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Saturday, February 28, 2009

Burnaby Developer says R/E Industry Leaders in ‘State of Delusion’


Bill McCarthy, president and CEO of W. P. J. McCarthy & Co. Ltd. - a Burnaby firm specializing in property management and development – has written an article published in the Burnaby Now Newspaper questioning the validity of the advice being offered by Real Estate Industry leaders such as Bob Rennie.

On Jan 23rd, McCarthy attended a sold out meeting at the Urban Development Institute where Real Estate ‘industry leaders’ forecast and projected what they felt was ‘just around the corner’ with regards to our residential real estate markets.

McCarthy’s conclusions?

He found the presentations anecdotal and self-serving using selective statistics to make forecasts that were "just horrible."

"Essentially the panel said everything will be OK, and we really do not have a housing recession,said McCarthy.

And how do they account for the current real estate situation in Vancouver?. It's... wait for it... "a serious loss of consumer confidence”. [Surprise!!!]

Singling out Bob Rennie, McCarthy noted that the Condo King had emerged from a period of silence to state "supply is really going to quickly show that the tap has been turned off - I think we'll come out of this in 2010.”

Dismissing Rennie’s comments, McCarthy challenged people to search out Mr. Rennie's previous predictions and check their accuracy. See if you agree that what we are experiencing is merely 'a market correction' or if Rennie's claims that current "reduced prices really equate to a better affordability index, especially for the first-time homebuyer" hold up to scrutiny.

McCarthy believes you will be hard pressed to agree with anything Rennie has to say as well.

As for the conference itself, McCarthy essentially deemed it to be a waste of time noting that the panel had concluded:
  1. everything will be OK,
  2. that we really do not have a housing recession, and
  3. that what we really have is ‘a serious loss of consumer confidence’

This, McCarthy believes, is really nothing more than an attempt to “offer hope regardless that a reality check [is] in order"

And then Bill McCarthy askes the seminal question that so many of us have asked over and over again. "Why would anyone listen repeatedly to those who are proven time and again to be wrong?”

Why indeed.

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Email: village_whisperer@live.ca

Friday, February 27, 2009

Bank Failure Friday (2009/02/27)

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UPDATE: Bank Failures #15 & #16 added.


Has it been a week already?

As faithful readers know, bank failures in the US always seemed to be delayed until late on Friday afternoons, prompting Friday to be jokingly referred to as 'Bank Failure Friday' in many economic blogs.

2009 is off to a record breaking year with 14 failures so far.

Mind you... for a while it looked like last Friday might slip by without one. Will that be the case today?

We wait with eager anticipation for today's carnage. Updates from the FDIC as they come in, check back late this afternoon. Click here to read our post: "US Bank Failures - Why Do We Care".

In the meantime, an interesting youtube clip in which Fox News Commentator Glenn Beck goes over the history of housing prices and makes the case that President Obama's plans to stem the collapsing housing market in the US may be doomed from the start. His statistics suggest the collapse - to date - may not have even reached the mid-way point.

Interesting.



Bank Failure #15

From the FDIC: MB Financial Bank, N.A., Chicago, Illinois, Assumes All of the Deposits of Heritage Community Bank, Glenwood, Illinois.

Heritage Community Bank, Glenwood, Illinois, was closed today by the Illinois Department of Financial Professional Regulation, Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $41.6 million. MB Financial Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Heritage Community Bank is the fifteenth FDIC-insured institution to fail in the nation this year and the third in the state.

Bank Failure #16:

From the FDIC: Bank of Nevada, Las Vegas, Nevada Assumes All of the Deposits of Security Savings Bank, Henderson, Nevada

Security Savings Bank, Henderson, Nevada was closed today by the Nevada Financial Institutions Division, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $59.1 million. The Bank of Nevada's acquisition of all the deposits of Security Saving Bank was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Security Savings Bank is the sixteenth bank to fail in the nation this year.


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Email: village_whisperer@live.ca

Thursday, February 26, 2009

The Midas Touch?

Every year the springtime rain engulfs Vancouver in its infamous mist. But this year it isn’t just the precipitation that is causing seasonal affective disorder amongst its residents.

This season the collapsing real estate market is making it’s own contribution.

And no one is battling the circadian rhythm imbalance more the local condo king, Bob Rennie.

Rennie, Vancouver’s 52-year-old condo wunderkind, has long been touted as having a golden touch when it comes to selling real estate. Reportedly selling of between $1.2-billion and $2-billion annually, his Rennie Marketing Systems (RMS) promotes itself as helping to create the fastest-growing residential downtown in North America.


So effective was RMS that, as successes mounted in the 1990s, Rennie expanded his job description — from realtor to marketer to developer’s consultant to city builder.

Rennie has gone from just selling what developers gave him, to telling those developers what to build.

In an April 2008 article in Real Estate Vancouver, Rennie is reported to have been so involved with the ultra luxury Ritz-Carlton development that he redrew floor plans for the penthouse. “For that price, people want more room, not more rooms,” Rennie instructed designers MCM, “and a separate entrance for the nanny suite.”

The same article noted that Rennie also “coaches his clients—more comfortable in the black-and-white environs of bankers’ boardrooms and construction sites—on how to manage the nuanced realpolitik of Vancouver’s planning department.”

RMS balanced this boardroom power with tremendous media influence. As one of Vancouver’s biggest advertisers, the company reportedly buys more than 200 pages of ads annually in the Vancouver Sun alone - at $35,000 a page. That advertising manna is also spread around numerous other magazines and other media outlets.

Critics have wondered if the rise in such powerful development entities have been successful in manipulating the media, over-promoting the real estate bubble as genuine news and preying on gullible buyers in the process.

Publically Rennie has refuted such claims and maintained a bullish take on real estate in Vancouver as a win-win endeavour for everyone. As recently as April 2008, Rennie could see nothing but never-ending market expansion for Vancouver - despite the collapsing R/E wave that was sweeping across the rest of North America. Said Rennie, “To live in Vancouver and own Real Estate, you have won the lottery”.

Even as potentail lottery players lined up at his offerings, Rennie would taunt the sheep-herd mania fostering in the Vancouver bubble. Said Rennie of one pending development, “Great location, smaller suites. Put in a Sub-Zero fridge and a Wolf range with red knobs and they’ll line up to buy it.”

It is said that the bigger they are, the harder they fall and pundits now wonder if greed and arrogance are catching up to Rennie and RMS.

This week came the announcement that the flagship $500-million Ritz-Carlton hotel-condo development has been dealt a death blow as Rennie's client cancelled the entire development.

RMS had to have more than 75 units in Ritz-Carleton sold by the end of this month. With prices ranging from $1.4 million to $28 million, only 62 of the 123 condos in the Arthur Erickson-designed twisting tower sold. Without the requisite sales, the developer pulled the plug and 62 lottery players were left with a contract as worthless as last week's 6/49 ticket, private nanny-suite entrance notwithstanding.

Was the Ritz-Carleton pushing the limits on Vancouver’s obscene housing bubble with its prices?

The $28-million price tag for a 7,400-square-foot penthouse on the 59th and 60th floors of the tower was believed to be a record asking price for a Vancouver penthouse. That's $10 million more than the $18 million paid by a U.S. businessman for a 48th-floor penthouse in the Private Residences at Hotel Georgia, set to open in 2011.

