They’re tapped out

So, long time no see. Work has just been crazy the last while, and really I should be doing more now but my brain is fried, so figured why waste my time and the clients money when I could do some blogging!

There was quite a bit of news on the consumer front this past week. First we got the July retail spending report. Wasn’t pretty, especially considering economists largely spent the last month telling everyone spending would be up. It wasn’t. Nationwide spending was down 1.0% from June, and a mammoth 14.3% from last July… Alberta was also down, 1.1% and 9.2% respectively.

Probably a good thing people are doing something other then spending, because Thursday we heard a record number of Canadians were delinquent and/or in default on their credit card debt. Defaults hit a record level of 4.8% for the quarter (up 57% year-over-year), it was 4.96% in June alone, another record. No coincidence, personal bankruptcies were also up 41% from a year ago.

No doubt Albertan’s make up more then their fair share of the aforementioned as we carry the highest per-capita and per-household consumer debt levels already. It seems as good things were, people were finding ways to spend it even faster… and now the chickens are coming home to roost.

The economic slowdown itself will be a painful lesson in itself when spending starts to slow, but as debt servicing becomes increasingly expensive that’s going to cause a double whammy as that will cause further contraction… and that reduced consumption isn’t going to do anything to remedy the problem in the short and medium term.

Much of our economy is based on not only high and growing salaries, but people largely living beyond their means and that can only continue while the credit flows… once that stops, it’s going to be bad news all around as people not only will need to live within their means, but repay for past good living. And this could be an epidemic if the reports from last week have any truth to them saying that 59% of Canadians couldn’t handle missing even a single paycheque… we could be in real trouble here folks.

And finally today the CBA came out with their July figures for mortgage arrears, and Alberta is up yet again, now sitting at 0.62%, and getting ever closer to the prior record level of 0.69%. Up from 0.60% last month, and 0.28% a year ago… also the 26th consecutive month-over-month increase.

The national average held from June at 0.42%. Saskatchewan enjoys the low at 0.23% while Alberta continues be the highest by a large margin.


Stuff… and more stuff

Figured I’d point out some of the stories making the rounds.

– The February employment numbers are out, and they are dismal. 23,700 jobs lost just in Alberta, leaving unemployment at it’s highest rate is almost six years. 82,600 lost across the country. The federal and provincial governments seem almost in denial as their cheerleading efforts are quickly exposed as just that.

This will just apply that much more downward pressure on housing prices, as increasing numbers of people with homes will be forced into default, and the consumer confidence of even those looking will be effected. Fewer people looking to buy, and in all likely hood, more looking to sell.

– An interesting article in the Globe and Mail, Canada’s dirty subprime secret. They were here, and prominent… and we’re not just talking about effective subprime lending like zero-down/40 year amortizations offered by the main banks.

– A series of small articles also appears in the Toronto Star today. Nothing earth-shattering, but perhaps worth noting as we’re starting to see more and more of this being reported rather then just the industry shilling we’ve been getting regularly fed of late.

– RE/MAX issues a press release saying it’s time to, surprise surprise…. buy, buy, buy. Seemingly based on anecdotal at best “reports”… the big papers of course ran with it as if it was actual news rather then the blatant marketing ploy it was… I guess if you plaster your name all over their tv and print media outlets, eventually they just throw you a free-be.

As the Vancouver Condo Info site points out, these very same kinds of reports were all too common south of the border in the early days of decline of what would become their housing crisis.

– Not to be outdone, Royal LePage and their resident mouthpiece Phil Soper were all over the news telling all that would listen that the housing slump is already half over, prices and sales will start rebounding by next year and you should go out and buy, buy, buy.

Of course these are the same guys that said, “Canada’s housing market in 2008 should continue to thrive,” and continued to deny a slowdown of any kind until just recently, when he said it was just Alberta’s problem… now apparently it’s a national phenomenon and has been going on since the third quarter of’07, which begs the question why it took them until now to notice. Of course we know the answer to that.

It is interesting to watch their time table for recovery continue to expand… in 2008 there were no problems what-so-ever… then a couple months ago it was all going to be over by summer, 6 months tops… now it’s next year….

– LATE ADDITION – Looks like Marc “We Don’t Do Spin” Carney is already backing off the Bank of Canada’s laughable outlook made a month ago.


And the band played on…

Some days the mind wanders… you ponder such things as, if the Canwest media outlets pumped their own stock as much as they did real estate maybe their shares wouldn’t be trading at three for a dollar four for a dollar.

Okay, that was a low blow… but from the looks of it we may not have much time left to take shots at them.

Yeah, okay, that was another…. I just can’t stop myself!

