October 31, 2012

Bits Bucket for October 31, 2012

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October 30, 2012

Bits Bucket for October 30, 2012

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October 29, 2012

When People Become Irrational

An opinion piece from the Toronto Star. “I’m often asked, ‘When is the right time to buy a home?’ Conventional wisdom says, ‘Sell high, buy low.’ I say, ‘Buy now to buy low.’ Toronto is in a unique economic real estate situation: constantly rising demand and constantly falling supply. When these two lines cross — as they’re doing right now — only one thing can happen: prices rise. We’ve seen this happen in Toronto for the last 16 consecutive years. My message to you today is about today, because right now is the time to buy real estate in Toronto. The future — whether it’s next year or next decade, or longer — can only bring higher housing prices. Buy real estate in the GTA now.”

The Vancouver Sun. “When sales launch at 9 a.m. today for the 443 homes in Intra-corp’s MC 2 project, the development community throughout the Vancouver area will be watching closely. Marketer Bob Rennie, who has been spearheading the project’s sale campaign, believes that up to 60 per cent of the condos will be snapped up by the end of the day. Predictions that don’t seem particularly over the top, given that the number of registrants is significantly higher - on a per-day basis - than the number who registered months ago for another project in the immediate neighbourhood: Marine Gateway. In the four months before its launch last March, 11,000 people registered interest in the 415 homes in Marine Gateway. All were bought within four hours on opening day.”

“‘The city has been talking about affordability,’ Rennie says. ‘Here, there are 230 homes under $350,000. That’s when you really start to look at affordability.’”

The Financial Post. “Panic is the worst thing that could happen because when that mentality sets in and people become irrational, it’s hard to forecast how low prices will go, says Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce. In the second quarter of this year, the debt-to-income ratio rose to 163.4% from 161.8% in the previous quarter. He worries the wrong message is getting out. ‘The distraction of [hearing about these debt levels] is more of a concern than the debt,’ he says.”

From MetroNews. “Like many middle-income couples, James Harwood and his wife had almost no savings when they bought their first house, in Cambridge, for $180,000. The year was 2008. The housing market was booming. Interest rates were low. Mortgage money was cheap and lenders required little or no down payment. After years of renting, they took the plunge. ‘My wife really wanted to own her own place. And there’s the whole idea of building equity,’ Harwood said. ‘The actual cost of the mortgage, with taxes and stuff, was so within the margin of what we were paying for rent anyways, it didn’t make any sense not to try.’”

“But within months, Harwood’s wife fell ill and was off work. A part-time nurse, she had no sick leave or benefits. Even though Harwood’s job as a warehouse manager for a public utility was secure, they quickly fell behind in their payments. Within a year and a half, they’d lost the house, which after legal fees and other expenses left them with $70 in their pockets. Harwood said he reads about rising household debt levels and wonders how other people manage. ‘I hear and see people maxing themselves out all the time and I wonder what it’s going to be like for these guys down the road.’”

“Yet Canadians continue to pile it on. Ironically, one of the key reasons household debt is high is the Bank of Canada’s policy of keeping interest rates low. They’ve been at or below 1 per cent for the past four years. ‘It’s one of the most common things we see. When you have little or no savings — almost half of Canadians are living paycheque to paycheque — and you lose your job, or take a reduction in income, that can be devastating to any household budget,’ said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada.”

“‘The housing boom had a secondary impact on borrowing, as homeowners borrowed against the rising value to make other purchases, from renovations to investments to vacations. ‘Your income isn’t going up, but the value of your house is, so you use it like an ATM and borrow against it,’ said Armine Yalnizyan, a senior economist with the Canadian Centre for Policy Alternatives.”

From Global Toronto. “Toronto is in the midst of a building boom, with 147 highrises and skyscrapers under construction. There are more than double the condos under construction as New York City, and more than all major U.S. cities combined. Jim Grimes is a real estate buying veteran. He sees a correction coming and beyond that, an opportunity. ‘I think we’ve hit a point where saturation has come… I’m kind of setting myself up right now to be ready. I’m getting calls back from agents saying they’ve dropped the price by $50K and (they’re asking if) am I interested in getting it at that price.’”

From MoneyVille. “Toronto condo developers are seeing a dramatic downturn in investor interest in new projects — more than 30 to 40 per cent in just the last few months — as the condo market cools. ‘The golden era of highrise condos is turning to bronze,’ says long-time real estate consultant Barry Lyon.”

