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.”
Is it possible that plummeting commodities prices are an inevitable aftermath to a historic mania of highly-leveraged, reckless speculation?
Or the inevitable result of a total collapse of real demand, that can no longer be disguised and manipulated at the margins by the central banks?
October 28, 2014
“Back in the 1980s, Ron Carey was sitting in a Calgary bar with a fellow oilman, reflecting on the great oil bust that had levelled Alberta’s economy, when he came up with the idea for a bumper sticker that would capture the grim mood in the province: ‘Please God, let there be another oil boom. I promise not to piss it all away next time.’ Three decades later, Carey, now 75, has watched another boom grip the province and is ready to print another run of those stickers if need be.”
“That’s because he sees worrying signs of another bust on the horizon: soaring wages, ‘ridiculous’ house prices and people living ‘high on the hog’ because they assume the good times will go on forever. ‘There’s not many people out there today who even remember,’ he says. ‘It’s 34 years ago. Most of the people who went through that mess are either retired or close to retiring. So you have a younger generation that doesn’t even know what a real recession is.’”
http://thehousingbubbleblog.com/?p=8671
Here’s something I was thinking about regarding the oil situation: if the US was smart, we would put a tax on foreign oil to the extent that it would protect domestic producers. Why golly, Ben, you might say, that’s protectionism!
Sure it is, but what is OPEC engaged in? Are they not trying to kill off US producers so they can then raise prices, again? If we are going to eventually get an artificially manipulated price anyway, why not keep the jobs here and enjoy a guaranteed supply to boot?
But Ben, aren’t you a libertarian that could never stand for taxing the free market? That’s jibberish. This country was founded on excise and other import taxes. It was so successful, we didn’t even need an income tax. This country flourished. I say free market capitalism within the US and tax these OPEC dogs in perpetuity. It’s not like they give a rats’ ass about us.
Oh, but we’re not smart. And need I point out that it is big multinational oil that stands at the foundation of globalism? (Hint, look up the Rockefeller’s). But we’ll stand here and watch OPEC crush our domestic industry in the name of “free markets”. OPEC, in the same sentence as free markets!
But Ben, isn’t oil something that everybody needs including the poors and all the cheap James-Dean JR-Ewing American oil is long gone and the stuff that’s left over is so twisted up in the damn rock that you need loans and credit default swaps to make the machines to get it out so if you tax foreign oil da folks will be forced to buy expensive American gas instead of cheap Saudi gas and every damn week when da folks fill up and every damn day when da folks see campaign commericals on the teevee they will be reminded who the politicians were who put the excise tax in place and those politicians will be voted out ASAP?
No, we used to understand trade and the voters did too. We didn’t trade with countries that, for instance, used what’s basically slave labor or had insane environmental practices. Even when we set up a deal with Japan, for instance, we shaved the arrangement to where we got something out of it. And the treaties were subject to renegotiation, by our elected representatives, every 5 or 7 years. Now it’s all open ended and done in secret by globalist bureaucrats.
What would you prefer, $80 barrel oil produced in the US, or $140 barrel oil produced in Venezuela? I think just about everyone can get their head around that.
Big oil multinationals are producing this OPEC oil. They like it that way. Instead of having to pay every US farmer and rancher for oil rights, they cut one sweet deal with some King who didn’t pay a dime for what he’s got and cuts the heads off any local who speaks up. Similarly, they prefer to operate in China where they can pollute and jail whoever gets in the way. It’s all so absurd.
we used to understand trade and the voters did too
Few voters know or care about trade anymore. That was the beginning of the globalism death march.
It’s not about being smart or helping US citizens, it’s about fat cats maximizing their personal wealth.
“…if the US was smart, we would put a tax on foreign oil to the extent that it would protect domestic producers.”
The only problem with that plan is that it would tend to drive up prices for U.S. consumers. I’m personally very quickly getting used to gasoline under $3/gallon.
Another way would be to subsidize U.S. production. Our pump prices would stay low, but domestic producers would have a leg up on foreign competition, resulting in higher domestic production and reduced dependence on foreign producers in areas where we have the added cost of needing to constantly go to war to protect our access to the resource stock.
These young kids working the oil patch are blowing through their money in an insane fashion. I’m sure there are the statistical outliers who are living modestly, saving most of what they earn, but for every one of them there are forty more who have 3 diesel trucks, a Mustang, a McMansion, toy-hauler, RZR, Sea-Doos, and a mountain of bills and debt. The excess is absolutely staggering.
Bahahahahaha … people are smart …
“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.”
Bahahahaha … it appears that the people who live in Canada are just as smart as the people who live in the U.S…
“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.”
See? You can’t lose with the stuff I use …
“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.’”
Again, there are but two steps involved here …
Step 1: Dumb ‘em down.
Step 2: Prosper.
‘An online survey conducted for the financial services company found about half of the 2,373 respondents expected to still be in debt when they retire. Of those polled, 10 per cent planned to borrow against their current homes, while about 8 per cent were looking to downsize and use money from the sale of their home as income.’
