Bob Truman, First Place Realty

This was posted on Garth's blog:

"expensive homes are just sitting there with a true DOM exceeding 365 days, some for years."

What is the CDOM for homes above $one million?

For the 23 homes sold in May, the CDOM is 99 days. That includes all the days when they were listed under a different MLS number, so it is the "True" days on the market. - Bob

How about building? Is now a good time with labor rates down?

Quality is way up, if you hire your own trades.  You have selection again.

I'm am currently doing a complete reno on a 1035 sq/ft bungalow.  Rates aren't coming down much, but stupidly overpriced and outlandish quotes are.  They are non-existent these days. Material prices really haven't moved much. Wholesale lumber is down, but not retail.  You can actually get people to come out and give you an estimate.  There is finally choice in the market again.  Everyone seems to want or need your business again and they will even promise to get the job done in a reasonable time.   I think we are finally returning to normal again.... It's seems to have been a long time since I've seen this market.  

Actually when interest rates are low is probably the worst time to buy housing.  Housing trades with fixed income like properties.  When rates go down, the interest component of the mortgage decreases, allowing purchases to bid up the price of houses.  When rates rise to long term average rates, mortgage interest costs could easily double on current houses.  A proper modelling of long term real estate values and input factors such as interest rates would likely lead to this conclusion.  People have a hard time understanding that the current payment will expire, generally in 5 years and that their interest component could be an order of magnitude higher, coming off the lowest rates in history.  

"I've posted a few times on the bubble blog about a hyperinflation scenario and why owning a hard asset (like a house, gold, or commodity stocks) is a good idea at this uncertain time. "

Your right about those assets if we enter a hyperinflation scenario. From stats released today, a hyperinflation scenario seems unlikely, thus owning hard assets would be a poor decision in a deflationary economy.

To see what is happening in a small country (pop wise) like Canada, see what is happening in the worldclass ones like the UK. To think Canada "is different" than the UK, USA, Spain, France, Germany, Russia, Italy, Switzerland, Japan, etc is to be pompous.

From Canada:

"The annual government-tallied inflation number just out is 0.4%. Economists think it will be zero by next month.

From the UK:

MILLIONS of workers could be set for wage cuts after deflation hit a record low.

Tumbling house prices, lower utility bills and food costs and rock bottom mortgage rates sent it crashing to minus 1.2 per cent last month. And fears are growing bosses will react and pay rates will take a hammering.

Actually Garth turner sells books for a living.

The guy has  an agenda of "disinformation".

Folks like Garth Turner profit in uncertain times by exploiting peoples' fears. In this case the economy.

Very soon, Garth Turner will be unmasked for what he is: a book selling fear monger.

He may tell his readers one thing while he does the opposite. The guy owns THREE properties but tells his naive readers to "sell before it's too late", and to stock up on "canned squirrel meat" for the chaos to come.

just read his blog:

www.greaterfool.ca

Hi Bob,

Didn't know you would showcase my blog post all on its own thread!  Guess it was well written for a blog?

The following does not signal agreement from myself that Canada is doing the "right thing".  It is just commentary on what is happening.

The difference between Canada and UK is that Canada got on the imminent pop of our housing bubble BEFORE it crashed hard.  The USA induced our central bank to ease like crazy, and not a moment too late  It is because the USA was too slow in cutting the overnight rates, opening the Fed funds window for emergency bank lending, and finally lowering rates.  By too slow, I mean they already had a big housing crash by the time they eased.

Canada, on the other hand, did it in tandem with the USA sans housing crash.  We still witnessed a big drop from 2007 peaks, but I bet it would have been an even bigger drop (something along the lines of Squidly's predictions) if it hadnt been for our "leaders" devaluing our savings to such an extreme (0.25% BOC rate!?).

I am not sure why some are saying deflation is everywhere.  All I see in CANADA is that I am paying more for my food, my gas, and pretty much everything else essential.  Things like electronics etc. may be coming down a bit, but not as much as they should.  It's all because Canada is tied at the hip with the USA, whether we like it or not, and as they print money we'll be forced into doing that too.  We do 80% of our trade with the USA...do you think we can start trading with the rest of the world that quickly?  We are behind other nations in setting up good trade relations with the rest of the world, especially China.

