February 24, 2015

Declines From Levels That Were Inflated

The Edmonton Journal reports from Canada. “Home sales fell nearly 26 per cent year-over-year in January, the Realtors Association of Edmonton reported. The 666 homes that changed hands marked the lowest January number in five years. New listings increased nearly 30 per cent — a five year high. Ryan Henry wants to buy a house in Edmonton, but he’s not sure he should. The exercise physiologist has been looking since 2013 to invest in a rental property, but oil prices have plunged more than 50 per cent since June. In Alberta, that’s enough to rattle a homebuyer’s nerves. He worries about housing values and demand for rental accommodation. ‘I wouldn’t say I’m confident in the real estate market,’ he said. ‘I have no idea what’s going to happen.’”

The Wall Street Journal. “Concern about the effect of lower oil prices has contributed to a selloff in Canadian bank stocks in recent weeks. For the six biggest banks, a particular risk lies in their uninsured home loans, which account for 44% of the $187 billion of mortgages in Alberta, the province where Calgary is located, and aren’t backstopped by the Canadian government in cases of default. Although the numbers vary by bank, big lenders have on average 20% of their total Canadian loans, including credit cards and mortgages, in Alberta and other prairie provinces.”

“Property developers snapped up more of the city’s ubiquitous bungalows built for a mushrooming postwar middle class, demolishing them and building luxury homes priced at between 700,000 and 1 million Canadian dollars (US$558,530 to US$797,900) in their stead. Once a rich vein for developers, inner-city infills are sitting unsold. ‘There is a lot of that inventory, and I don’t know if there’ll be as many people moving up into that price range,’ said Glenn Herring, a real-estate agent in Calgary.”

From Bloomberg. “The pain of crude’s collapse is beginning to bite in Alberta. Sam Corea was the No. 4 Re/Max Holdings Inc. realtor in Canada by commissions in 2013, and 14th globally, selling about C$100 million worth of properties as oil riches helped fuel a luxury housing boom. That market is now rapidly reversing. ‘I haven’t seen this much inventory ever. There are so many more people who want to sell. They feel the market is dropping,’ said Corea, who has sold about 3,000 houses in Calgary since the early 1990s.”

“The two-story home his interior-designer wife outfitted with four sub-zero refrigerators and electronics to control security cameras and media in swank Altadore, sold for C$2 million last summer. If he sold it now, he’d be lucky to get C$1.75 million, he says. ‘Now we’re seeing a decrease in sales and prices,’ he said.”

Business News Network. “Clearly, it’s a bad time to sell your home in Calgary, yet those looking to sell are still clinging to hopes that oil will rebound. Sherry Cooper, the former chief economist at BMO, now at Dominion Lending Centres, says sellers in Calgary’s real estate market will be in for a rude awakening if they sit on the bench. She says 10 and even 20 percent price declines are on their way, but those deep cuts need to be contrasted against Calgary’s juggernaut gains. ‘Declines from what level? Declines from levels that were already inflated. The average price of a house in Calgary had increased dramatically. In fact, it was the strongest housing market in the country from that perspective,’ said Cooper.”

The Globe & Mail. “Stuart Ridgway isn’t suffering from buyer’s remorse, having purchased his Chestermere, Alta., house in January, right after the once hot real estate market took a hit due to a drop in oil prices. In fact, he sounds remarkably blasé. He and his wife purchased the large Chestermere house for their family for $560,000, and he got ‘a reasonable deal,’ he says.”

“They haven’t yet sold their 3,400 square-foot Calgary home that has been on the market for two weeks, listed at $440,000. But Mr. Ridgway is optimistic that once it gets close to the spring market, he’ll sell it off. ‘The house in Calgary won’t go anywhere till the end of the month. But people are looking,’ says Mr. Ridgway, an engineer who builds gas plants. ‘Nobody in Calgary, particularly in oil patch times, is going to want to shell out $600,000 when they don’t know next week if they will have a job. It’s very much a feast or famine type of thing.’”

