These things never really end well…

There has been a lot of hyped up talk this year about the looming housing “Armageddon” and massive asset bubble that experts, economists and politicians alike have been warning of for quite some time now. Scenarios of Armageddons and US Style crashes are very unlikely in Canada… however, reading through the myriad of opinions on the matter it is actually hard for the average lame person to really get a grasp of what is actually on the horizon.

Adding to the confusion is the fact that mixed messages are abound everywhere… media organizations that on one day may report of real life problems with the over indebtedness and over investment of Canadians then reports on the next day completely contradicting articles on the same matters.

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The same goes for Canadian financial institutions and the mortgage/real estate industry, inaccurate and unreliable stats and figures coupled along with poor perspective and quite frankly almost fraudulent guidance to the general public. I’ve written about the dangers of running with the crowds and relying on data that you don’t fully understand, these are exactly the kinds of human behaviors that those who make a living making money off of the greater fools rely on.

So why are there so many mixed messages out there? Why does one economist from one organization have a complete opposite opinion than the economist from the bank? The answer is actually quite simple, the man from the bank has a vested interest in maintaining continuously appreciating assets… even when he knows that those assets are way over inflated and destined to correct.  In fact, just like normal everyday people he is likely to also hold a mortgage with the bank; the man from the bank is exposed to the exact same kind of risk as the general public and of course wants to do everything he can to avoid fueling the flames of the inevitable!

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In addition to this, said economists’ employer (bank) also happens to be the organization that stands to lose greatly with the risk of defaulting mortgage borrowers etc, what do you think his bosses tell him his duty is? Tell the truth of the matter or present the data and message in a way that calms and re-assures everyone that everything is OK. So the message here is pretty easy to understand if you could put yourselves in their shoes why their messages would differ from that of others.

There are three important pillars (in my humble view) that comprise and support the Canadian Real Estate market these days and over the next few weeks we will explore each one and why a likely collapse in anyone of those pillars will be the catalyst to a very real and widespread correction to Canadian housing markets in many regions. For those of you that liked to read on ahead in school here’s what I will be looking at:

#1 The CMHC – Automated appraisal system (EMILI) and the fraudulent abuses of it

#2 Bank of Canada’s interest rate policies 2009 to present – The inevitable rise in mortgage rates

#3 Market Supply & Demand – Baby Boomers forced to “cash out” sooner or later and the lack of a generation of buyers to fill their void.

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6 thoughts on “These things never really end well…

  1. Your poll is misisng my vote – in some areas like Metro Vancouver, a correction has already begun. Many homes losing 5-30% of value depending on the location and type of dwelling (condos doing worse as they always do in those situations)

    • My apologies Dee! You are absolutely right though, the depreciation of home values is following the decline in sales and rise in inventory in text book fashion. Condos in particular have been and are being thrown around like disposable lighters, this sort of investment tool has never been sustainable nor productive for the long term economy.

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  3. Decline in Sales?
    http://www.vancouversun.com/business/real-estate/Vancouver+real+estate+market+boosts+national+housing/8793675/story.html

    “Vancouver had a 12 per cent increase in sales in July relative to June and a 39.9 per cent increase from the same month last year, while Toronto’s sales were up 4.8 per cent month-month and up 12.9 per cent year-year.”

    I’m sitting on a small deposit waiting to get in. Waiting until next year is only good for me if property prices do come down as interest rates are on the rise. 😦

    • You aren’t seeing the big picture, Brian.

      “Do real estate boards lie? I mean, if they quietly revise numbers, or include dodgy data then feed those to the national body, which then issues monthly reports the media slathers over, who will be the wiser?

      Bad boy ex-realtor Ross Kay is convinced that’s the case. In fact, he’s just published an ‘audit’ of national housing sales numbers he thinks proves it. CREA said this week that house sales soared 9.4% last month from July of 2012. Kay says phooey.

      According to him, 41,838 properties changed hands across the country in July, which is a .02% decrease, not a 9.4% increase. “The Canadian housing market remains in declining territory,” he says. In fact, Ross maintains sales have gone down twelve times in the last 12 months, even with the pop just experienced as moist, new buyers rushed to beat higher mortgage rates.” GT 8/16/2013

      See here: http://www.rosskay.com/audit-of-national-resale-home-data.html

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