With the smallest and lowest priced unit asking $1.4 million, many viewed the development as the epitome of the run-amok bubble mindset that has typified a real estate market gone mad.

For Rennie, it is the latest in a growing string of failures that includes the Hills, Jameson House and that 'development-on-government-life-support' - Millennium Water; aka the Olympic Village.

Other developments like Richards on Richards and the Woodwards project are reported to be languishing as well.

It's a far cry from October 2005 when Rennie told the Financial Post Business Magazine, “This isn't a bubble, it's going to go on and on. Vancouver is in a unique position. It makes sense to spend a lot of money on a condo here."

In 2009, as King Midas loses his golden touch, Rennie’s bellicose media quotes have disappeared almost as suddenly as his recent condo developments.

Besides disappearing from the media limelight, could it be that Rennie is the process of bailing out on Vancouver and its 'unique position' as well?

In a recently announced collaboration, RMS will be marketing a huge development on Vancouver Island with TimberWest.

At a news conference in Victoria, Rennie summed up the new development by saying, "It’s not about creating urban centres. It’s about creating real land and real uses for homeowners, whether that’s manufactured home parks or homesteading on one-acre or five-acre developments or farming; we’re going to look at real needs.”

Going to look at "real needs!"

As opposed to looking at what? The superfical, easily manipulated, 'needs' of the urban Vancouverite?

Maybe that can be the new neighbourhood slogan: Yaletown, home of the real estate patsies.

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Email: village_whisperer@live.ca

Wednesday, February 25, 2009

Expert Predicts Vancouver Market To Deflate at 19% Per Year.

Brian Ripley, CEO of Oakes, Ripley and Assoc., appeared today on the Business News Network (BNN) today as part of a new series on BNN called the 'New Real Estate Reality'.

You can view the segment by clicking here.

Ripley predicted the Vancouver Real Estate market would proceed to deflate at a rate of 19% per year in the near future.

Among the data presented were charts showing how far Vancouver prices still had to drop.


Charts are presented showing how prices have climbed the last few years and what level of income is required by potential buyers to support those prices

(The average Vancouver household income is $55,000. These charts demonstrate just how unaffordable the Vancouver market is to it's residents).



And a chart showing how Vancouver rates more unaffordable than even the uber-expensive city of London, England.


Ripley's Canadian Housing Price Chart's website can be found by clicking here.
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Email: village_whisperer@live.ca

Tuesday, February 24, 2009

Oblivious

Yesterday the DOW plunged another 250 points to close at its lowest level in 12 years. It hasn’t been this low since May 8th, 1997.

Twelve years of financial gains have now been wiped out.

President Obama’s Advisory Board Chief is at a loss for a solution. "I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world… you know, even the experts don't quite know what is going on."

That's a scary admission. It means the men responsible for finding solutions to our economic crisis admit they don’t know what is going on.

And now panic begins to truly grip the financial markets.

What does it all mean for Real Estate in the Village on the Edge of the Rainforest?

I am reminded of Boxing Day, 2004. Amid festive celebrations came reports of a massive tidal wave in the Indian Ocean.

Conditioned by Hollywood depictions of disaster, most people expected the initial images to show massive 150 foot curling waves of water descending on communities in a 'Poseidon Adventure' style of calamity.

The reality, while terrifying in its scope of destruction, was nowhere near that visually satisfying. As images of the disaster filtered out to the world, most of us were surprised to see that the ‘tidal wave’ was actually a massive ‘surge’ of water, as when a door is opened on a giant pen of water.

More intriguingly, reports from many of the victims revealed that the first sign of the horror to come was not a visible wall of water speeding towards the beach. Instead, it was quite the opposite.

Personal accounts of the tidal wave that killed more than 20,000 people in eight South Asian countries described how the sea suddenly disappeared a few minutes before the wave hit: submerged rocks became visible, fish flapped harmlessly on the sand and beaches suddenly stretched towards the horizon.

And since the last major tsunami in the region was more than 60 years before, few understood the significance of the drying-up of the sea.

"The water went back, back, back, so far away, and everyone wondered what it was - a full moon or what?" said Katri Seppanen, a tourist on Phuket Island's Patong Beach in Thailand. "Then we saw the water come, and we ran."

The disappearing beach phenomenon is simple enough to explain. A tsunami wave can travel thousands of miles across an ocean without losing power (one in 1960 crossed the Pacific after an earthquake in Chile and killed 200 people in Japan, more than 10,000 miles away).

But when it hits shallow water off a coast it slows right down and builds in height, creating a vacuum that sucks the water off the very beaches it is heading towards.

For the locals and tourists alike on that fateful Boxing Day in Thailand, they were drawn to the instant tidal flats like moths to a flame. One stunning pair of photos shows tourists walking out into the vast expanse of suddenly dry beach to explore; oblivious to the impending danger.

To me that photo stands as a perfect analogy of the Vancouver Real Estate market.

It has been almost 80 years since 1929 and the significance of the collapsing economy is as lost on most Vancouverites as surely as the drying-up of the sea was lost on those tourists in Thailand in 2004.

The wiping out of markets, the collapsing of the economy, our political and economic leaders perplexed at what is going on around us; all while we in Vancouver frolic on the economic beach of daily life, blissfully unaware of what is bearing down on us.

Realtors and home owners wait, hopeful for a spring bounce. There won’t be one.

There won’t be any American buyers coming to rescue our market. No Asian buyers or European buyers riding in to keep our land values afloat on the coattails of Olympic hype.

In short, there will be no saviors for our Real Estate market.

Sales, and there will be a paucity of them, will depend on the average Vancouver buyer utilizing the average Vancouver income, an income which will be battered by an very un-average economic crisis.

And what's left of that income won’t come close to supporting today's market prices.

We are like those tourists on Thailand’s Patong Beach. We are standing around, wondering what it is that is happening.

“Where have all the buyer’s have gone? Is it a full moon, or what?”

In a few months we will realize what is happening.

Then we will see the water come.

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Email: village_whisperer@live.ca

Monday, February 23, 2009

The 2nd Great Depression... Don't You Mean the 3rd Great Depression?

As mentioned on Saturday and Sunday, a great many commentators are raising fears that we may be entering a 2nd Great Depression.

Pundits recall a time when the stock market crashed and Wall Street panicked.

This set off a chain reaction of bank failures and temporarily closed the New York stock market for 10 days. Factories began to lay off workers as the United States slipped into desperate economic times.

18,000 businesses failed over the next two years and unemployment soared to record levels. Construction work lagged, wages were cut, real estate values fell, corporate profits vanished and people began stashing silver and gold under mattresses as bank failures reached epidemic proportions. Even 89 of the United States’ 364 railroads went bankrupt.

Am I referring to the Stock Market Crash and Depression of 1929?

Nope.

These events are a summary of the Panic of 1873, which lead to the Great Depression of 1873.

Today the 'Great Depression of 1873' has been re-named 'The Long Depression' and is all but ignored in modern economic study. It was a period of deep economic recession that affected much of the world and was contemporary with the Second Industrial Revolution.

This depression started in the United States following the Panic of 1873. The National Bureau of Economic Research (NBER) dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest recession identified by the NBER. The Depression itself, however, ranged from 1873 until as late as 1897, some 26 years.

Until 1929, when people used the words 'Great Depression', they referred to 1873.

