It’s different here

|

snow4

This is fear and greed week. Human emotions, of course, move markets. That’s the basis of technical analysis, which is about all you need to know when it comes to investing. Stuff people want goes up. Stuff that scares them goes down.

Advertisement

Yesterday we talked about why smart people buy dumb assets that pay them nothing. From a financial point of view, GICs have no redeeming qualities. But Canadians have $900 billion there. Sad.

Naturally, real estate’s a great barometer of what emotional wrecks we are. Two nights ago a so-so former bungalow in North Toronto with a second storey stuck on top, sitting on an undesirable corner lot listed for $999,000, sold with multiple bids for $1,100,000. In fact, a whole batch of new bidding wars have hit some demand areas of the godless GTA in the past two weeks – exactly when I told you the Spring season would start this year. There will be more, and buckets of regret later. But the word is out that listings are scarce, and anything south of a million is hot.

Of course, similar homes went unsold in the fall, when sales tumbled, and could have been had for less. But what fun would that have been? No bloodlust, no thrill. Realtors, red in tooth and claw.

Meanwhile in mouldy Vancouver, fear and loathing reign. Prices are falling and, as a result, sales are imploding. It so not cool buying a house when nobody else wants it, either. In case you missed it, last night the real estate board used the cover of darkness to announce January sales tumbled 14.3% from the same period a year earlier, making it the second-worst showing in 12 years. Detached home sales fall 18% and the sales-to-listings ratio overall is an embarrassing 10%.

Prices are also plopping. Even the local board’s hopped-up Frankenumber is down 6%, while detached homes are off by double digits. Sales are now 19% below the ten-year average. And listings have slipped a little from December, but remain above year-ago levels. Says the head realtor: “When a home seller isn’t receiving the kind of offers they want, there comes a point when they decide to either lower the price or remove the home from the market. Right now, it seems many home sellers are opting for the latter.”

Big mistake. After all, the average detached house still sells for about $1.1 million in a city of a mere 2.1 million people where families earn an average of $83,300. And it was human emotion – a surfeit of greed, laced with the fear of ‘buy now or buy never’ – that created what is absolutely, undeniably, irrefutably, a mama of a gasbag.

I mean, how obvious does all this have to be for mere Americans to notice it?

As Fear & Greed week broke, I was shocked to see that the New York Society of Financial Analysts had devoted a hunk of their recent publication not only to the Canadian house bloat, but also this pathetic blog. Have they no shame? Can’t they just worry about Beyonce blowing fuses?

“It is not a coincidence that the best blog I found covering the “most bubbly” of real estate bubbles is called Greater Fool,” writes columnist Aram Fuchs.  “The only difference this time around is the domain suffix —it is a .ca. That’s right, the most delusional housing pricing is in our formerly prudent neighbors to the north, Canada; and Garth Turner’s blog, Greaterfool.ca, is the best chronicler I have seen. He is a scene-setter as well as an analyst. “

And guess what? In New York they also think Brad Lamb is funny.

“What is great from an American’s perspective is that all of the characters that we saw in the US housing bubble are up there in Canada leading the lambs to the slaughter. In another awesome coincidence the main villain is named Brad J. Lamb.  Turner has a great characterization of Lamb, whose nickname is the “Condo King of Toronto.”   Lamb reminds me of some sort of motley blend of Angelo Mozilo and Donald Trump. Lamb is encouraging people to lever up their primary residence to go buy a second, third, or fourth piece of real estate as an investment.

“Going through Lamb’s obviously foolish math in Turner’s post makes me think that ultimately shorting the mortgages on Lamb’s projects will be a money maker in time. Just like in the US, eventually people realize there are no more greater fools and the bubble bursts. I want to be ready.”

Me, too.

Advertisement

HousingPrices-thumb-615x413-111574

Advertisement
avatarGarth Turner - The Greater Fool posted Monday, February 4th, 2013.

Post a Comment

* Copy This Password *

* Type Or Paste Password Here *