money out of thin air...or "printing" money.  This is separate from lowering the interest rates.  Quantitative Easing means increasing the actual supply of Loonies circulating around Canada and the world.  Basic economics dictates that an increase in money supply is termed "inflation".  They can pull this trick out of their hats if they want our Loonie to fall in value (which I think they will do this).  They "print" more CAD$ and then buy USD$ on the market with those CAD$....thereby lowering our Loonie.

I am sure that if you think this through you will understand what this does to the value of all your savings.  More and more people will be able to have the same Loonies as you have in your nice "high interest" savings account.

CM...

I'm an old man.

I have known a great many troubles.

But most of them never happened.

This is for CM.  It seems on this blog and some other blogs "CM" does not really understand my posts.  He/she is either misinterpreting my words, or my words are being turned into saying something else.  A small primer regarding what Quantitative Easing is:

http://en.wikipedia.org/wiki/Quantitative_easing

Learn and understand before you type.  Also, regarding homes priced in OUNCES of GOLD... take today's gold price and see how many ounces you can buy if you were to sell your home TODAY.  You will see it is roughly the same amount of gold as back in the day...save for a few years of lag time during the tumultuous years.  Gold moves first....housing lags gold...when gold fell hard due to tightened monetary policy, housing followed it down.  If you think gold will fall from today's prices of 1050/Oz, then DO NOT BUY A HOUSE.  Of course, if you think that gold will fall from here then you better have good reason because I cannot find one at all.

CM you raise some good points but also some not so good.

We must always respect the danger of bubbles in an asset class. That's why it's important to question any investment as large as a house.

But remember that an investment in something is achoice not to invest in other things. If you don't buy a house and sit in cash, you are essentially investing in cash. This year that's had a terrible return next to almost anything except GICs.

A home beats other investments for two reasons

1 you don't pay tax on capital gains. This is huge . It only applies to your residence though

2 you get to live in and enjoy your investment. Unless you enjoy swimming in cash or fondling gold bars, that is

If you own a home for more than 10 to 15 years you will see a crash. Make sure you can ride that out. Pay a big deposit.

This means buying a house that you can afford, maybe not the ones rich folk live in.

Garth's prediction about next years crash or the crash of 2011 might be right.  He said the same thing last year. He's still channeling the early eighties I'm afraid. I do agree with him about peak oil and it's curious he hasn't rationalized that crucial difference between the US, UK and Canada (especially Alberta)

China buys more than half the world's steel and cement - what do you think happens when they start needing more oil?

Hi Jimmy,

"But remember that an investment in something is achoice not to invest in other things. If you don't buy a house and sit in cash, you are essentially investing in cash. This year that's had a terrible return next to almost anything except GICs."

Fair enough, but the point I was trying to make was not that the general population should/will sit around in cash.  Long term, sitting in cash is financial suicide, unless you enjoy an average return of -3% thanks to inflation.

What I'm trying to say is that people will eventually realize they just had a large percentage of their earned dollars in an asset class that will never generate much of a return above inflation (long term).

I truly do believe we all just got carried away and leveraged an asset class to it's extreme.  Most couples that would be scared to death to make a high leverage investment in a single asset class didn't even blink an eye when taking on $300-$400k worth of credit.

Can you imagine your average couple deciding to take $300-400k worth of credit and using it to purchase, say, a variety of tech stocks ?  How many would have the guts to do that?

But, as you mentioned, it's different because it's a home.  You can live in it.  And there are tax benefits, both are valid and true points.

I just wonder how many people A) were under the false impression that they were 'wealthier' when they saw their leveraged investment continue to rise and rise and B) used that new found 'wealth' to buy depreciating assets, or take on more leverage (2nd home, etc).

The other thing that concerns me are the reasons/justifications that people come up with to validate why real estate in their city/state/province/country suddenly ballooned in value far faster than inflation.

Read this article about Australia for example:

http://www.theage.com.au/business/what-price-a-home-20091016-h0ey.html

Or read this story from the UK; if replaced the word England with Canada in each instance, you could run the exact same article in our newspapers.

http://www.telegraph.co.uk/finance/comment/jeremy-warner/6418664/Be-bullish-about-house-prices--for-now.html

Yet despite the fact that it's become painfully obvious real estate world wide increased at rates far beyond inflation *only* due to loose credit expansion and nothing else, people continue to justify/rationalize the increase using reasons that are local to them.

cM

To CM who said:

"What I'm trying to say is that people will eventually realize they just had a large percentage of their earned dollars in an asset class that will never generate much of a return above inflation (long term)."

Your approach does not recognize that there are really two value components to home ownership: 1) Asset Appreciation AND 2) Capitalization Rate.

Also, bear in mind that the capitalization rate will increase over time as rent increases.

Some of the properties that I looked at that Bob Truman sold previously this year should have a return that is above what could be expected long run in the stock market.  Although, I don't believe MOST properties will perform as well as the stock market.

Really, what one has to do to adequately assess the value of buying real estate is to do a net present value calculation, and/or calculate the internal rate of return and then compare the two economic scenarios of renting versus buying.  Then, one can compare that expected rate of return to other assets like safe government long bond yields to benchmark investment opportunities relative to one another.