‘Using home equity as a “fallback plan” suggests some Canadians are struggling to balance retirement with paying down debt, said Manulife Bank CEO Rick Lunny.’
“If people think they’re going to take out second mortgages and larger mortgages when they retire, that’s a pretty concerning view and evidence of no financial plan whatsoever,” Lunny said.’
“8 per cent were looking to downsize and use money from the sale of their home as income.’”
That’s not a plan. It’s a thought that’s gauranteed to fail.
“… and evidence of no financial plan whatsoever,’ Lunny said.’”
As I said …
1. Dumb ‘em down.
2. Prosper.
“…debt-free even if they had a mortgage.”
All you have to do is imagine the value of the house as greater than the mortgage. Then you can imagine yourself in a net positive position, and call the mortgage “good debt”. Works for some as long as reality does not overtake them.
I’ve known a few people who paid off a car loan with a HELOC and then seriously claimed the car was paid for when actually they now have a 30 year auto loan…
Takoma Park, MD(DC Metro) Sale Prices Crater Across The Board; Sink 4% YoY, 7% QoQ, 5% MoM
http://www.zillow.com/takoma-park-md/home-values/
Fairfax, VA Sale Prices Crater 13% YoY
http://www.zillow.com/fairfax-va-22032/home-values/
“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.”
“… and someone just comes along and takes it from you …”
Like taking candy from a baby.
She’s now twenty-three. She’ll most likely get older but most likely she will not get smarter. A good thing, from my point of view.
Dumb ‘em down, and prosper.
Hungry banksters gonna rob you of your down payment money, and it’s perfectly legal cause you agreed to it in writing!
“… rob you of your down payment money …”
The banker did not rob her, he just handed her a pen and told her where to sign.
She came to him all lathered up and lubed up and fully prepped and allowed herself to rob herself.
What you are saying is that she offered to let the banker enjoy her body for free.
She paid a banker for a financial raping.
“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.”
What’s really amazing is that a 23 year old was able to save $15,000
Boston Metro Sale Prices Plummet 11% YoY
http://www.zillow.com/ma/home-values/
“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.”
Does anyone here remember reports of just a few years ago about how the world was going to run out of food? Of hearing every day - EVERY DAY - of reports of grain prices everywhere going up and up and out of sight?
Remember? Anyone?
What happened THEN lead directly to what is happening NOW:
“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.”
The heart of this story lies in this statement:
“Most bad loans are made during good times.”
The good times for farmers was when it was thought by MOST PEOPLE that the world was running out of food. The bad times arrived when it turned out it just wasn’t so.
And most people thought the world was running out of food because the MSM told them - relentlessly told them - that this was so. And so lots of people made commitments as if it was to be so and when it turned out a bit differently then they were left a bit stranded.
And the beat goes on.
If the world is going to run out of food, the last thing a wise farmer wants to do is to eat his seed corn…
“… the last thing a wise farmer wants to do is to eat his seed corn…”
The wise farmer will not willingly put himself in the position of having to eat his seen corn.
I heard an oldie-but-goodie on the radio this morning on the way to work: An advertisement for a liquidation sale of multiple “waterfront, luxury condominium homes” in Orlando. 1900 sq ft units for 10% down at time of sale and $918/month. That oughta bring the village idiots out of the woodwork, gibbering and frothing at the mouth.
lolz
‘Home appraisers are inflating the values of some properties they assess, often at the behest of loan officers and real-estate agents, in what industry executives say is a return to practices seen before the financial crisis.’
‘An estimated one in seven appraisals conducted from 2011 through early 2014 inflated home values by 20% or more, according to data provided to The Wall Street Journal by Digital Risk Analytics, a subsidiary of Digital Risk LLC. The mortgage-analysis and consulting firm based in Maitland, Fla., was hired by some of the 20 largest lenders to review their loan files.’
‘Bankers, appraisers and federal officials in interviews said inflated appraisals are becoming more widespread as the recovery in the housing market cools. While home prices are increasing generally, their appreciation is slowing, and sales have been weak despite low interest rates. The dollar amount of new mortgages issued this year is expected to be down 39% from last year, at about $1.12 trillion, according to the Mortgage Bankers Association.’
‘That has put increasing pressure on loan officers, who depend on originating new mortgages for their income, as well as real-estate agents, who live on sales commissions. That in turn is raising the heat on appraisers, whose valuations can make or break a sale.’
‘Almost 40% of appraisers surveyed from Sept. 15 through Nov. 7 reported experiencing pressure to inflate values, according to Allterra Group LLC, a for-profit appraiser-advocacy firm based in Salisbury, Md. That figure was 37% in the survey for the previous year.’
“If you thought what was happening before was an embarrassment, wait until the second time around,” said Joan Trice, Allterra’s chief executive and founder of the Collateral Risk Network, which represents appraisers employed by lenders and other companies and has been meeting with regulators to discuss concerns about appraisers being pressured into inflating values.’
