December 2, 2014

The Fall In Prices Is No Longer A Vague Fear

The Calgary Herald reports from Canada. “Home sales stayed strong in November, rising 3.4 per cent from a year earlier, according to Calgary Real Estate Board data. ‘It was a relatively strong month when we look at sales, listings, inventories. But definitely one that’s moderating,’ said Ann-Marie Lurie, CREB’s chief economist. ‘We’re seeing a return to more balanced conditions and that’s easing some of the pressure on price growth, which is actually a good sign for Calgary’s market.’”

From CBC News. “In a survey of 2,373 homeowners across Canada conducted in September and released Monday by Manulife Bank of Canada, more than a quarter of respondents said they would still consider themselves to be debt free, despite having various types of debt. Twenty-seven per cent said they would consider themselves to be debt-free even if they had a mortgage. Almost as many, 23 per cent, said they’d consider themselves debt-free even if they still owed money on a car loan. And 11 per cent said they would consider themselves debt-free despite keeping a balance on a line of credit.”

“Considering that the survey looked only at people who own homes, it is perhaps not surprising that almost a fifth of them said they planned on accessing at least some of the equity locked in their homes to supplement their incomes in retirement. ‘Often homeowners think of their home equity as a fallback plan for retirement income,’ said Manulife president Rick Lunny. ‘The fact that one in five is proactively planning to use this strategy suggests they may be struggling to balance retirement saving with debt repayment.’”

“Moncton’s chief financial officer is warning city councillors that they cannot keep spending the way they have grown accustomed to in recent years. The cooling off of the city’s housing markets means revenues may not grow at the same rate as they did in previous years. ‘If you remember, seven or eight years ago we were seeing lots of growth in the city, fast, rapid growth. growth in the value of our homes, things like that,’ said John Martin. ‘We’re seeing that that is slowing down a bit. There’s a large inventory of houses that need to be sold or moved.’”

The Star Phoenix. “It has become slightly more affordable to own a home in Saskatchewan thanks to an increase in the number of homes for sale. ‘The main challenge in Saskatchewan has been a significant increase in homes available for sale,’ said Craig Wright, RBC’s chief economist, in a news release. ‘New listings have consistently outpaced resales since 2012, partly as a result of higher new unit completions. This rising listings trend softened demand-supply conditions enough by 2013 to cause price drops in Regina, and it’s now threatening other markets such as Saskatoon.’”

The Globe and Mail. “The Wabush mine, once the cornerstone of this community, is shutting down along with another iron ore mine called Bloom Lake in neighbouring Quebec. The price of iron ore, a key ingredient in steel, has been in freefall, falling 60 per cent in three years. What’s happening in Wabush is taking place in many other Canadian communities as well as resource-rich countries such as Australia. The deterioration is due to two factors: less demand from China and an oversupply of iron ore and coking coal, which is also used to make steel.”

“At one point, Labrador West came to be known as Fort McMurray East, taking a cue from the Alberta boom town. As workers and opportunity seekers flooded in, housing got scarce. Duplexes that cost $25,000 in 2000 were going for more than $500,000. Home rental rates jumped from $1,500 a month to $6,000. Even one room in a home cost $1,000 a month to rent and landlords routinely pushed out long-time tenants to make room for higher-paying contractors.”

“The once frantic housing market has softened with vacancy rates climbing. Landlords are cutting rent to entice tenants to stay and the average home price has dropped about 15 per cent since the boom times. A three-bedroom house that went for $450,000 in the heyday can now be bought for just under $400,000. But most aren’t selling, meaning prices are likely to fall farther. Residents talk about how families took on hefty mortgages to buy half-a-million-dollar homes and they will now be stuck with a property worth less than what is owed.”

“Mike Scott, who owns two mine-servicing businesses in Wabush, said the city has changed over the past six to seven months. ‘The phones are quieter, the shop is quieter, the town is quieter,’ Mr. Scott said. ‘The attitude, I guess, is somewhat subdued, like people died or something. You know what I mean? The air is heavy.’”

From CTV Edmonton. “More than a dozen investors who put hundreds of thousands of dollars into a multi-million dollar condo complex in St. Albert are looking into legal action, all while companies hired by the developer are waiting for compensation. Dianne Stewart and her husband put down more than $28,000 for a unit. ‘I’ve phoned them 12 times, I’ve emailed them, there’s no response whatsoever. Numbers have been disconnected, websites have been closed,’ Stewart said.”

“Sydney Olson, 23, put down more than $15,000 for her unit. ‘It’s upsetting when you’re this young and you put your life savings into something, and someone just comes along and takes it from you, it’s unfair,’ Olson said.”

The Country Guide. “George Brinkman, professor emeritus at the University of Guelph, believes Canadian farmers are seriously over-leveraged and that there simply is not enough farm income to pay off the debt farmers have accumulated. A few years ago, he calculated the ratio of farm debt to income in Canada and found that in 1972, that ratio was two to one. In other words, it took $2 of debt to produce $1 of income. By 2007, that ratio had jumped to 23 to one.”

“Farmland values now far exceed productive value, and we may be seeing many farmers ignore the risk of interest rate increases or declining revenues, and continue to borrow to purchase land based on the belief that the trends of the last few years are likely to continue. You have to wonder how speculative these land purchases really are.”

“Unfortunately, the fall in commodity prices is no longer just a vague fear. We are experiencing those declining prices right now, so every farmer must take a close look at their debt and make sure it can be serviced at current and worst-case commodity prices. There is a saying in banking: ‘Most bad loans are made during good times.’ Without question we have enjoyed a run of good prices and for most producers, we have experienced good yields as well. Time will tell if those good times have enticed farmers into too much debt.”

Bits Bucket for December 2, 2014

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