“Some developers are quietly talking about a 50 per cent downturn as investors, who have fuelled much of Toronto’s condo boom over the last five years, head for the sidelines, where Lyon expects they could stay for at least six months. ‘I think 2013 will be the year of incentives. The industry is going to be doing everything it can to persuade investors to come back,’ he says.”

The Montreal Gazette. “Montreal condo sellers will need to show greater patience and willingness to negotiate price, real estate agencies say, after the resale market gradually lost ‘momentum’ to declining sales and rising inventory during the third quarter of 2012. ‘What’s concerning us with the condos is the supply,’ said Dominic St-Pierre, director, Quebec region at Royal LePage, who is expecting a two- to three-per-cent dip in median prices during the last quarter of 2012. ‘You cannot have an excess of supply without there being an impact on prices.’”

“With the condo market shifting from one that favours sellers to balanced, St-Pierre said owners will have to be more amenable to negotiating price with buyers. ‘People are still expecting to see multiple offers,’ St-Pierre said. ‘That’s not something that’s happening in the market right now.’”

The Bowen Island Undercurrent, “A news release from the Real Estate Board of Greater Vancouver (REBGV) states that ‘conditions continue to favour buyers in the Greater Vancouver housing market.’ REBGV reports that residential property sales of detached, attached and apartment properties in the region reached 1,516 in September, a 32.5 per cent decline compared to the 2,246 sales in September 2011 and an 8.1 per cent decline compared to August 2012. For Bowen Island, the percentages dropped 1.9 per cent compared to September 2011 and 0.6 per cent compared to August.”

“The benchmark price for a detached property on Bowen is currently $590,200. But does that mean that this is a good time to invest in property? Bowen Islander Hans Merkelbach has been involved in financial services and he’s managed other people’s money for all his working life. Merkelbach says that most people in Canada have invested everything in their homes. ‘Real estate in the Greater Vancouver area and elsewhere in B.C. as well as other major cities in Canada such as Toronto, Montreal and Winnipeg are slowly imploding,’ Merkelbach says. ‘In Vancouver, the average price of a single family dwelling a few months ago was over $1 million. To compare that, the average in Toronto is $850,000. People are maxed out and many have real estate with 95 per cent mortgages on it.’”

“Merkelbach doesn’t know how this will affect Bowen Island but believes that the market will also come down. Recently, a high-waterfront home sold for $950,000 - $300,000 below the assessed value. ‘The 2012 assessments were based on run-away prices, in other words, they were at their highest point ever,’ he said, adding that he appealed his property assessment and had it reduced substantially. Merkelbach knows of several people who had their assessment reduced in an effort to pay a lower (and a more realistic) property tax.”

Bits Bucket for October 29, 2012

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October 28, 2012

What If They Gave A Debt Party And Nobody Came?

Readers suggested a topic on debt and housing. “A friend was asking my advice yesterday. He has enough money to pay the balance of the mortgage on his house off. He says he owes about $75,000 and I would guess his house would now appriase around $300,000 in a nice neighborhood, but one that ended up with crazy high prices at the bubble’s peak. Several houses in the neighborhood are in foreclosure where once high earners have reduced income and can’t pay bubble era mortgages any more.”

“He works in a job that relies on government contracts and is feeling that his employer may ask him to take a paycut if they can’t replace some of the current work. Did not indicate he thought he would lose his job, but the current income in the low 100’s would probably be cut pretty dramatically.
He can’t decide whether to pay the mortgage off and have no debt or hold onto all the cash he can. My first reaction is always to pay off debt if you can, but if I were worried about my future income, I might not want to part with any cash before I had to. What would you guys do in his situation?”

One asked, “Is the fiscal cliff going to translate into something that will continue the decline of average housing prices, or did we hit the bottom in the Summer of ‘11 or ‘12. Additionally, how should I change my stock purchases because of the fiscal cliff? I personally have been selling the majority of my stocks in anticipation that I can buy them back at a bargain after the gas in the bubble leaks out after the election. I also feel the next 6 months should push down stocks since Congress and the new president is going to have a tough job on their hands in the next six months no matter what.”

One had this, “I’ve been pondering the idea of a credit system wherein nobody participates. For those old enough the remember the Vietnam ‘war’ and the public restlessness with it, there was a slogan or saying that was going around, ‘What if the gave a war, and nobody came’?”