The 1873 Depression was a worldwide international phenomenon that started with the banks, just like the current 2008/2009 panic. In fact the collapse that has followed the Great Panic of 2008 looks a lot more like the 1873 crisis than 1929 one.

Historians familiar with the Panic of 1873 say that economic 'experts' are mistaken to compare the current crisis to 1929 because the federal government was far more passive in the 1920s. The U.S. let 15,000 out of 30,000 banks fail then. Government efforts to jump-start the economy were slow and relatively weak until President Franklin Roosevelt came along with the New Deal.

Today we reap the benefits of policies created during that era. Roosevelt helped create New Deal legislation to insure bank deposits and enacted other modern relief efforts like unemployment compensation to help those in distress. When a bank failed back then, regular people were completely wiped out... and half of all the banks in the United States failed in the years following 1929.

Historian's who have studied the panic of 1873 say the swirling events happening today more closely parallel what is properly termed 'The First Great Depression of 1873'.

And those same historians are very concerned at what they see happening saying today's economy might even be worse than the American economy in 1873.

Scott Reynolds Nelson, a professor of history at the College of William and Mary in Williamsburg, Virginia, says, "This is a perfect storm: banks failing, stock markets declining and commodity prices dropping," all conditions eerily reminiscent of 1873.

Nelson says it took America four years to recover from the 1873 panic. Tens of thousands of workers -- many Civil War veterans -- became homeless. Thousands lined up for food and shelter in major cities. The Gilded Age, where wealth was concentrated in the hands of a few "robber barons like John D. Rockefeller," followed the panic.

It is said that those who ignore history are bound to repeat it.

And when Paul Volcker, chairman of the newly formed Economic Recovery Advisory Board advising President Barack Obama, says "I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world… you know, even the experts don't quite know what is going on", it rightly raises alarm.

Could it be that our so-called ‘experts’ are studying the wrong depression as they struggle to apply 1929 solutions to 2009?

If so it could prove to be a fatal oversight, ensuring that we slip inexorably into what will become known as The Third Great Depression.

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Send your comments via email to village_whisperer@live.ca

Sunday, February 22, 2009

"This Isn't Any Ordinary Crisis" - Volcker. "Even the Experts Don't Know What is Going On!"

Paul Volcker is an American economist and was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan (from August 1979 to August 1987).

He is currently chairman of the newly formed Economic Recovery Advisory Board under President Barack Obama.

On Friday he said that the global economy may be deteriorating even faster than it did during the Great Depression and made the frank admission that, "you know, even the experts don't quite know what is going on".

Volcker noted that industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.

"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker told a luncheon of economists and investors at Columbia University.

Volcker, a former chairman of the Federal Reserve famed for breaking the back of inflation in the early 1980s, mocked the argument that "financial innovation" , a code word for risky securities, brought any great benefits to society. For most people, he said, the advent of the ATM machine was more crucial than any asset-backed bond.

"There is little correlation between sophistication of a banking system and productivity growth," he said.

The current crisis had its beginning in global imbalances like a lack of savings in the United States, but policy-makers around the world were too reticent to take action until it was too late, Volcker said.

Now that the crisis had erupted, it was important to take decisive actions, including a more effective regulatory structure and some movement toward uniform accounting systems, Volcker said.

He said all financial institutions that are deemed too large to fail should be subject to increased scrutiny, echoing the findings of the Group of 30, a panel of policy-makers and influential economists, which he leads.

Click Here to see Volcker's speech.

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Send your comments via email to village_whisperer@live.ca

Saturday, February 21, 2009

Is this the start of a 2nd Great Depression?

How bad are things going to be over the next couple of years?

That's the question on everyone's lips these days as some politicians and commentators routinely invoke the Great Depression to describe today's economic crisis.

A recession is generally defined as a decline in the Gross Domestic Product for two or more consecutive quarters and North America has experienced two "rough" recessions: one in the mid-1970s and the other in the early 1980s. Our most recent recession was the dot-com bust, which hit around March of 2001.

But everyone concedes that this time, things are different. It is now clear that the Great Crash and Panic of 2008 is triggering something much worse.

In the past year, the market's fall has at times rivaled that of 1929. But the Great Crash of 1929 and the Great Depression were two separate events.

The Crash was a financial panic, the Depression an economic downturn. The Crash began in October 1929, and the worst of it was over in three weeks; the Depression did not fasten itself on the nation for another year. To this day, the connection between them remains unclear, which makes it difficult to draw lessons or analogies from them.

The Dow plunged 39 percent between October 23 and November 13, 1929, but it regained 74 percent of that loss by March 1930. Only when the economy failed to gain momentum in the spring did the market slip back.

By fall the country had slipped into a depression, and the market resumed a downward course that did not touch bottom until July 1932. It did not again return to the levels of 1929 until 1954. The Depression did not end until increased military spending revived the economy in the spring of 1940.

Is that what is happening again?

One positive sign is that today's unemployment rate is not as bad as in previous eras. The unemployment rate reached 10.8 percent during the early 1980s and 25 percent during the Great Depression and, so far at least, we are no where near that 25 percent level.

But there is an ominous feature to the current situation: The Federal Reserve has already lowered interest rates as far as they can go, to around zero percent, but the recession marches on.

From a definition standpoint a recession is a contraction in real GDP, brought on by a tight central bank policy (usually to fight inflation), that ends when the central bank eases it's policy.

It is relatively well managed via interest rate changes. Lowering interest rates stimulates the economy in three ways:

1) it reduces debt service burdens,
2) it stimulates demand for items bought with credit by lowering the monthly payments (e.g., cutting interest rates in half has nearly the same effect in cutting the cost of buying a home as cutting the purchase price in half) and
3) it raises the present value of income-producing assets thus producing a wealth effect.

So, lowering interest rates ends recessions and produces cyclical expansions.

But the US has already dropped rates to near zero with no effect.

So what, exactly, is a 'Depression'?

A Depression is a deleveraging process in which asset price declines cause already over-leveraged entities to become more leveraged and cash-strapped, leading them to be squeezed for cash and creating credit-tightening conditions which cause an economic contraction in which monetary policy ceases to work, generally because interest rates have fallen close to 0%, making meaningful interest rate cuts impossible.

Because interest rates can’t be cut, the three previously mentioned stimulations that cause the economy to grow do not occur.

As a result, the “cost cuts” that occur take place via deflation leading to real interest rates increases. Rising real interest rates raise debt service burdens and lower income-producing asset values and a self-reinforcing downward spiral occurs – i.e., as asset values and incomes fall, so do credit worthiness, lending activity and economic activity.

A depression is, most fundamentally, a shortage of liquidity relative to the need for it to service debts that has to be resolved by some mix of writing down debts and producing more liquidity without lowering interest rates.

The sharpness of the current global showdown has alarmed economists who see no obvious engine for recovery. Most Western developed economies are going to see the deepest downturn they have seen in a number of decades, in some cases, possibly, since the Second World War.

Most political commentators have called it 'scary stuff'.

As Frederick Lewis Allen observed, "Prosperity is more than an economic condition; it is a state of mind." The trick is always to find out what exactly is needed to restore it.

We are still fishing for the answer to that riddle.

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Send your comments via email to village_whisperer@live.ca

Friday, February 20, 2009

A Financial Benchmark with the DOW; Can Cameron Read?; and... don't forget... it's 'Bank Failure Friday'


UPDATE: Bank Failure #14: Silver Falls Bank, Silverton, Orgeon (details below)

UPDATE: 6:00pm EDT and no word from the FDIC - a week without a failure perhaps?