Mortgage Broker News. “Brokers are already feeling the effects of tighter lending in one major market. The first to act was an insurer and now at least one major lender has followed suit by announcing it will tighten its lending standards in Alberta due to the effects the faltering oil industry are expected to have on the housing market. According to the Globe and Mail, Genworth will take a closer look at mortgages originated in Alberta. The insurer is also raising the target for its loss ratio, upping it to 20-30 per cent from the previous target of 15-25 per cent, in anticipation of possible losses.”

“‘I have just recently had a deal in Calgary that would have been a slam dunk six months ago get declined by both CMHC, and Genworth due to market risk and only 10 per cent down,’ one broker wrote on MortgageBrokerNews.ca.”




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66 Comments »

Comment by Housing Analyst
2015-02-24 04:55:42

Los Angeles Area Sale Prices Dive 6% YoY; Plummet 16% QoQ

http://www.zillow.com/los-angeles-ca-90046/home-values/

Comment by Ben Jones
2015-02-24 07:37:01

‘The average price of a house in Calgary had increased dramatically. In fact, it was the strongest housing market in the country from that perspective’

What goes up, must come down?

Comment by Housing Analyst
2015-02-24 08:04:53

… spinning wheel, gravity takes hold.

Comment by Jingle Male
2015-02-25 05:18:57

If only those Canadians had purchased more real estate in the US. They would be sitting whole with the 20% gain in the dollar!

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Comment by Housing Analyst
2015-02-25 07:31:56

Canadians don’t own anything Jingle_Fraud. The banks own it and the Canadians are cash flow negative. Just like you.

 
 
 
 
 
Comment by Housing Analyst
2015-02-24 05:11:22

“In Many Canadian Cities, Condos Unsold Stacking Up”

http://www.theglobeandmail.com/report-on-business/economy/housing/the-real-estate-beat/smaller-canadian-cities-grapple-with-surplus-of-unsold-condos/article23165014/

Sounds like _______(fill with Houston, LA, Manhattan, Seattle, San Francisco, Washington DC).

 
Comment by Housing Analyst
2015-02-24 05:15:18

“The Federal Reserve Bank And Its Contribution To The Current Economic Crisis: Part I”

http://seekingalpha.com/article/2942826-the-federal-reserve-bank-and-its-contribution-to-the-current-economic-crisis-part-i

Driving housing demand to 20 year lows seems to be their goal.

Why buy a house when you can rent one for half the monthly cost?

 
Comment by Professor Bear
2015-02-24 06:17:30

“According to the Globe and Mail, Genworth will take a closer look at mortgages originated in Alberta. The insurer is also raising the target for its loss ratio, upping it to 20-30 per cent from the previous target of 15-25 per cent, in anticipation of possible losses.”

30 pct underwater on a C$1 million home has to hurt!

Comment by Professor Bear
2015-02-24 06:22:57

It may be too early in the greed cycle to ask, but should we expect deep pocketed U.S investors flush with strong dollars to soon pick over the bones of a predictable Canadian foreclosure crisis?

Comment by Blue Skye
2015-02-24 06:38:22

Because everyone would like a little winter get-away out in the Alberta tundra?

Comment by Ben Jones
2015-02-24 07:35:00

‘The two-story home his interior-designer wife outfitted with four sub-zero refrigerators and electronics to control security cameras and media in swank Altadore, sold for C$2 million last summer. If he sold it now, he’d be lucky to get C$1.75 million’

Four refrigerators? Just set the stuff in the garage. Never mind, they probably heat the garage.

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Comment by scdave
2015-02-24 10:06:02

Foreclosures in Southern California hit their highest level in two years in January, according to new data out Thursday…

http://cts.vresp.com/c/?REInsider/dc60ea3487/2c95d5623a/1637ffba09

 
 
Comment by Beer and Cigar Guy
2015-02-24 08:10:37

Well… they’re not making anymore tundra, you know… Besides, this is Canada- its Canadian here!