Anywho, on Tuesday we got another rosy article from the Edmonton Journal telling us that not only is it a great time to buy, but that Edmonton was still the best place in North America to invest in residential real estate. This time the source of the sunshine was REIN president, Don Campbell.

I know a lot of people don’t like speculators, but I don’t have any issue with the REIN or anyone else who figures they can make a fast buck on real estate, or anything else for that matter. I’m a libertarian, so as far as I’m concerned, to each their own, just don’t come looking for help if it blows up in your face.

Back to the point, it really isn’t news that real estate investors would be bullish no matter the situation… but I feel like taking a look at some of his quotes and offering my two cents.

So is Edmonton still the best place to invest in residential real estate?

“Absolutely, it is,” he said Monday during a visit to Edmonton from Vancouver. “There’s no way the world can continue to afford $30 and $40 oil.”

I suppose that could turn out to be true, granted I’m not sure one would want to invest in real estate anywhere in North America at the moment. I imagine oil will rebound sooner or later, but even at the heights it did reach, incomes did not get anywhere near the levels that would be needed to make prices sustainable. Oil prices certainly contributed to the boom, but there were several other equally important factors, easy credit and rampant speculation to name two of the major ones.

Things were pretty closed to balanced before things went crazy, so even with the impressive 30% gain in household income experienced, the doubling of house prices was just not sustainable. Even should incomes hold steady through the worldwide recession, real estate still have a long way to fall before getting back to affordable levels.

“Eventually, within 18 or 24 months, we’re going to see the market come back to something that’s more normal.”

On that we can agree… though I suspect we have drastically different opinions of what constitutes “normal.”

He said that Edmonton will top the list for the next five to 10 years, and with mortgage rates “ridiculously low” and likely to drop further, savvy investors could look like geniuses several years from now.

Heck, they look like one already if they sold in 2007, and kept the proceeds out of the stock market… thought I’m suspecting that’s not what he was getting at. I’ll try to remember to revisit this one in a year or two from now…. the schadenfreude would likely be well aged by then.

“We need to be cognizant that there are an awful lot of new condos coming onto the market, not just in Edmonton, but in Calgary and Vancouver. Please don’t line up to buy a piece of property.”

I hate to make it sound like he gave no decent advice, and on this topic I agree with him wholeheartedly. Between construction and conversions the city’s condo market is overbuilt in a big way… and there are still thousands more in the pipeline that will be completed in the next year.

Condo’s are going to witness the biggest drop in prices and will quite likely stay there even after other building types start recovering. So you definitely want to be very careful before entering into that market. Don’t get sucked into buying on spec or any kind of bidding wars.

Forecasts HPI

The shocking truth about the value of your home

Had actually written another entry for today, but came across this article from Macleans, and decided to do a write up on it instead.

I highly recommend everyone take the time to read it in full, as it is a very interesting piece and gives some great insights on the inner workings of all these forecasts coming from the various real estate outlets.

It also discusses a few other subjects I’ve been noting here, including the National Bank / Teranet HPI and Case Shiller.

I guess what struck me is that this is the first real main stream article to really take the real estate industry to task for their so called “forecasts” and statistics, and in many cases just flat out calls them out.

It is really quite damning that the leading economist that they spoke to would only give his honest assessment on the condition of anonymity.

“There’s clearly a lot of spin,” he says. Even the CMHC, which promotes home ownership and depends on home sales to sell mortgage insurance, has an interest in seeing the market prosper. “There is quite a lot of uncertainty regarding the market in general right now, and there are too few uninterested parties who are giving any sort of reasonable analysis on that outlook.”

It pretty much tells you everything you need to know about the integrity of these forecasts when the sales pitch takes priority over silly little things like accuracy. The ‘economists’ these outlets trot out are little more then paid mouthpieces, merely using their degrees in a thinly veiled attempt to lend credibility to bogus forecasts.

It’s basically shill or gtfo, and even if you shill there is no guarantee you don’t end up like David Lereah. Robert Shiller summed up their motivations nicely in this passage;

“The predictions from those guys are very biased,” he says. “They know that in a declining market, the volume of sales falls dramatically and real estate agents lose their jobs. So they don’t want to say anything that could be seen as contributing to a falling market. If their economist predicted a decline in the market—and then it happens—that’s deadly. The guy would have to watch out for his life.”

It’s scary that people are making decisions involving their long-term financial health when practically all the sources have a common vested interest… and for the most part these ‘forecasts’ and ‘industry experts’ go unquestioned by the media because they are dependent on the industry for their advertising dollars.

In any case, it’s nice to see these kind of stories are starting to get out there, and in the coming months I imagine we’ll be seeing many more as prices continue to decline. I recommend all of you take the time to read the entire thing, it’s really an excellent article.