UPDATE: DOW rallies after dropping to 7,257.75. Closes down only -100.28 at 7,365.67



Another week goes by and we watch developments in the economy with keen interest.

Yesterday the DOW closed at 7,465.95, a six year low.

In 2002, the lowest level that the Dow hit was 7,286.27.

If the market breaks down below that 2002 level, the DOW will have fallen back to 1997 levels, making it a lost decade for DOW investors (not counting dividends).

It brings to mind former US Federal Reserve Board Chairman Alan Greenspan's speech of December 5, 1996. Speaking to the American Enterprise Institute during the stock market boom of the 1990s, Greenspan made his infamous 'irrational exuberance' comment.

“ [...] Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? [...] ”

The phrase was interpreted by financial pundits as a typically cryptic warning that the market might be overvalued.

And where was the DOW on December 5, 1996? It closed that day at 6,437.

Twelve years later the market may well be on it's way to wiping out those years of 'irrational exuberance' and all the years that came afterwards.

If it does, is a DOW of 5,000 out of the question?

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Can Cameron Read?

Two days ago we profiled BCREA's Chief Economist Cameron Muir's incredulous statements that now is a great time to buy real estate in Vancouver.

I wonder if Cameron read the front page of Wednesday's Washington Post newspaper?

"Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening. Japan is suffering it's worse downturn in 35 years. The British economy is facing it's sharpest decline in 30 years. Germany is slumping at it's worse pace in 20 years. Meanwhile the job market in the United States, at the epic-centre of the world downturn, is at it's worse in decades. And emerging economies are contracting at a pace few had predicted just months ago. Even China, whose economy is still growing at 6.8% annual pace is grappling and grasping with vast numbers of the unemployed, raising fears of unrest. The sharpness of the global showdown has alarmed economists who see no obvious engine for recovery. Most Western developed economies are going to see the deepest downturn they have seen in a number of decades, in some cases, possibly, since the Second World War."

Last night, while talking to Professor Nouriel Roubini, Mark Zandi chief economist for economy.com, and Fred Mishkin (ex-Fed Governor, Professor Columbia University), Charlie Rose called it 'scary stuff'.

Yet Cameron Muir calls it a great time to buy.

Okie Dokie!

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Bank Failure Friday


As faithful readers know, we start off Friday's watching to see if it is once again Bank Failure Friday.

Bank failures in the US always seemed to be delayed until late on Friday afternoons, prompting Friday to be jokingly referred to as 'Bank Failure Friday' in many economic blogs.

2009 is off to a record breaking year with four more failures last Friday. That brings the year's total to 13.

(In 2008, 25 banks failed. In 2007, three failed. None failed in 2005 or 2006.)

We wait with eager anticipation for today's carnage... updates as they come in, check back late this afternoon.

Click here for our previous post: "US Bank Failures - Why We Care".


Bank Failure #14: Silver Falls Bank, Silverton, Oregon

From the FDIC: Citizens Bank, Corvallis, Oregon, Assumes All of the Deposits of Silver Falls Bank, Silverton, Oregon

Silver Falls Bank, Silverton, Oregon, was closed today by the Oregon Department of Consumer and Business Services, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Citizens Bank, Corvallis, Oregon, to assume all of the deposits of Silver Falls Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $50 million. The Citizens Bank acquisition of all the deposits of Silver Falls Bank was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Silver Falls Bank is the fourteenth bank to fail in the nation this year. The last bank to fail in Oregon was Pinnacle Bank, Beaverton, on February 13, 2009.


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Thursday, February 19, 2009

Silent Majority Grassroots Reaction to Pres. Obama's bailout for US homeowners

Rick Santelli: "Chicago Tea Party in July". Some are calling it the rant of the year which accurately reflects grassroots hostile reaction to the plan.

Opportunity Lost

The CREA, the BCREA, and the VREA are all missing out on a huge opportunity.

The winds of change are blowing and rather than seize the moment, they blithely wallow in a misbegotten strategy.

For the past 10 years Real Estate agents have hooked their cart to the Real Estate seller. Signing up listings has been all important because even if another agent actually sells the house, you get a share of the commission. And the house would sell, often within days.

It was so easy within that milieu. Pump up the seller, push him to list the home at ‘market rates’ (often higher than he had envisioned when deciding to sell) and then have buyers compete with each other to offer a final sale price higher than the original asking price.

And it is within that model that the CREA, BCREA and VREA now mire themselves.

These associations continue to focus on the seller as the best way to represent and assist their members. An in catering to the seller, Associations steadfastly insist real estate values will not fall in Vancouver.

Marketing strategies (ie. Press releases) are built around this premise. ‘Consumer Confidence’ becomes the issue and strengthening that confidence becomes the goal.

When real estate agents take on buyers as clients, the focus is the seller and building confidence in the buyer to make the purchase is the primary tactic.

And so buyers are told, ‘the market will not fall much further’, ‘the seller will not come down in price’.

It is the easy path and whole strategies are developed to create urgency and overcome buyer reluctance. Persuade the buyer to meet the seller’s price, close the deal, earn the easy commission.

The problem is… the whole industry has shifted. And the Associations dither while opportunity is lost.

The paradigm shift from seller to buyer means that the buyer is now the primary customer and focus. In this type of market, amassing listings is a recipe for disaster. The cost, and maintenance, required in a stagnant seller’s market for a mass amount of listings is the road to ruin for an agent.

Instead… it is the buyer who now is the main focus. Finding buyers, with financing in place and prepared to buy, is far more valuable than signing sellers to listing agreements.

And the opportunity offered to those agents who recognize this is profound.

In today’s real estate market, the Buyer has all of the power. Finally in the real estate industry, the customer is king! The real estate agent who understands it is the Buyer who must be catered to, not the Seller will have a horde of customers beating a path to his door.

And as an agent for your customer (the buyer) you must be absolutely merciless on the Seller. In this market, successful buyer agents don’t ever become concerned with what the listing agent or seller needs, wants or even show a modicum of concern for their situation.

When you go to a “going out of business sale” at a retail outlet do you care why they are going out of business? Of course not, you buy that couch and haggle for the best price and walk out of the store with the best deal you could possibly make.

Did it matter to you that the store took 40 cents on the dollar? Nope.

And it is the same in today’s real estate market.

Recognizing this, Associations like the CREA, BCREA and the VREA should be coming out with the reports and economic assessments which serve to meet the needs of the most important component of today’s market… the buyer.

Rather than engage in a war on ‘consumer confidence’ and spend fruitless attempts at convincing buyers that the economy is not as bad as the layoffs, cutbacks, politicians and media reports say they are… Associations must recognize what is happening and respond.

Like Macy - with his department store Santa who responded to the needs of the buyer, not to the needs of the seller – the first agents to recognize this and shift their tactics will own the market.

And in catering to their agents needs, Associations can then turn their reports to truthfully explain to Sellers the reality of the housing market.

At the moment though, it seems it will take more than a 'miracle on real estate street' to see this happen.

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Wednesday, February 18, 2009

Mainstream US media begins asking "Should US Banks be Nationalized?"


Back on January 24th, 2009 I posted an entry titled "Concept of US Bank Nationalization Gathering Support" .