So we are seeing areas in the economy with deflationary signals....but those in power are all Keynesian in economic theory, with the biggest criminal being Helicopter Ben.  We are stuck with him.

Hard assets that I have bought at lows:

-oil stocks

-gold stocks, bullion, comex etf's  (see my posts 1.5 months ago telling people to buy gold for a good profitable flip....Mike(authentic) can attest to this)

-energy producing stocks (see CPG.UN)

-agriculture (potash)

Pretty much selling out of gold soon, sold some today.  Sure i'm back in cash, but you can bet I won't stay in cash for long... just waiting for another chance to jump back in.  The game is that you have to grow your "cash" fast... or else you'll be sitting on the same amount of cash forever as the world around you inflates.

Once the world economy gets back on its feet, and starts leaving the west behind (USA and Canada), we are going to witness domestic inflation like u wouldn't believe.  There are a lot of hungry mouths to feed, a lot of demand across the world for the same conveniences we enjoy here.  At least we aren't in US $'s and are in Canadian Dollars... we'll be sheltered somewhat, but not as well as other currencies.

So make up your mind...if you are living here for good, and have been waiting to stake out a claim on a place of your own (preferable NOT a condo, get some LAND under your home, inner city is best)... you should buy.  If you don't care and are happy with renting...good on you...but you better be doing something else with that cash hoard you are holding, because if you don't spend it, the government will spend it for you.

Actually, THE TIME TO BUY is about 24 months away. By then we will see the necessary correction to,

1) Bring total cost of the SFD within the appropriate income to FMV ratio.

2) Based on #1, dwelling debt servicing ability will also be within a safe range.

Housing still has about between 25 to 35% to drop from CURRENT MARKET PRICING and I'd be willing to bet on it.

Care to make it interesting Bob?

Do you have the brains to figure out that I did not write the topic for this posting? It was written by Worldclass. Maybe he'll bet with you.

Firstly, I'm not a gambler, but you're attributing some assumptions to me which are incorrect. I've told every buyer this year that I expect prices to drop starting in the summer(go back and read my previous postings). I am surprised that prices have gone up at all. Nobody, and I mean nobody, predicted the huge drop in inventory or the increase in prices; just the opposite in fact. Everyone was expecting another large influx of new listings and decreasing prices.

I did say that if inventory dropped to 3500 SFH, that we would see price stability or increases. Hindsight shows that I underestimated. Inventory has been hovering around 4200, and the prices have increased.

Rather than lose my hard-earned money on a bet with you, it will be good enough for me to post your prediction on my "Predictions" page. I'll be happy to post the results and congratulate you if you're correct. Just to clarify, you're saying a 35% drop over the next 24 months?

How much will SFH prices drop by December? I'll post that along with all the other predictions. If I don't hear from you, I will pro-rate it.

What month do you expect the prices will start dropping? -Bob

P.S. You're a courageous person to go out on the limb like that. I was lambasted with numerous postings from various blogs for making a CORRECT prediction last year. God help you if you're wrong!

P.P.S I noticed your post on Garth Turner's blog, saying you "called me out."  As Turner would say, 

You sound like a shrill, insecure little weenie. — Garth

I urge "tjmikey" to read my original post again.  You will see that I state clearly that the buyer can expect to take a fall in property value of his home after he buys.  See the last paragraph!

The point is that yes...you will see a drop.  But if you buy correctly, with the right low-ball price, and get a good sized chunk of land in a good inner city neighborhood...you'll notice LESS of a drop.  Now, those who say "if you know there's going to be a drop, why buy now?".  The answer to that is simple... you want to have good choice.  Most would be buying to live in a home, not as an investment.  I never said buy for investment.  It just so happens that when you buy a home to live in, you are also converting that paper cash into something tangible and valuable that you can live in.

For Joe average, a home is pretty much all they can invest in.  Buying is OK to live in if you NEED it.  It just makes sense, and is the safest road to take in the current times.  Keep renting, saving... and you might be right and witness a good drop in prices and then you can buy at a better price.  In which case, good job!  Just be careful as you might miss the boat.  You never know what our quantitative easing policies will do in the future.