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Comment by Ben Jones
2015-02-24 08:49:06

‘its Canadian here’

I was listening to the radio the other day, and someone wondered out loud, why are house prices twice as high in Canada as just over the US border? Then they went on to the next subject.

 
Comment by Blue Skye
2015-02-24 09:43:08

I wonder that out loud sometimes, and in the presence of said Canadians. It’s always a blank stare and then a change of subject. If I ask why a chicken at the grocery store is four times what it is in the states, they get pretty animated.

 
Comment by Beer and Cigar Guy
2015-02-24 11:38:04

I think it must be because of the cost/shortage of available land in Canada, due to the… No, wait-

It must be because of the cost/shortage of lumber and suitable building materials in Canada, due to the… No, wait-

It must be because of the cost/shortage of energy and petroleum products in Canada, due to the… No, wait-

It must be because of the explosive population growth in Canada, dwarfing the… No, wait-

Its ‘just because’?

 
Comment by Guillotine Renovator
2015-02-24 11:43:28

“I was listening to the radio the other day, and someone wondered out loud, why are house prices twice as high in Canada as just over the US border?”

Because the streets are paved in gold, and everybody wants to live in an icebox.

 
Comment by Blue Skye
2015-02-24 13:09:47

I like Canada, but I’m just a resource extractor.

 
Comment by Professor Bear
2015-02-24 14:11:32

“I was listening to the radio the other day, and someone wondered out loud, why are house prices twice as high in Canada as just over the US border?”

Hilarious…

 
Comment by Prime_Is_Contained
2015-02-24 22:43:19

If I ask why a chicken at the grocery store is four times what it is in the states, they get pretty animated.

Maybe the chickens are more expensive because you have to keep them indoors with the heat on for such a large portion of the year? :-)

 
Comment by rms
2015-02-24 23:47:07

“Its ‘just because’?”

Man…it’s da weather!

 
 
 
Comment by Shillow
2015-02-24 07:36:20

American investors got their own oil problems. Being flush ain’t one of them.

Comment by RioAmericanInBrasil
2015-02-24 08:53:49

American investors got their own oil problems. Being flush ain’t one of them.

The biggest American investors have a “superabundance” of capital. That’s part of the whole reason for asset bubbles. Take it from Romney’s old company:

A world awash in money

http://www.bain.com/publications/articles/a-world-awash-in-money.aspx

…..Our analysis leads us to conclude that for the balance of the decade, markets will generally continue to grapple with an environment of capital superabundance. Even with moderating financial growth in developed markets, the fundamental forces that inflated the global balance sheet since the 1980s—financial innovation, high-speed computing and reliance on leverage—are still in place.

Moreover, as financial markets in China, India and other emerging economies continue to develop their own financial sectors, total global capital will expand by half again, to an estimated $900 trillion by 2020 (measured in prevailing 2010 prices and exchange rates). More than any other factor on the horizon, the self-generating momentum for capital to expand—and the sheer size the financial sector has attained—will influence the shape and tempo of global economic growth going forward.

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Comment by cactus
2015-02-24 10:16:45

capital superabundance = rolling bubbles

 
Comment by Housing Analyst
2015-02-24 11:06:33

…. and collapsing demand.

 
Comment by snake charmer
2015-02-24 11:43:38

When financial services firms have unlimited access to free money that central bankers have created out of thin air, of course capital is going to be superabundant. For those firms, not for the rest of us. The capital is the product of an ideology, not savings from productive activity, so the only limit is our willingness to disavow the ideology. Don’t hold your breath.

 
Comment by Guillotine Renovator
2015-02-24 11:47:07

“A world awash in money”

And the only people who benefit from from this excess of cash are the wealthy and well-connected. For everyone else, it means higher prices for life’s necessities.