The idea continues to gather steam and is now being openly discussed in Congress... even among some Republicans.

Senator Lindsey Graham was quoted in the Financial Times that many of his colleagues, including Senator John McCain, agree that nationalization of some banks should be “on the table”. He says many people think it just doesn’t make sense to keep throwing good money after bad when it comes to institutions like Citibank and Bank of America. Graham says people shouldn’t get caught up on the word “nationalization” that we can’t keep funding what he calls “zombie” banks without the public taking control.

The current US administration is opposed to nationalization in principle and Treasury Secretary Geithner has said “governments are terrible managers of bad assets".

But will the US government have a choice?

Look at how much money the government has already dumped into American banks. According to the Treasury Department — about 400 banks in 47 states have gotten government aid since the program started in October.

Banks begin to report first quarter earnings in a few weeks... watch this topic to generate a significant frenzy, both in the media and in the markets. Stockholders with equity in any of any nationalized bank are left with nothing. Knowing that, would you hold on to your Bank of America or Citicorp stock.

It should make this week's edition of 'Bank Failure Friday' all the more intriguing and compelling.

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B.C. Real Estate Association implores you to buy, buy, buy!!!


Sticking to it's theme that damanged consumer confidence is the only stumbling block to a return to a vibrant market, the BC Real Estate Association has released it's latest volley to poke, prode and cajole buyers into making those purchases.

In a story published February 17th, 2009 in the Vancouver Sun (Home sales volume plunges 61 per cent … so is this a good time to buy?: Real estate investors on the hunt for deals, economist says), Cameron Muir - BCREA's chief economist - makes yet another appeal.

From the Vancouver Sun article:

With home sales — and prices — dropping in B.C., is now a good time to invest in real estate?

The B.C. Real Estate Association says it just might be, pointing to a large drop in carrying costs for an investment property today compared to a year ago.

“It doesn’t matter what the market is doing, I don’t say whether or not it’s a good time to buy,” association chief economist Cameron Muir said in an interview Monday. “That being said, I would suspect investors are actively looking in the marketplace for bargains. If you compare today vs. a year ago, investing in real estate is more attractive than it was then.”

Muir made the comment after the release of an association housing survey Monday that concluded the residential sales dollar volume on B.C.’s Multiple Listing Service declined 61 per cent to $873 million in January, compared to the same month in 2008 when sales totalled $2.25 billion. In the Metro Vancouver region, the sales volume was down 62 per cent over the same period, to $413 million from $1.09 billion in January 2008.

Muir — who said he also believes sales activity in the province will pick up in the spring because of improving affordability resulting from lower mortgage rates and home prices — cited a typical mortgage payment for a property in January 2009 compared to January 2008.

He said the benchmark price for a two-bedroom condo in Metro Vancouver was $334,602 in January, 11.5 per cent less than the $378,336 the same condo would have sold for 12 months earlier. A typical posted five-year fixed-term mortgage stood at 5.79 per cent in January, much lower than a similar mortgage rate of 7.39 per cent the previous January.

Therefore, he said, a condo with a 10-per-cent down payment (on a 25-year amortization) would have resulted in a monthly mortgage payment of $1,890 this January, nearly $600 less than the January 2008 mortgage payment of $2,468 (property taxes, maintenance fees and mortgage insurance fees not included).

On top of that, he said, there’s upward pressure on rents with the same two-bedroom condo renting in October 2008 for about $1,507 a month — a five-per-cent increase from October 2007.

“For both investors and home buyers, your mortgage payment would be several hundred dollars less than a year ago,” said Muir, who noted that investors have so far not been very active since the economic downturn started last year. “As an investor, the cash flow from the rent will more closely match your mortgage payment on the property.”

The BCREA survey also showed that residential unit sales fell 57 per cent to 2,115 units during the same period.

The average price on the MLS in B.C. was $412,934 in January, down nine per cent from the same month last year, the survey noted.

Muir said that home sales were sluggish in January, reflecting an overall malaise in consumer confidence and a weaker provincial economy.

Muir said that first-time buyers are especially affected by the economic news and are holding back because of a lack of confidence. “Demand from first-time buyers has been off significantly. First-time home buyers tend to be younger and not have years of experience in their occupations. Therefore, they have more concerns around job security. They’re more vulnerable to layoffs.”

Despite that, he said, the BCREA expects sales to rise this spring because of greater affordability and lower interest rates.

Muir noted that realtors are reporting increased activity from buyers over the past three weeks, but that it hasn’t yet materialized in sales statistics. “By all accounts, there’s increased interest. There’s more showings and more buyers kicking tires.”


Tomorrow our comments on this latest BCREA treatsie.

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Monday, February 16, 2009

Meanwhile... in California

Every once in a while I like to take a peek at what is going on in California's housing market.

Vancouver, British Columbia, in better times, was often referred to as 'British California' and locals loved to compare the two.

So why don't we do that now with some Real Estate.

Here is a house in Vancouver currently listed on the MLS at $600,000 (MLS: V716295, located at 104 E. 44th Avenue). It's a 3 bedroom, 1 bathroom... ummm.. mansion.

Beauty... I'll use my best realtor voice and say "hurry, won't last long at this price".

Now, let's go to Chula Vista, a suburb of San Diego, one of the most liveable cities in the US.

Chula Vista is a community of high end homes which recently sold for $1.4 - $2.5 million dollars.

This hilighted home was bought a couple of years ago for over $1.5 million US dollars. It is currently listed for $585,000 - yes, that's 585 thousand dollars ($1 million dollars off the original price). Compare what less money will buy you here than in Vancouver.

At the end of the video the realtor will pop into the house next door (which has also been foreclosed on). Stay with him, it's interesting to listen to his comments about other owners in the area who are continuing to make their mortgage payments, and what their thoughts might be as they do so.



Or compare to this Valley Centre home, 4,469 square feet on 2.02 acres in a gated community. Can be yours for just $579,900!

Who says Vancouver is in a bubble!



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Saturday, February 14, 2009

U.S. Bank Failures... Why do we care?

Canada's economy is fully intertwined with the U.S. economy and that is also true for British Columbia. As the housing market continues to crash in the United States, so go the fortunes of B.C.s forest industry.

With each passing week, the total number of U.S. banks failing is rising dramatically. Already, this year, the total is 13 failed banks. In 2008, the total was 25. In 2007, three.

The F.D.I.C. has inherited the collection of loans and property of these failed banks. Now they must managed their assets which means, ultimately, they have responsibility for liquidating them.

And the reprecussions of this massive liquidation ripples outward in a profound way to crush British Columbia's forest industry.

When you add it up, the F.D.I.C. is struggling to manage $15 billion worth of loans and property left from these failed banks. If still-to-be-sold assets from IndyMac Bancorp of California, whose demise last year was the fourth-largest bank failure, are included, the number jumps to $40 billion.

Already the F.D.I.C. has begun selling hundreds of millions of dollars worth of loans through eBay-like auction sites. DebtX of Boston and First Financial Network of Oklahoma City, for instance, sell F.D.I.C. loans at auction to investors who typically pay 5 cents to 85 cents for each dollar of outstanding principal, according to Bliss A, Morris, First Financial’s president.

This, in turn, is leading to the unloading of hundreds of thousands of houses across the United States at bargain basement prices. In November, Lula Smith, 86, of Kansas City, Mo., bought a two-bedroom house across the street from her home for $4,000, one-tenth of its value two years ago. This scenario is being repeated everywhere.

