Canadian Realtors Ignore Housing Bubble

Realtor disinformation campaigns are not confined to the United States. Canadians have their own Real Estate Association spinning the data.

17 IMPERIAL AISLE Irvine, CA 92606 kitchen

Irvine Home Address … 17 IMPERIAL AISLE Irvine, CA 92606
Resale Home Price …… $410,000


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My Brothers Get Some More
Im Searching For That Cash
Everyday That Fills The Flow
Its All About Constructing Different Plans By All Means
Hustle Till You Drop But Your Stack Needs More P
I Wake Up
Whats the First Thing On My Mind
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Money Maker — Imperial Squad

As a somewhat cynical realist, I am suspicious of sources and motivations when I read news stories because big money can spread disinformation and influence public opinion. Realtor associations have a powerful influence. They create their own fictional economic universe and they work diligently to spread the Good Word. Part of their process is to feed press releases to lazy reporters who regurgitate realtor spin and give it the veneer of impartiality.

Bullshit, if separated from its source, smells just as sweet.

As I was researching yesterday’s story on the Canadian Housing Bubble, I came across a piece of realtor spin Canadian style, Fears of Canadian housing bubble dwindle.Big Brother

First, note the title of the piece is written as if it is fact when we know from the numerous stories I linked to yesterday that fears of a Canadian housing bubble are intensifying, not dwindling. The title of this article caught my attention because it was counter to the obvious.

I started getting visions of George Orwell’s character Winston Smith doctoring the historical records creating imagined pasts without fears of housing bubbles. Articles like this one are historical fiction planted in the news archives of the internet to betray future historians to the truth of the era; a dastardly deed Big Brother would deviously bemoan: PAST IS FUTURE.

To the article:

“A surge in new listings in November helped ease a chronic supply
shortage and temper prices from a month earlier, easing fears of a
bubble in the making even, though the rebound in the market continued

The author shows skill to shove so much nonsense into a single sentence (but not as many Ss). What “chronic supply shortage?” What proof do you have of this? When and where is this mentioned? This is an example of stating what you want to be true as if it is truth when in fact, it is a combination of wishful thinking and seeding one’s own argument. If you reject this premise — which I do, since it is false — then the rest of this argument falls apart.

“That’s what economists were looking for because a steady string of
monthly price increases could inflate an asset bubble and lead to a
severe correction when interest rates eventually rise. For the past
several months, prices have been rising month-over-month, with
double-digit percentage increases posted year-over-year.”

Economists are not looking for the set of conditions the author describes in the first sentence as confirmation that there is no housing bubble. He made this up. The reason economists were looking — the steady stream of price increases indicative of a bubble — that is still a concern, and the authors feeble idea of new listings easing a chronic shortage does nothing to abate fears of a housing bubble. All it does do is show that sellers are coming out in large numbers to take advantage to foolish buyers who think prices are going to the moon.

“Listings in November increased by 5 per cent compared with October, the
largest one-month gain in two years, the Canadian Real Estate
Association said Tuesday. The increase is a sign of consumer
confidence, and signals a return to normalcy in what has been an
extremely volatile market. More inventory ultimately means lower
prices. The average national price in November declined by 1.1 per cent
from October to $337,231, although that was still up sharply from the
depressed levels 12 months ago.”

Another treasure trove. Blah, blah, blah, consumer confidence, return to normalcy; do you see the template the author was working from? My favorite in this piece comes at the end of the above section when the author mentions that prices are up sharply from 12 months ago — the primary concern of everyone looking for a housing bubble. Note the author added the qualifier “from depressed levels” to insinuate that current prices are not inflated because, due to some magic, prices 12 months ago were “depressed.” Bullshit.

“New listings are helping to balance the market and are letting a
little bit of air out of the tires,” said Gregory Klump, chief
economist at the Canadian Real Estate Association. “We are starting to
see affordability eat into demand.”

Notice the realtorspeak, instead of the obvious, “prices are too high,” the author goes for the negative, “affordability eat into demand.” Affordability is portrayed as this evil dragon that devours market demand, a beast to be slain, preferably through toxic financing and large doses of kool aid.

… While Peter Aceto welcomes a moderation in prices, the chief
executive officer of ING Direct worries buyers are purchasing homes
they won’t be able to afford when interest rates move higher. He has
advised his employees to run clients through different scenarios to
make sure they realize how much more their payments would be under
historically average circumstances.