 
Comment by Shillow
2015-02-24 19:41:56

Why post a reference from 3 years ago? Might as well be from 300 years ago Lola.

 
Comment by RioAmericanInBrasil
2015-02-24 19:51:19

Why post a reference from 3 years ago? Might as well be from 300 years ago

Wrong. 2 years 3 months. Just days after the Obama/Romney election. Days after. The “superabundance” of capital has only grown since then.

Why do you lie so much lately? Like “$6 Mid East profitable oil”?

 
Comment by Housing Analyst
2015-02-24 20:37:00

You’re hopelessly fraudulent Lola.

 
Comment by Guillotine Renovator
2015-02-24 21:23:50

“Wrong. 2 years 3 months.”

Like that’s a whole lot different than 3 years?

 
Comment by RioAmericanInBrasil
2015-02-24 21:30:03

Like that’s a whole lot different than 3 years?

That’s kinda the point. The article is about “capital superabundance”.

And “capital superabundance” has increased since then. So the age really matters?

Are you guys even thinking ?

 
Comment by Housing Analyst
2015-02-24 21:48:26

P.H.O.N.Y.

 
Comment by RioAmericanInBrasil
2015-02-24 22:00:27

P.H.O.N.Y.

Calm down. It’s not Fraud or Phony. The amount of “capital superabundance” that the rich hold in the world is the most extreme in modern history. And the average person doesn’t have much comparatively.

There is nothing “phony” about that fact.

 
Comment by Housing Analyst
2015-02-24 22:10:44

Your superabundance of lies Lola.

 
Comment by RioAmericanInBrasil
2015-02-24 22:17:37

lol

 
Comment by Jingle Male
2015-02-25 05:41:29

Hard to believe Rio posts about a financial bubble cause by creating money and people attack him. It is one of the HBB’s biggest premises.

It’s all Japan’s fault anyway….they started this game in 1990….and 25 years later they are still muddling through…..

 
Comment by Prime_Is_Contained
2015-02-25 09:22:20

It’s all Japan’s fault anyway….they started this game in 1990….and 25 years later they are still muddling through…..

There is _some_ truth in that—but my recollection is that they started it at the urging of our Fed, and that the public comments from our Fed spokescritters at the time was that they thought Japan was not pumping enough…

So it’s not like Japan really started this up in a vacuum.

 
 
 
Comment by AmazingRuss
2015-02-24 17:08:03

Sure! Why, I think I can dig up 500k cdn in my couch cushions…

 
 
Comment by Jingle Male
2015-02-25 05:25:17

PB, it is not a price calculation. It is GWs anticipated losses on their insurance books, caused by paying lenders’ principal losses on loans gone bad, which GW insured. It probably seemed like easy money at the time!

 
 
Comment by aNYCdj
2015-02-24 06:26:46

Still after all these years i can’t wrap my head around people paying $500-700K for a SFH.

http://www.wsj.com/articles/slumping-oil-prices-hit-calgary-housing-1424650029

Comment by Housing Analyst
2015-02-24 06:41:55

Especially when the cost of the M&L is $100k brand new, retail.

If you don’t know what you’re paying for, don’t buy it.

 
Comment by bink
2015-02-24 07:21:53

While making $75-80k/year and putting kids through school.

Comment by Blue Skye
2015-02-24 08:43:08

Since housing always goes up, it is to pay for the kid’s college.

 
 
Comment by aNYCdj
2015-02-24 08:56:10

the link works if you use google…

 
 
Comment by Blue Skye
2015-02-24 06:32:53

The defaults in the Canadian oil patch begin.

“Ivanhoe Energy (TSX:IE), one of the companies backed by mining financier Robert Friedland, may become the first B.C. casualty of a drastic slump in oil prices. The company has filed for creditor protection and faces possible bankruptcy.