And — in the most closely watched tactic — the F.D.I.C. is negotiating a series of billion-dollar deals with private equity partners who will take over huge batches of loans in exchange for a chunk of the sale proceeds.

The rising tide of foreclosed real estate is so overwhelming that the agency, which had shrunk to a relatively tiny 4,800 employees from as many as 15,000 in the last period of bank meltdowns in the 1990s, is in the midst of a military-scale buildup as it undertakes one of the greatest fire sales of all time.

As the number of Bank failures rises in exponential fashion, the F.D.I.C. will continue to dump massive amounts of foreclosed homes onto the U.S. market.

And when you can buy pre-existing homes for one-tenth of their previous value - where is the incentive to build new homes?

The impact this will have on the B.C. Forestry industry in undeniable.

That flushing sound you hear is the lumber industry circling down the toilet... and with it goes the BC economy.

Friday, February 13, 2009

If it's T.G.I.F... then it must be B.F.F.

UPDATE: Bank Failures #10, #11, #12 & #13 added.


As always, in the interest of keeping our finger on the pulse of the strenght of the American Financial Sector, we start off Friday eagerly watching to see if it is once again Bank Failure Friday.

(We also have two posts for today, make sure you check out 'All the News That's Fit to Print?' below this article)

Comically, it seems that everytime a bank fails in the US, the announcement is always delayed until late on Friday afternoons. In many blog circles Friday is now jokingly referred to as 'Bank Failure Friday'.

Reflecting the dire times we are in, 2009 is off to a record breaking year for Bank Failures. Last Friday there were 3 failures which brought year's total to 9.

During 2008, 25 banks with $373.6 billion in total assets failed in the United States, and several others were strongly encouraged by the regulators to merge with other banks. In 2007 only 3e banks with a total of $2.3 billion in assets failed in 2007, and none failed in 2005 or 2006.

Last year was the highest number of bank failures in the U.S. since 1993, when 42 banks with $9.64 billion in assets failed.
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Bank Failure #10: Sherman County Bank, Loup City, Nebraska

From the FDIC: Heritage Bank, Wood River, Nebraska, Assumes All the Deposits of Sherman County Bank, Loup City, Nebraska

Sherman County Bank, Loup City, Nebraska, was closed today by the Nebraska Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Heritage Bank, Wood River, Nebraska, to assume all of the deposits of Sherman County Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $28.0 million. Heritage Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Sherman County Bank is the tenth bank to fail in the nation this year. The last institution to fail in Nebraska was Equitable Savings and Loan, Columbus, on February 16, 1990.

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Bank Failure #11: Riverside Bank of the Gulf Coast, Cape Coral, Florida

From the FDIC: TIB Bank, Naples, Florida, Assumes All of the Deposits of Riverside Bank of the Gulf Coast, Cape Coral, Florida

Riverside Bank of the Gulf Coast, Cape Coral, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with TIB Bank, Naples, Florida, to assume all of the deposits of Riverside Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $201.5 million. TIB Bank's acquisition of all of the deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Riverside Bank is the eleventh bank to fail in the nation this year. The last bank to fail in Florida was Ocala National Bank on January 30, 2009.

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Bank Failure #12: Corn Belt Bank and Trust Company, Pittsfield, Illinois

From the FDIC: The Carlinville National Bank, Carlinville, Illinois, Assumes All of the Deposits of Corn Belt Bank and Trust Company, Pittsfield, Illinois

Corn Belt Bank and Trust Company, Pittsfield, Illinois, was closed today by the Division of Banking, Illinois Department of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with The Carlinville National Bank, Carlinville, Illinois, to assume all of the deposits of Corn Belt Bank and Trust Company

The FDIC estimates that the cost to the Deposit Insurance Fund will be $100 million. The Carlinville National Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Corn Belt Bank and Trust Company is the twelfth bank to fail in the nation this year. The last bank to fail in Illinois was National Bank of Commerce, Berkeley, on January 16, 2009.

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Bank Failure #13: Pinnacle Bank, Beaverton, Oregon

Pinnacle Bank, Beaverton, Oregon, was closed today by the Oregon Division of Finance and Corporate Securities, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Washington Trust Bank, Spokane, Washington, to assume all of the deposits of Pinnacle Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $12.1 million. Washington Trust Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Pinnacle Bank is the thirteenth FDIC-insured institution to fail in the nation this year, and the first in Oregon since Far West, Federal Savings Bank, Portland, was closed on May 23, 1991.

All the News That's Fit to Print?

Faithful readers will recall that back on January 7th we talked about 'Bears' and 'Angry Bears'.

Real Estate 'professionals' are supposed to represent the best interests of those their clients... be they sellers or buyers.

Buyers who are mislead or manipulated into making choices to buy Real Estate when it isn't in their best interests is what truly agitates the 'Angry Bears'.

But Real Estate agents are commission salespeople. Their object is to co-ordinate sales and close deals, be they acting on the part of the seller or the buyer. That's how they earn a paycheque. And most can accept that.

But when real estate sales propaganda masquerades as 'expert opinion' and misleads the average Canadian, the ire of the Angry Bears is raised.

And so it is with what the Angry Bears see as an unholy alliance that appears to have developed between mainstream media and the Real Estate Industry. The Media depends on advertising revenue for it's existence. And the revenue from the Real Estate Industry is vast. So what happens when real estate propaganda is misrepresented as news.

The past few months the Real Estate Associations have been attempting to 'manage' the bursting Real Estate market. Sellers who didn't absolutely have to sell were encouraged to allow listings to expire, thus reducing inventory and - hopefully - stem the tide of declining real estate values.

Meanwhile real estate associations have been attempting to mitigate a crashing market. R/E Association 'economists' insist the recent drops in prices are only a ‘momentary dip’ attributable to a ‘lack of consumer confidence’. The prognosis: price declines are relatively muted and upward momentum will return in short order once consumer confidence returns.

Their message: don't sit on the fence... buy now (and support our commission salespeople).

Raising the ire of the Angry Bears is this story in the Vancouver Sun titled "Majority believe it's a good time to buy real estate in B.C.: poll".

The story reports on an unattributed Ipsos Reid poll that finds a majority of British Columbians believe "this is a good time to buy a home, though most say it isn’t a good time to sell".

The poll quotes Hanson Lok, senior research manager at Ipsos Reid in Vancouver, who says "as market conditions improve for buyers, there also seems to be a growing number of British Columbians gathering on the sidelines to contemplate buying new homes".

The new poll also finds that British Columbians’ expectations for falling prices have been muted since November.

Curiously the story does not cite who commissioned the poll.

Hmmm.

So what do we have here?

A poll - reported as a news story - that claims consumer confidence is returning, that claims it's (a) a good time to buy, (b) a bad time to sell and, (c) that house prices won't be going down in the next 12 months.

Gee... does that mean you should rush our and buy now instead of waiting for the market to decline further?

And so on local real estate chatboards the Angry Bears ask: Who commissioned this poll?

Good question.

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Thursday, February 12, 2009

A Tale of Two Predictions: Part (b)

Mainstream media often provides Real Estate 'insight' from builders, bankers, developers and realtors. For years this Real Estate ‘cabal’ has insisted that the Vancouver market was not in a bubble. Now that prices have started to decline, they insist this drop in prices is only a ‘momentary dip’ attributal to a ‘lack of consumer confidence’. Their prognosis: price declines are relatively muted and upward momentum will return in short order.