Appraisers inflated prices even without outside pressure. They don’t understand input costs. Other than inflating prices, just what do these guys bring to the table?
“Other than inflating prices, just what do these guys bring to the table?”
Sales?
Amy? They bring Amy to my table. Amy and her thoroughly lubbed up mark.
What appraisers bring to the table is VALUE! Value of the house that is being appraised.
Bahahahaha … because the ignorant house-buying puke DOES NOT KNOW for himself the value of the house he has to depend on the … the … view … the opinion of a “professional” …
(God that’s a funny word as used here)
… a professional to tell him what the value is.
In few other areas of his life (besides stocks) will he have to depend on somebody else to tell him - to tell him HONESTLY - just what - what - the “true value” of a VERY EXPENSIVE item that he is about to buy is.
And from a stranger, no less.
Bahahahahahahahaha …
They bring a veneer of mathematics and logical analysis to support an already-made purchase decision, said decision having no basis in any rational thought process.
The UHS agent gets the commission. Mr. Banker gets his income stream, and a CYA to invoke the necessary backstops when things don’t work out. The buyer gets cover so that they can later proclaim, “but we did everything right!”
What’s not to like?
“…just what do these guys bring to the table?”
Appraisers are a ceremonial vestige of a former system, just as bank valuation of assets is. Traditions and ceremonies give people a feeling of wellness in contrast to actual reality.
Enter; the “inspector”.
Another individual feeding off the system whose value can’t be identified.
“Other than inflating prices, just what do these guys bring to the table?”
A giant rubber stamp.
‘That has put increasing pressure on loan officers, who depend on originating new mortgages for their income, as well as real-estate agents, who live on sales commissions.”
Some built-in incentives to cook up some numbers are deeply imbedded here …
… and here too: “That in turn is raising the heat on appraisers, whose valuations can make or break a sale.”
And if you can go shopping for appraisers as you do for most other things then the appraiser who can come up with the most favorable numbers are going to get a LOT of business while the appraisers who are a bit more … more honest are going to starve.
‘New guidelines go into effect today aimed at making mortgage lending easier. The new standards stem from an agreement in October put in place to clarify when banks would be penalized for making mistakes on mortgages they sell to Fannie Mae and Freddie Mac.’
‘Banks are expected now to relax some of their credit requirements and give prospective borrowers more consideration, particularly those whose credit score took a hit because of one-off events, like loss of a job or a single large medical bill.’
“If you’re Freddie and Fannie,” says Santoli, “if you really want to get this part of the economy moving, there isn’t much else to do except to set these rules in a way that tries to encourage lending.”
‘Saving up for a down payment may no longer be a huge hurdle of homebuyers either. Last month, Mel Watt, head of the Federal Housing Finance Agency, told the Senate Banking Committee that Fannie Mae and Freddie Mac will soon give guidance to banks requiring only a 3% to 5% down payment from borrowers. It echoed an announcement Watt had previously made in October, which was criticized as a departure from the push after the financial crisis to tighten lending standards.’
‘But the question is, do consumers and investors want to buy homes right now? “Home ownership lust is gone for now,” says Santoli. “It’s a generational thing. That doesn’t mean there aren’t good deals, but it doesn’t mean we are going to see this upsurge of interest I think in home speculation.”
‘Banks are expected now to relax some of their credit requirements and give prospective borrowers more consideration, particularly those whose credit score took a hit because of one-off events, like loss of a job or a single large medical bill.’
Hopefully one of these newly qualified borrowers can take my parents’ now-vacant home off our hands early next year.
Same thing as we studied here about bond rating agencies.
Scripps Ranch, CA Sale Prices Plummet 13% YoY
http://www.zillow.com/scripps-ranch-san-diego-ca/home-values/
caution
HA - don’t look
http://finance.yahoo.com/news/corelogic-us-home-prices-accelerated-october-131556793–finance.html
As you recall Corelogic’s integrity and methodology has been scrutinized here quite effectively.
CoreLogic = real estate pimps who missed the 2007-08 bust until it was history
‘10 Jaw-Dropping Numbers From Canada’s Real Estate Market’
‘No doubt, Canada’s housing boom has reshaped the country’s economy. It doesn’t matter what your view is on real estate. The nation’s two decade long property boom has produced some truly remarkable statistics. Here’re ten jaw-dropping numbers from Canada’s real estate market.’
That would be 280K in the USA.
Maybe American Millennials are smarter. Or maybe they’re just a lot poorer and can’t buy a house, even though the average US house is cheaper than the average Canadian house.
“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.”
So, you weren’t paying attention to what happened south of you in ‘07 - ‘10?!?!?!?
They were paying attention, but they believed what they saw only applied to the USA. Canada was different for a whole raft of the usual reasons. It’s different here. We don’t have any subprime lending. Canadians are more prudent than Americans. Our bank rules are more conservative. Blah, blah, blah.
The streets in Canada are paved with gold.