Forecasts Rental Market Sales

Forecasts ’09 – Part 3 – CHMC

The CMHC pumped out their latest forecast this past week. Cutting through the b.s. and bravado, here’s the pertinent Edmonton prognostications, tabular form for your viewing pleasure.

        2008        2009    Projected     2010       Actual     Forecast    +/- %     Forecast------------------------------------------------------Price     $332,852    $315,000    -5.4%    $325,000------------------------------------------------------Sales       17,369      16,000    -7.9%      17,000------------------------------------------------------Vacancy       2.4%        3.5%    +0.9%------------------------------------------------------Avg Rent    $1,034      $1,070    +3.5%------------------------------------------------------

A little rosy in my not so humble opinion, as prices already are in that $315,000 territory, and February doesn’t appear to be shaping up to be delivering any increases. The numbers are conceivable I suppose, though I’d be completely stunned to see rents go up, especially when they’re even acknowledging the increased vacancy rate. We’ve already been seeing 10-20% cuts as well as ‘free months’ and other promotions from the big players in the rental game.

The Edmonton Journal pumped this so-called recovery, front page of the Friday ‘Business’ section no less. Though I suppose one shouldn’t be surprised considering the Homes and New Condos sections posing as legitimate, when they’re really just de-facto paid advertisements. Seems all to many of these so called experts are merely those with a vested interest in selling real estate. Sadly we’ve seen this increasingly across all fronts and media though, legitimate journalism has increasingly taken a back seat to the advertisers

Anyway, for some context here is a look at CMHC’s forecast issued this time last year, against how it actually played out.

        2007        2008        2008       Actual     Forecast     Actual   Difference------------------------------------------------------Price     $338,636    $355,000    $332,582    -6.7%------------------------------------------------------Sales       20,427      19,250      17,369   -10.8%------------------------------------------------------Vacancy       1.5%        2.0%        2.4%    -0.4%------------------------------------------------------Avg Rent      $958      $1,050      $1,034    -1.4%------------------------------------------------------

They did pretty well on the rental front, but were off in a big way on the resale market. Seems they’re suffering from the same fallacy as most others in the sector and believing that the run up was the result of an efficient market and not just a bubble caused by easy credit and over-consumption.

I guess we’ll find out in the next 24 months.

Forecasts Foreclosures HPI

More Odds and Ends

Don’t really feel like running numbers today, and there were a lot of housing relevant stories coming out this week, so we’ll look at those.

  • Mike Fotiou wrote up an interesting piece on the CREA forecast for 2009, and their past fortunetelling exploits. Their predictions for Alberta are not going to make sellers any more hopeful… an 8.9% price decrease AND 19.1% fall in sales. And this is from the real estate pumpers. I don’t recall seeing any Edmonton specific predictions from the CREA yet, but I’d have to think it’d be right in line with their provincial guesstimates… or as Mike jokingly pointed out, in light of their rather rosy predictions for Calgary released last month, could be far worse… though I suspect there was little consideration for the numbers they pulled out of their ass last month, when they yanked them out this month.
  • Statscan released their latest New Housing Price Index for December, no surprise there, we’re down 8.2 points from last year. By far the biggest decline in the country, almost double the next closest (statistically and geographically), Calgary at 4.3. I should probably run their figures next time I do a piece on new construction, so stay tuned for that.
  • A couple interesting stories out of Calgary that also ring true for us up here. First, an article about the effect of falling resale values on mortgage default rates. More and more people are finding themselves upside down in negative equity, some are saying it’s the worst they’ve seen in 25, which not so coincidently is when the last big boom ended. Scary thing is we’re just getting our feet wet this time around, I have a feeling this is going to become a very big issue in the next couple years.
  • The other article was about the increasing number of vacant new condos hitting the market. With builders and speculators all heavily diving into these entry-level homes, when the market finally hit it’s critical mass, suddenly the bubble kind of burst on demand and we’re finding the cities significantly overbuilt… and still with plenty heading down the pipeline. This is of course leaving developers unable to find buyers, and speculators unable to unload or even rent out their properties.
  • Then we also have the news about unemployment drastically rising. While maybe not directly effecting housing, when people are unsure about their jobs, or losing them, they are not going to be buying houses. Which also kind of ties into the prior two articles mentioned, because with a significant number of developments still under construction but very few new starts to replace those jobs upon completion. That’s only going to swell the ranks of the unemployed, take more potential buyers out of the market, and increase mortgage defaults.

So, to make a long story short, there is a whole lot of downward pressure on prices at the moment.

Oh yeah, and happy Friday the 13th, you have just over 12 hours left to dump your significant other… or I suppose you could just get them something nice, it’s up to you.