For example, a five-year variable rate mortgage at 2.25 per cent on
$300,000 would carry a monthly payment of about $1,300, assuming a
25-year amortization period. A move to 5 per cent would boost the
payment to $1,750. It’s a 34-per-cent increase, something many family
budgets wouldn’t be able to accommodate.

Exactly why housing bubbles are a huge problem. People become reliant on ever increasing house prices and declining borrowing costs to fuel and finance consumer spending. When house prices and interest rates go the other way, it is shattering to those dependent upon borrowing to sustain their lifestyles.

“I understand how people get caught up in a hot market, but they are
doing some odd things that really worry me,” he said. “You see multiple
offers, and houses going for 20 per cent above asking. Those aren’t
normal things, and the high level of confidence out there really does
make me scratch my head a little.”

It should make this guy do a little more than scratch his head; perhaps he could blog anonymously for a while and try to warn people….

The Bank of Canada had a similar warning for consumers last week.

A Royal LePage survey of real estate brokers shows Canadian home
buyers are also wary, although most don’t believe a large price
correction is imminent in 2010. The main concern among buyers,
according to the 1,200 brokers who participated in the survey, is
economic instability. They also worry about whether they’ll be able to
get the price they want for their house should they sell.

“People worry when they see the kind of volatility we’ve been
through,” Royal LePage chief executive officer Phil Soper said. “Abrupt
changes in either direction cause concern, but as we edge toward
normalcy in the market and everything levels back out those concerns
should start to ease.”

I am not surprised a survey of buyers showed they did not believe a price correction is imminent in 2010. A survey of buyers anywhere would reveal that sentiment, so what? Most buyers are naive, and with everyone feeding them a steady diet of propaganda disguised as news, it should not be surprising everyone thinks house prices are going to rise quickly, and that they should buy now or be priced out forever.

17 IMPERIAL AISLE Irvine, CA 92606 kitchen

Irvine Home Address … 17 IMPERIAL AISLE Irvine, CA 92606

Resale Home Price … $410,000

Income Requirement ……. $87,425
Downpayment Needed … $14,350
3.5% Down FHA Financing

Home Purchase Price … $306,500
Home Purchase Date …. 11/25/2009

Net Gain (Loss) ………. $78,900
Percent Change ………. 33.8%
Annual Appreciation … 187.9%

Mortgage Interest Rate ………. 5.26%
Monthly Mortgage Payment … $2,187
Monthly Cash Outlays ………… $2,870
Monthly Cost of Ownership … $2,160

Property Details for 17 IMPERIAL AISLE Irvine, CA 92606

Beds 2
Baths 1 full 1 part baths
Size 1,075 sq ft
($381 / sq ft)
Lot Size n/a
Year Built 1993
Days on Market 5
Listing Updated 12/22/2009
MLS Number S599611
Property Type Condominium, Residential
Community Westpark
Tract Cb

Corte Bella gated community. Mediterranean style with fountains & statues. Newly installed carpet & blinds. Plantation shutters. Custom crown moldings & base. Upgraded wood floor & granite counters in Kitchen. Walk-in closet with Mirrored wardrobe. Walking distance to community park & Colonel Bill Barber Memorial Park. Ready move-in condition.

The Sweet Smell of Dung — An Irish Jig

14 thoughts on “Canadian Realtors Ignore Housing Bubble

    1. Barren_Irvine

      So you think home prices match the fundamentals? Would you please care to explain how that is the case when there is so much unemployment and GDP growth is about 1%. Or is it that home pricing is connected to these fundamentals and run on Kool aid?

      1. Barren_Irvine

        *** Correction ***
        So you think home prices match the fundamentals? Would you please care to explain how that is the case when there is so much unemployment and GDP growth is about 1%. Or is it that home pricing is not connected to these fundamentals and run on Kool aid?

      2. newbie2008

        Unemployment at double digits and GDP growth at 1%, you ask?
        GDP is year to year. Last year was a year where mfg. was scaled back and inventory being depleted. Thus negative GDP. Inventories need to be replenished by making new goods, so a small positive GDP is shown.

