The Economist

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Some days ago the realtors’ chief economist in BC (Cameron Muir) wrote this about a housing bubble and (I guess) me:

“It has taken the form of idolatry in the blogosphere, where any countervailing narrative is demonized. It has catapulted university dropouts into media darlings because of a hackneyed webpage and an opinion. It has been tarted up by so-called experts who predict impending doom year after year, despite being completely wrong every time.”

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In the last thirty days, this is what transpired in the Vancouver real estate market. (Official numbers will be released tomorrow.)

The price of the average detached home was $1.053 million, about the same as the low hit in July. It has now declined 12.25%, or $147,000 since the Spring. Right on track.
Detached homes prices have retreated to 2010 levels. This means if you bought in the last two years, well, Cameron is sorry.
In all of the metro area last month only 635 detached homes changed hands – a significant 30% decline from the same month a year ago.
Let’s not forget that November, 2011 sales were 12.8% below those of the same month in 2010. In fact the number of deals last month was 40% lower than two years ago.
At the same time there are 6,775 single-family homes for sale, up 18% from last November. So there’s an 11-month supply, putting buyers firmly in control.

Note the numbers here are not in contrast to the traditionally frothy spring months, but give an accurate snapshot of how current conditions compare with Novembers past. Not well. Demand’s way down, listings are up. Prices have retreated significantly. This is the portrait of a market in distress, both unaffordable and losing momentum. Suddenly people who felt shut out of their own city can see an emerging strategy: wait.

The news in Victoria will likely be worse. Sales there have been running about 30% a month below 2011 levels, with a dismal sales-to-list ratio. Meanwhile the latest news about the Canadian economy, released just hours before I suffered through a Justin Bieber concert in Toronto (the Amazons stood on their seats and jiggled – so embarrassing), was anemic. Growth in GDP of a measly 0.1% in their third quarter with a big dive in exports.

If it weren’t for household consumption (up 3.1%) then growth would be negative. And where are families getting the money to spend on iPhone 5s and disposable Kia minivans? Right, they’re borrowing it. Consumer credit continues to rise, as every consecutive month we set a record for the debt-to-income ratio.

This is why people like Cameron Muir have lost public trust. I suspect he knows that. Anyone who resorts to ad hominem arguments has usually dried the wells of logic and fact. There has been nothing supporting the real estate balloon in major Canadian cities since 2009 but cheap money, lax lending standards, a growing wall of debt and self-promoting hyperbole from the housing lobby.

Now that debt has crested, lending rules tightened and the economy slowed to a crawl, it’s rational and realistic to expect real estate to correct. These are exactly the conditions this pathetic blog warned about two years ago, when Mr. Muir was offering no caution whatsoever. Even today, with interest rates destined to rise and years of consumer deleveraging ahead of us, leading inevitably to lower real estate prices, the guy’s still at it.

“In a market that has a well-diversified economy and expanding population, fire sales are extremely uncommon,” Muir says. “Unless there is household financial catastrophe on a large scale, potential home sellers simply wait until market conditions improve.”

Nice theory. But it didn’t apply in the US when a well-diversified economy and expanding population (plus low mortgage rates) could not keep a housing bubble from erupting in 2006. Real estate popped first, and two years later the ripples caused a financial and household crisis, not the other way ‘round. You’d think an economist would know that.

Cameron Muir has a role to play, supporting the industry association which employs him. We understand that. As a public figure and media source, he also has influence. Understand that, too. I may have a little myself.

We can only hope he learns to use his talents better.

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avatarGarth Turner - The Greater Fool posted Sunday, December 2nd, 2012.

2 Comments for “The Economist”

  1. Shocked at how far the bubble could go.
    The amount invested by the powers that be is incomprehendable.
    It’s their neck on the block if they can’t keep the sheeple in their hand to mount pay cheques.
    Straddled with record personal debt it will take a feather to take the house down….
    No but we are different here…ya we will see.

  2. One of the pretty talking air-heads on US cable recently observed that Canada doesn’t allow deduction for home mortgage and Canada hasn’t had a housing bust like the one in the U.S.

    Ergo, elimination of U.S. home mortgage deductions would dampen animal spirits and make us safe as houses. Just like Canada.

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