For several years now, the Vancouver Housing Blogger has been a counterpoint to this view. Recently VHB offered his prediction for the immediate future of Vancouver Real Estate on Housing Analysis ; a blog whose stated objective is ‘providing thoughtful analysis on the housing market’.

Noting that current Canadian labour market statistics predict a very bleak picture for 2009 and that the prognosis for BC in the coming few years is for extremely hard times; VHB points out that circumstances are, in reality, far worse than the predictions. January statistics already show BC is down 35,000 jobs - a pace that will blow most economist’s predictions for 2009 job losses right out of the water. And one week into February, the torrid pace of corporate layoff notices has continued unabated.

More importantly, BC’s labour market boom has been based on construction and as that construction boom continues to collapse, massive job losses will continue to mount. A situation which cannot help but mortally damage BC’s housing market.

“When the bubble started to burst in Spring 2008 in the midst of a strong economy, it burst mostly because there was a psychological change--people stopped wanting to pay the inflated prices because they didn't have confidence that they could find a greater fool to whom to unload their property in the future. We've seen 15% or so come off prices, but the main effect really has been that properties have just sat around not getting sold. Aside from a few flips gone bad, there hasn't been a lot of urgency on the sell side. So it didn't sell in 2008--just rent it or try again in 2009,” said VHB.

“What will be different going forward is this. As unemployment approaches double digits in BC (we'll get there shortly after the Olympics--if not earlier), there will be thousands of people who cannot make their mortgage payments on their primary residence--not to mention their inability to feed the monthly bleed from their condo 'investments.' These properties will be thrown back on the market first by themselves, and later by banks as foreclosures.”

VHB goes on to note, "When will this happen? When people lose their job, it takes some time before they get irreversibly behind on their bills. It then takes some time for the bank to foreclose and get the thing on the market. So, the 'have to sells' are not going to seriously start hitting the market until late 2009. But in 2010, this will be a dominant part of the housing picture."

VHB paints a very compelling picture. Record new housing inventory on the way and a cascade of 'have-to-sell' people driven by job losses.

Meanwhile speculators have vanished from a collapsing market, home ownership rates are at record level (with those owners unable or unwilling to upgrade and no new customers coming into the picture) and the evaporation of U.S. and Asian buyers due to the world wide economic collapse

It’s a toxic mix: exploding inventory with no customers to fill the void.

The end result? VHB predicts 2009-2010 will provide a tremendous amount of pain for those who are overexposed to Vancouver real estate because we have the creation of a perfect storm which will send real estate values into a downward spiral: rising unemployment levels leaving many local Vancouverties unable or afraid to commit to real estate purchases for themselves, the evaporation of speculators who cannot turn a guarenteed profit and the evaporation of U.S. and Asian buyers - buyers who have always kept the market artificially high.

VHB - along with a ‘mohican’ - post their statistical case on a regular basis on the Housing Analysis blog. Its worth you while to check it out.

Meanwhile the coming two years will play out as a tale of two predictions: the CREA's or VHB's.

Who are you inclined to believe?

Even for Karnac the Magnificent, this would be a 'gimmie'.

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Wednesday, February 11, 2009

A Tale of Two Predictions: Part 2 (a)

Back in the heady bull run real estate market days of 2005, when virtually everyone seemed to be proclaiming that the BC Real Estate market was in a permanent "bull" market, an anonymous internet real estate blogger(known by his moniker: the Vancouver Housing Blogger or VHB) openly questioned whether or not the Vancouver market was in a bubble.

He was one of the few locals to do so.

So popular were his posts that he was getting over 25,000 unique visitors a week to his site.

The VHB would post daily entries that warned that Vancouver and Victoria were in a massive speculative bubble. And it wasn’t just editorial commentary. He would link to reports from the Real Estate Board of Greater Vancouver, Statistics Canada, expert opinions, other cities' real estate blogs, and to media reports to make his case. All available information was interwoven to prove his point.

The thoroughness of the VHB was such that even Bob Rennie, BC’s Condo King, was drawn into debates on his site. Rennie, regularly quoted in the media at the time as saying the real estate market would continue to be strong and wouldn’t suffer a downturn, chided VHB at one point by refering to one of his highly successful condo pre-sales and saying, "If the blogger is right...1,000 people are wrong."

Well it turns out both Rennie and those 1,000 condo pre-saler's were wrong and the Blogger was right.

That infamous quote is now used as a tagline by the VHB whenever he posts on the local Real Estate Talks messageboard.

VHB told a reporter that he started his blog because, "I was following the housing market and wondered if others shared my more unorthodox views. I was making some graphs on my own. I thought some others might like to see them too. [The mainstream media] doesn't point out the inherent conflict of interest in always asking builders, bankers, developers and realtors about the housing market."

VHB used his blog to serve as a counterweight to thosed biased positions.

In February, 2007 the VHB closed down his blog saying, “Things have changed on the off-line front. I have to go now. It has been a lot of fun. I might be back sometime in the future, but I need to stop for a while anyway. Ta Ta For Now.”

Well... the VHB has returned and while he has not re-started a blog of his own, he makes regular contributions to a number of Vancouver R/E sites.

Recently he made his own predictions for the current market.

His thoughts tomorrow in Part 2(B).

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Tuesday, February 10, 2009

A Tale of Two Predictions: Part 1

A most interesting newspaper headline flashed across the country yesterday: Housing sales expected to drop back to 2000 levels.

Despite this, the Canadian Real Estate Association (CREA) goes to great lengths to mitigate the impact of this statement. They gamely stress that this will not trigger a drop in the value of real estate.

This group, which represents 100 boards across the country, continues to bang the drum that the problem is simply one of consumer confidence. And this lack of confidence will not impact the value of your real estate.

“Consumers are in a funk. Every bit of economic news that comes out seems to confirm what people had expected, that we are heading into rough economic times,” said Gregory Klump, chief economist at CREA. “Everybody is hunkered down, expecting a deep, long recession. If you are not secure in your job, prices can be cut in half and interest can be free, but you are not going to buy a home.”

There may be a dramatic slowdown in sales, but the CREA insists price declines are relatively muted and will remain so. The message remains: there will be no big drop in housing values.

In an attempt to add validity to this rosy prognostication Pascal Gauthier, an economist with TD Bank Financial Group is sought out for his comment. He says there is a certain “stickiness” to prices when the housing market slumps. “People say my neighbours’ house may be worth 20 per cent less but not mine. We have people testing the market (by selling), but we are still not looking at desperate sellers,”

Gauthier then dampens speculation that there will be further real estate price drops by pointing out that buyers continue to count on even steeper discounts that have not materialized. “I think some people are expecting a U.S. type of correction.”

Once again the underlying message is: price drops won't happen - buy now.

These 'so-called' economists have a vested interest in the Real Estate Industry. Their sole job is to craft documentation that influences public perception and moves that perception in a direction favourable to Real Estate agents. If 'consumer confidence' is shattered and people are expecting prices to drop... then convince them that those price drops will never materialize.

Tomorrow we will hear a different viewpoint. From someone who has been a thorn in the side of the Vancouver Real Estate scene for several years now.

Monday, February 9, 2009

H+H Yaletown: What's that smell?