“Asked if the recent drop in oil prices is related to the company’s financial troubles, Bill Trenaman, Ivanhoe’s vice president of investor relations, said “I would say that that’s a fair assumption.”

http://www.biv.com/article/2015/2/first-bc-oil-slump-casualty-ivanhoe-energy-faces-b/

 
Comment by Housing Analyst
2015-02-24 06:37:07

Housing speculators are great story tellers indeed.

End users? Well…. they have to lie to themselves don’t they?

 
Comment by Ben Jones
2015-02-24 06:48:30

A few years behind the HBB, but, ‘Deflation Is Overriding Theme in Global Economy: Harris
23 minutes ago 3:38 Bloomberg’

Comment by Blue Skye
2015-02-24 06:52:25

The global commodities index is at a five year low, and just a tick or two from a 10 year low. Some people are slow to catch on.

 
Comment by In Colorado
2015-02-24 07:13:12

A few years behind the HBB, but, ‘Deflation Is Overriding Theme in Global Economy: Harris
23 minutes ago 3:38 Bloomberg’

Soon the global media will be calling for “stimulus” to fight the deflation monster. Lots of new roads, trains, airports, bridges, housing … even cities. And let’s not forget wars, those use tons of materials and employ millions. Of course a lot of that stimulus will go to TBTF financial institutions, though you can kiss your local community banks goodbye.

Comment by Ben Jones
2015-02-24 09:00:47

‘A gauge of growth rates for raw materials including cattle hides, tallow, plywood and burlap has been signaling economic contraction since September. The last time the growth rate of the JoC-ECRI Industrial Materials Price Index was falling to these levels, the world was mired in recession. At the same time, the price-tracking Bloomberg Commodity Index is near a 12-year low, with bear markets for more than half of the 22 items it measures.’

‘A major reason is slowing growth in China, the world’s biggest user of metals, grains and energy, and weakening economies across Europe. While demand suffers, output has surged for everything from oil to wheat, creating global surpluses that sent prices plunging.’

‘The JoC-ECRI index tracks the growth rate for prices of 18 commodities, including some not traded on exchanges such as ethylene and red oak. The gauge has been negative since Sept. 15 and on Feb. 11 reached the lowest since May 2009. The Bloomberg index plunged 24 percent in past the 12 months, led by a 52 percent plunge for crude oil.’

‘While expanding commodity surpluses explain part of the slump, some investors are missing “the other half of the story, which is a drop in demand,” Jay Morelock, an economist at FTN Financial in New York, said.’

‘In China, a measure of manufacturing in January signaled contraction for the first time since September 2012. The nation’s copper imports dropped last month by 24 percent from a year earlier, the eighth straight decline, and output of crude steel rose in 2014 at the slowest pace in at least 24 years.’

‘The slump in the JoC-ECRI index “tells us that the weakness in industrial commodities is a lot broader than just oil,” said Lakshman Achuthan, the co-founder of New York-based Economic Cycle Research Institute, the group that compiles the measure. “This is suggestive of demand weakness.”

‘The measure of commodity prices underlying the JoC-ECRI growth index is heading for a seventh straight monthly loss, the longest streak in 13 years. During the last downturn, the gauge fell for six months through December 2008.’

Comment by Ben Jones
2015-02-24 09:05:29

‘Transocean Ltd. is poised to be the first in a wave of energy-related issuers downgraded to junk status, making the speculative-grade market even more vulnerable to the fate of oil as concern mounts that crude will resume its slide.’

‘The world’s largest offshore driller, which has about $9 billion of borrowings, may be stripped of its investment-grade ratings soon after it reports earnings Feb. 25, according to a report last week from Barclays Plc. As much as $20 billion of energy-related debt may be cut to junk within 18 months, expanding what is already the largest part of the high-yield, high-risk market by 11 percent, analysts led by Brad Rogoff and Eric Gross wrote in the report.’