Filled up my gas today.  Apparently prices are set to rise 10 cents a litre.  Not to say higher oil will mean more jobs for Calgary...just saying inflation is starting to take hold.  The US dollar index is falling hard...and it is a broken chart if I've ever seen one.

Unless we get a lot of new listings(which I am dearly counting on for my buyers) this summer, the "good choice" is long gone, at least in the lower price ranges. -Bob

I don't think enough attention is being paid to the so-called "shadow inventory" of homes that would be on the market except for the fact that there is insufficient equity to allow the sellers to complete a transaction. Mike Fotiou had a comment recently about these so-called "short sales". I would guess that these properties account for a large proportion of this year's smaller inventory vs last year, when many of these properties were listed at much higher prices that would theoretically have allowed the sellers to sell.

As prices gradually increase, more and more of these will trickle back onto the market, which should have the effect of slowing the rate at which prices increase. If the market slows down as expected over the summer, the prices will probably stabilize or move down a litte, and once again the "short sale" properties will once again be locked out of inventory.

Only a few sellers will choose to go into foreclosure on these properties since this generally leads to personal bankruptcy in Canada, unlike the situation in the US where sellers can walk away from their "non-recourse" mortgages without going bankrupt.

The end result is that the mortgage rules in Canada will have the (unintended?) consequence of keeping the prices of homes from falling nearly as far as they would if all of the short-sellers could walk away and hand their houses back to the banks.

This is a big differnece from the bust in the 80's when Alberta homeowners could walk away from their mortgages without even affecting their credit ratings. Many of the dire bubble-blog predictions have compared the current situation to the 80's but the change in the rules since then has been a large part of the reason why prices have not fallen nearly as far as they would have if Alberta mortgages were still non-recourse.

tjmikey, Rob Jensen, you should check this out...

http://www.stop2gambling.com/?hop=michsfl&gclid=CJ_52NbW0JoCFRk_awodTgqd3A

 Get rid of your gambling addiction in 7 days!

As always, I seem to be quite early on some calls:

http://www.forbes.com/feeds/afx/2009/05/21/afx6454705.html

Do you really think that the Bank of Canada, faced with a loonie that is strengthening like crazy, will raise interest rates?  That would make us able to buy 2-3 US dollars for every Canadian dollar and devastate our trade with our biggest partner.

"I'll bet you $1,000 that the price of an average house in Calgary is going to drop between 25 to 35% FROM CURRENT VALUES in the next 24 months."

How did you get to your numbers? Seems to me one of the regular readers is smoking too much of the good stuff.

Worldclass gave the more likely scenario. Although I don't know why he's selling his gold. I'm expecting gold to be around 1500 by this time next year.

I'm a bit of a bear but I don't see 25-35% in the next 24mths.  There are some bad signs of things brewing right now that might cause us to drop a bit but I have a feeling once we hit fall we'll be going sideways for a good year.

As pointed out, the currency thing is very bad for Canadian companies.  I know people (including family) who are borrowing and spending like mad because of low interest rates but they are not using that to invest.  They are just putting themselves further in debt because they can.  On top of this there are still TONNES of shady lending practises out there.  These are part of the problems that got us here in the first place.  We will have a relapse at some point but we could get a bit more of a run before that happens.  I am so bad at market timing.  Where is that darn crystal ball!!!

Frnk,

I sold some gold stocks and ETF's for now to lock in profits.  I still have a good core holding of gold that I do not sell.  As always gold won't go straight up to 1500 unwaivered...there will be dips, perhaps back to 800 (even 700 is possible) and you need to preserve more capital in order to move in on such opportunities.

Folks:

Does anyone have info on breaking a 5 year fixed mortgage at a major bank?  It used to be the max penalty they could charge was 3 months interest.  What am I now hearing about the greater of 3 months interest and an interest differential?  Any comments much appreciated.