Have you ever done a double-take at news you found somewhat incredulous?

I did today.

As you have seen in the last post, H+H Yaletown had their big liquidation sale this past weekend - Saturday and Sunday from 1:00pm to 5:00pm.

A local real estate enthusiast attended on Saturday afternoon and, for all appearances, the showing was a flop despite extensive preparations by developers for a large crowd. He posted a youtube clip which we linked in yesterday's post and it showed empty tents, porta-potties, security guards... but not many buyers in sight.

Curiously, on the evening news, we learn our intrepid enthusiast may have missed the big 'rush'. In this news clip from Global TV news, images of those same tents filled with people camping out that night before fill the screen. Eager young buyers gush for cameras at the 'great opportunity to increase equity and upgrade'.



Supposed sales data would seem to reinforce the mad rush to purchase. 40 of 44 units sold:

- 1 studio sold
- 20 one-bedroom suites sold
- 12 two-bedroom suites sold
- 7 townhouses sold

Balance unsold: 4 townhouses.

When you watch the TV news video, those same tents that were empty for most of Saturday afternoon, are filled the night before with campers eager to stay the night.

One has to assume that all 40 buyers were there at the crack of opening at noon and then bought the place out.

Curiously... no one else seem to come after that, at least not in comparable numbers.

Even stranger are online comments of an attendee who stated, "Didn't seem like there's many people there when i drove by at noon just now. I'll be interested to know how many and how much these units got sold for."

Whaaaa? Big overnight lineups with filled tents the night before and then just before the official start of sale... the place is an apparent ghost-town?

Presumably the only buyers to show are those comfortably accomodated in the tents.

Listening to the newscast, one can't help but be impressed with how articulate the eager buyers are and how well they speak of what a great 'investment opportunitiy' this is and 'what a chance to upgrade' it is.

Contrast that with some online comments of some who viewed but did not buy:

"Went there today inside the building through other realtors. Agree with the hallways - ridiculously narrow. Narrowest I've ever seen in my life !! I'm a skinny short guy, and I could only stretch 1 arm!! Unacceptable. How does one move furniture without scraping the walls?? I assume strata's gonna go up after everybody moved in, b/c the walls are like grafitti written by furniture!! Checked a couple suites, quality seems ok I guess. I saw a few small cracks, makes me wonder about fit & finish. Floor plans are cramped. They crammed too much into each suite - flex, insuite storage, unnecessary 2 sinks, bathtub & stall in each washroom. What's left for living room & bedrooms? Not much. My 2 cents. No I didn't buy. Missed the viewing times. Lineup was for purchase only - they wouldn't show us. Quite a few buyers inside though (looked ~dozen). Good location still."

"Went there this Saturday just after 4 pm, and noticed there were some people but not many. I did not enter into any of the suites but did enter the building. The first thing I noticed was how narrow the hallways were. In fact it was so narrow I almost felt claustrophobic. I also noticed on the bulletin board there was a notice indicating something about the elevators not being repaired because the repairmen were not being paid. Overall I was not impressed. I think they are going to have serious issue with quality and maintenance in this building. The people that recently bought are just another round of bagholders."

"I think this liquidation sale was a flop. The lesson that the receiver should learn is that if you advertise 40% off, you should have a good selection of units with real discounts. At least the ONNI sale guaranteed a minimum discount of 25%. The Bowra sale claimed up to 40% off. Quite a nebulous statement. Obviously they advertised a sale but there was no sale. People were able to preview and determined the discounts offered were insignificant. Hence, no one showed up on deal day."

Now maybe I'm just a cynical curmudgeon but there's 'something rotten in Denmark' with this story.

Certainly one has to be impressed with the foresight of the developer to provide just enough overnight accomodations for those who snapped up all the units. This precient ability to predict exactly how many will show up (and no more) is nothing short of amazing. Makes you wonder how they got caught in the market downtown and had to liquidate their stock to begin with.

But when I watch the newsclip I can't help but be reminded of those cheesy late-night 'info-mertials' with transparent, scripted testimonials from 'actual-buyers'. It comes across like a carefully crafted stage production - but the audience never materialized from the advertized hype to see the show.

One notes that purchasers have a 7 day period to commiserate on their purchase. We will watch with keen interest to see if these units re-appear on the market should all those 'early-birds' fail to get financing or change their minds for other reasons.

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Sunday, February 8, 2009

What if you had a firesale and nobody came? H+H Yaletown development condo sale update

On February 2nd we profiled Bowra Group's decision to dump their H+H Yaletown development after 15 pre-sale “buyers” refused to complete on their deals.

Of particular note was the fact this liquidation was to be conducted in true buyer’s-market fashion with Bowra Group leaving it to new buyers to name their price… so long as offers are subject free.

Day one of the two day event was yesterday (February 7th).

This youtube clip is shot outside the Condo Development. It shows staging tents, porta potties and security guards.

The only thing missing were the long lineups and anticipated crowds.

Hardly anyone appears to be there. Reports indicated the organizers made 10 or 12 people line up outside... but when the crowds failed to materialize, it was an eerily quite drop-in affair.


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Saturday, February 7, 2009

A Satrical Look @ the Zero Down Crowd

A clever youtube parody clip casts Hitler as a real estate investor getting caught in the bursting housing bubble. The leader of the Third Reich buys a house to flip, faces foreclosure, and now wants to get bailed out.



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Friday, February 6, 2009

Today isn't just Friday... it's Bank Failure Friday!

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Update: Bank Failures #8 & #9 added.

As always, in the interest of keeping our finger on the pulse of the strenght of the American Financial Sector, we bring you the latest updates on the US banking system. Curiously, everytime a bank fails in the US, the announcement is always delayed until late on Friday afternoons. In many blog circles Friday is now jokingly referred to as 'Bank Failure Friday'.

Last Friday there were 3 failures which brought year's total to 6.

Today there have been three more failures, bringing the 2009 bank failure total to 9.

Bank Failure #7

FirstBank Financial Services, McDonough, GA

From the FDIC: Regions Bank, Birmingham, AL, Acquires All the Deposits of FirstBank Financial Services, McDonough, GA

FirstBank Financial Services, McDonough, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Regions Bank, Birmingham, Alabama, to assume all of the deposits of FirstBank Financial Services.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $111 million. Regions Bank's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. FirstBank is the seventh bank to fail in the nation this year. The last bank to fail in Georgia was Haven Trust Bank, Duluth, on December 12, 2008.

Bank Failure #8: Alliance Bank, Culver City, CA

From the FDIC: California Bank and Trust, San Diego, CA, Acquires All of the Deposits of Alliance Bank, Culver City, CA

Alliance Bank, Culver City, California, was closed today by the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with California Bank & Trust, San Diego, California, to assume all of the deposits of Alliance Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $206.0 million. California Bank & Trust's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Alliance Bank is the eighth to fail in the nation this year, and the second in California. The last bank to fail in the state was 1st Centennial Bank, Redlands, on January 23.

Bank Failure #9: County Bank, Merced, California

From the FDIC: Westamerica Bank, San Rafael, California, Acquires All the Deposits of County Bank, Merced, California

County Bank, Merced, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Westamerica Bank, San Rafael, California, to assume all of the deposits of County Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $135 million. Westamerica Bank's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. County Bank is the ninth bank to fail in the nation this year, and the third in California.


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