‘The cost of credit swaps used to protect Transocean debt against default within five years has soared to 715 basis points at 9:28 a.m. in New York, a level associated with junk-rated companies, from less than 200 in September, according to data compiled by Bloomberg. Contracts covering Transocean were the most actively traded among all credit swaps tied to corporate debt in the week through Feb. 13, Depository Trust & Clearing Corp. data show.’

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Comment by cactus
2015-02-24 10:45:18

capital superabundance and Deflation. Is this broken or what ?

Is this because labor is payed to little ?

Comment by Blue Skye
2015-02-24 11:20:19

Too little or too much makes no difference when they spend more than they earn and borrow the rest. They eventually end up with nothing.

Comment by RioAmericanInBrasil
2015-02-24 11:30:08

Is this because labor is payed to little ?

IMO it is big part of it - lack of demand.

Too little or too much makes no difference when they spend more than they earn and borrow the rest.

Your case that too many people borrow too much does nothing to negate the fact that wages have not kept up with productivity since the 80’s. The rich got most of it. If you have any facts to counter this please show them. Here’s mine.

The Most Important Economic Chart

http://houseofdebt.org/2014/03/18/the-most-important-economic-chart.html

The chart shows that productivity, or output per hour of work, has quadrupled since 1947 in the United States. This is a spectacular achievement by an advanced economy.

The gains in productivity were quite widely shared from 1947 to 1980. Real income for the median U.S. family doubled during this time just as output per hour of work performed doubled. The rising tide was lifting all boats.

However, what we want to focus on today is the remarkable separation in productivity and median real income since 1980. While the United States is producing twice as much per hour of work today compared to 1980, a small part of the gain in real income has gone to the bottom half of the income distribution. The gap between productivity and median real income is at an historic all-time high today.

So where are all of the gains in productivity going? Two places:

First, owners of capital are getting a bigger share of GDP than before. In other words, the share of profits has risen faster than wages. Second, the highest paid workers are getting a bigger share of the wages that go to labor.

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Comment by Shillow
2015-02-24 19:48:49

Look at the chart, since 1980 doesn’t really wash. More like since the advent of computers in the 90s and beyond. More propaganda Lola. But not the kind Bill Clinton wants.

 
Comment by RioAmericanInBrasil
2015-02-24 19:54:37

Look at the chart, since 1980 doesn’t really wash. More like since the advent of computers in the 90s and beyond

No, because people invented the computer as with every other innovation in history.

The difference is that people gained from productivity gains proportionally until about the 80s.

 
 
 
 
 
Comment by Housing Analyst
2015-02-24 07:15:13

…….. and down through the ground goes a plummeting crude.

 
Comment by rj chicago
2015-02-24 11:11:30

Dick Bove writes on something to think about - the obliteration of the 30 yr mortgage and the winding down of Fan and Fred in 2018 with attendant results……hmmmm…..what say you there HBB’ers?

http://www.cnbc.com/id/102449798

Comment by rms
2015-02-25 00:09:38

A house is just a box on the ground with a few pipes and wires connected to it.

Comment by Jingle Male
2015-02-25 06:07:57

Prophetic response from rms….about 30-year mortgages ending in 2018!

 
 
 
Comment by Housing Analyst
2015-02-24 11:15:27

Cratering Canadian housing…. cratering canadian crude…. cratering canadian looney.

CRATER

 
Comment by rj chicago
2015-02-24 11:17:09

A caveat - I am no real fan of Dick Bove - just that he has something that I think has to be thought about in re: to 30 year mortgages.

Comment by Housing Analyst
2015-02-24 12:01:30

A wise sage once said;

“If you have to borrow for 15 or 30 years, it’s not affordable nor can you afford it.”

 
Comment by Jingle Male
2015-02-25 06:10:09

The rest of the world gets along w/o a Fannie & Freddie. Bove is just more hyperbole….

 
 
Comment by michael
2015-02-24 16:04:23

I dont see why the government would stop promotomg home ownership. Its a nice source of revenue (for them) and it keeps the debt monkeys on the ranch.

 
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