        Profit making with WS is creating demand and making money when fundamentals are imbalanced. With fundamentals matching reality, very little profits can be made. When they are dramatically imbalance, one can gain huge profits at the expense of another, especially true with derivatives.
        Say the normal price of water is 50 cents per bottle with the fundamental pricing (cost of water, bottle, distribution, profit margin of 20% etc). We are now in the desert and WS has the only 5 bottles of water, 10 people need water. Investor X buys 5 bottles at $10 per bottle from WS. The price goes up for the remaining water from WS and Investor X sells 4 bottles at a new higher price. The selling goes through several cycles with increasing prices. If it’s cash only, the price will go up to the cash at hand. If nothing down, the sky is the limit. Huge profits are only made when fundamental pricing model break down by controlling supply or controlling demand, the latter is harder to control.
        Controlling supply can be done by law, that is govt. franchise, trade group, barriers to entry, cutting production to match demand or creating shortages or creating demand (diamonds).
        Controlling demand: marketing (great ones are owning a house=a home, diamonds=love), migration, money supply. CA housing had both supply and demand being controlled. Higher priced areas have multiple layers on these controls. If there is one link weak the prices can be driven up to huge profit levels. For example, if only money supply is wide open, but with very little control on building and negative migration, the prices will likely go down.

  1. scott

    BTW I’ve noticed of late that interest rates have been slowly moving up the past month or so – today the 10yr US Treasury (benchmark for 30 yr mortgages) is about 3.8%, it was 3.2% on November 30. Also checked on bankrate monitor and it showed current rates at 5.37% vs 5.11% last week for a 30 yr fixed.

    There was an old saying attributed to some congressman that said “a billion here and a billion there and pretty soon you are talking real money”. To coin a phrase “and 1/8 of a percent here and an 1/8th of a percent there and pretty soon you are talking a real hit to affordability”.

  2. HydroCabron

    Astoundingly, Vancouver prices are still grotesque and stable or rising now.

    I visited Vancouver with my eye on relocation in April 2007. Ouch. Condo towers all over downtown, at around $600 CDN per square foot. 1250-sq. ft. detached — just barely, with 3 feet between one house and the next — homes for $900K CDN. And, as my Vancouver buddy said, “they don’t pay you shit to work here” – my earnings would take a 20% hit if I worked in Vancouver. Relative to incomes, Vancouver makes the Bay Area look cheap – this is not hyperbole.

    Price-to-rent ratio was 1.5 times what it is in other Canadian cities.

    Since then they’ve had a drop of 6-7%, followed by the “bottom”, and then a slight recovery. My sense is that Vancouver residents are still out of their minds with Kool Aid, offering every excuse imaginable for why they’re different and special.

    There is no way this will end well. The coming collapse will make Riverside County look mild.

      1. zubs

        On top of that, Chinese have tons of US dollars and are afraid of devaluation. Where are they going to store all that money???…Irvine and Vancouver….Probably some San Marino too.

    1. IrvineRenter

      “There is no way this will end well. The coming collapse will make Riverside County look mild.”

      I have had conversations with a Google manager from Canada. He told me about the differences in their mortgage market (they can’t deduct the interest), and I was surprised by their reliance on adjustable-rate mortgages. Canadians like ARMs more than we do. When interest rates move higher for long periods of time, ARM holders get wiped out, and fixed rate mortgages with assumability options come to dominate the market. Interest rates have bottomed, and Canada’s real estate market is going to feel pain because of it.

  3. IrvineRenter

    Another guy writing kool aid for the NAR, this time from the Wall Street Journal:

    Latest Home Price Data Is Good News for Buyers

    “Here’s some home truths.

    Real estate prices in the Case-Shiller 10-city index have now fallen by a stunning 30% from their 2005 peak. Nothing like it has been seen since the Great Depression–and, according to some sources, not then either. Obviously for anyone who bought a home at the peak of the market this has been a disaster. But for those thinking of buying a home now this is exceptionally good news.

    And at the same time, mortgage rates have also plummeted. In 2006 you had to pay an average of about 6.4% on a 30-year fixed loan, according to the Federal Reserve. Right now you can get deals for about 5%.

    The Case-Shiller 10-city data go back to 1987. I ran the numbers comparing the index values, mortgage rates and average weekly earnings. Net conclusion: On average–an important point I’ll return to shortly–buying a home now is as cheap as it was in the mid-1990s, when houses were an absolute steal.”

  4. idea

    Talking about Canada’s real estate bubble, it is not the only country that suffers US easy monetary polices.
    My parent immigrant to Sydney, Australia (from an Asia country) and bought a property with 4 ac land back in 2001 for 1.2 million AUD. And in 2004 it worths more than 4.0 million AUD.
    I visited them a few times, and just can’t figure out how it can worth that much. Compare to LA, the city is pretty much as Riverside. And there are only few good pay jobs and living standard is 15 lower than here.
    The prices have deflated a bit from 2005 to 2008 but it comes back very strong this year again.

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