I found this on Turner's blog(with a few of my own edits):

Most bears thought the loss of the 40 year mortage would destroy sales.  Then high inventory would destroy prices. Then the economy tanking here would surely do it this spring.  Now it's rising interest rates down the road. It's actually quite amusing.  Now rising unemployment.  Just admit it.  The housing market is far stronger than anyone thought it would be this spring, and none of us know what it will be like in the fall and winter.  

The number of people on regular EI benefits in Alberta rose 32.1 per cent to 42,200 in March, marking the fastest monthly increase for the province on record.

http://www.cbc.ca/money/story/2009/05/26/ei-rec.html

Calgary added 10,000 jobless EI claims (up to 15K from 5K last year). These are 10,000 permanent jobs.

Since contractors are the first to go, and they don't claim EI benefits, I would assume at least another 10,000 contract jobs are gone in Calgary.

So that's 20,000 jobs total. Can't wait to see how deep house prices will fall in the latter half of the year!!

http://www.calgaryherald.com/business/Provincial+jobless+claims+spike/1633147/story.html

I don't know if anyone has noticed that oil prices are coming back to levels where drilling in Alberta will have support.  Big investment in the oil sands from companies like Impetial Oil ($7B) and other investments such as one by the french oil giant TOTAL in Albetta must mean they're bullish energy.  Gas prices are nowhere near where they were last year, however rig shut ins will take care of that once the supply is cramped.

With that in mind, I think the Calgary real estate market is a bystander in the drive by shooting on the rest of the world.  Especially eastern Canada, Ontario and Europe.  Oil prices will push triple digits by summer of 2010 and then we will once see all the oil and gas activity come back to Alberta.

Also with all the cash being pumped into the economy by the US and the rest of the world, we are bound to see some inflation sooner or later.

With the energy bull creeping in the background, I don't think there is a lot of downside to buying a place in Calgary right now.  The market is going to recover soon and then the rest of the world will realize we are running out of oil and fossil fuels, like they did last summer.

Comments?    

I've never seen such a complex set of circumstances in the world of finance on the entire planet, that could have an affect on Calgary's real estate prices, as exist today.

The debate rages on about whether or not there's going to be inflation due to the incredible number of $trillions that the FED has created out of thin air.  Eventually, hyperinflation is absolutely assured.  But maybe not just yet.

The key to the entire puzzle still lies in what the US treasury is going to do with the $trillions they have in reserves that are just sitting there.  In other words, those dollars have not been loaned out... they're not in the "system" yet. Banks aren't lending to corporations and they aren't even lending to each other. So there is no "velocity of money" being created.  That's really what will eventually cause hyperinflation.

The US dollar is tanking as you all know, and that's extremely inflationary.  That's why the stock market is in it's incredible but phony rally.  How far will the FED allow the dollar to fall before the peasants start to riot?  When will foreign investors say "enough", we're not loaning the USA any more money by purchasing their insatiable appetite for borrowed money ($4 billion a month is borrowed by selling bonds, last time I checked).  If they stop buying the US government bonds, interest rates will have to go up... sharply.  And that means higher mortgage rates... if anybody can even get a mortgage any more.

This is in effect, a contraction of credit and it's very deflationary.  Not only would banks refuse to loan money, they'll demand re-payment of the money that's already loaned out.  I could even result in banks refusing to renew mortgages when they come due (in the USA). This scenario is extremely deflationary.  It would result in a crash in the stock markets, the real estate markets, the gold market, every commodity market including the oil market.  It's possible for this to happen and only the banksters know which path it's going to take.  I certainly don't know, so I'm not making any kind of prediction here.

Worldclass's opinion that the time to buy real estate is "now".  Could be that he's right.  But we don't know what the FED is going to do, and until we do know, I'd be leery.  The second we hear the FED declare that they're tightening policy to support a crashing dollar, you watch what happens to the stock markets.  They'll tank big time.  That will tell potential buyers what's going to happen to the cost of all real goods in the world, including real estate. You can use the stock markets as a proxy for inflation, because a rising stock market is exactly that... the effects of inflation in action (and vice versa).

So as much as we'd like to think we're somewhat insulated from what happens in the USA, we're not.  We need to keep our eye on FED policy, as far fetched as that sounds.