“The United States and most of the Western World has become entranced in a multi-decade long debt bing that started to unwind when leverage overcame the ability to pay in 2008. The solutions have been to Print, Print, Print money. Give it to the Banks. Take their bad loan papers and try to provide MORE credit to support more lending, to support more Buying to ’stimulate’ economic activity.
There are still countless Debts and promises that can’t be paid. We’ve all been watching this play out for the past 5 years and trying to figure out what’s behind the Fed’s ‘door number 3.’”

“So, I’ve been pondering the War question: What if they gave a Debt Party and nobody came? I thought I was beginning to see a new brand of Frugality amongst the working population, in the sense that they see that vast Debt isn’t really vast wealth. What does this mean for the economic future of the US if this is a trend? And is this a trend? IF so, then, we won’t see people ‘competing’ for housing with $30,000 over the asking price to ‘Get In.’”

“Is it possible? Or will the FED win again, and start a debt binge to push up prices? I don’t know. I mean, the money’s almost FREE now, and still the markets are suppressed, at least housing. The Stock market is tettering. Support is becoming a ceiling. People are pulling their money OUT of stocks. It bodes for a suspicion of no-confidence in the markets and a desire to deleverage.”

“I’m on the side of Stupidity being the winner. I think the debtor’s prison isn’t near full enough and American’s can’t wait to get in line. But the actions of the markets are similar to the polls of the elections, a draw. Are we going to buy a debt binge, or are we going for austerity and paying down debt as a national trend? I’m a tightwad. A saver. I want austerity. Will I get it?”

A reply, “If everyone chooses austerity, it will be a disaster for everyone.”

To which was said, “Not really. It will be a disaster for those without any real skills. I think the hype up in jobs relating to supply chain - a.k.a the middle men in anything and everything that do the talking and take a cut: from shipping, to finance need to be rebalanced. The heady 2005-2007 years contributed heavily to the REIT fields. We have still not re-balanced.”

“Next year there will be more pain in these professions and more - across the board. People will adjust - they have to. I really wonder about those sales types in all professions that are over 50 that are high income deadweights. The companies will shed these quickly.”

From The Hill. “Although the housing market has been on the mend for the past year, industry experts now say that the sector has finally turned the corner, reaching deeper into harder hit areas and creating the expectation that the pace of the recovery will accelerate over the next several years. One reason for the recent surge in housing activity may be due to the Federal Reserve. The central bank announced in September it was embarking on a third round of ‘quantitative easing,’ in which it will buy up $40 billion a month in bonds backed by mortgages to lower rates and borrowing costs.”

“Fed Chairman Ben Bernanke made clear that the aim is to get the housing market back on track and that it will continue the purchases until it is satisfied with the strength of the recovery and the improvement in the labor market — and then it will buy just a bit more to make sure. ‘Our mortgage-backed securities purchases ought to drive down mortgage rates, and put downward pressure on mortgage rates, and create more demand for homes and more refinancing,’ he said.”

“‘The recovery is only breaking out this year,’ said Lawrence Yun, chief economist at the National Association of Realtors, who also pointed out that while there may be some people feeling ’subconsciously’ better about the economy as housing turns around, there are plenty of others still grappling with foreclosures or with home loans that lost value when the bubble burst. ‘In some place, it may take 10 or 15 years to fully recover the value,’ he said.”

From Reuters. “The monetary and fiscal policies in the United States are creating enormous risks and the Federal Reserve’s actions in particular are now harming the economy, influential hedge fund manager David Einhorn said on Thursday. The founder of Greenlight Capital repeated his criticism of the Fed’s very easy monetary policy, arguing at a conference that it now has ‘negative returns.’ The Fed’s policy easing is ’slowing down our recovery’ by ‘denying individuals interest on savings,” which is driving down consumption and hurting the economy, Einhorn argued at a conference hosted by The Economist magazine.”

“We’ve actually passed the point where the incremental easing of the Federal Reserve policy actually acts as a headwind for the economy and it’s actually slowing down our recovery,’ Einhorn said. ‘I’m alarmed by what I consider to be the reflexive group-think of the leaders, which is, if we want a stronger economy we have to accommodate’ with lower rates and more QE.”

“Einhorn added that, if the U.S. wants ‘more jobs, more consumption and more growth, we are way better off doing the opposite of current monetary policy.’”

Bits Bucket for October 28, 2012

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October 27, 2012

Bits Bucket for October 27, 2012

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October 26, 2012

Weekend Topic Suggestions

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Bits Bucket for October 26, 2012

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October 25, 2012

Bits Bucket for October 25, 2012

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October 24, 2012

Bits Bucket for October 24, 2012

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October 23, 2012

Bits Bucket for October 23, 2012

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