“I Wish Them Bad Luck.” – Jim Flaherty, on those who wish to profit from Canadian RE price drops

“I wish them bad luck.”
– Canadian Finance Minister Jim Flaherty, commenting on recent moves by some U.S.-based hedge funds and other big investors, who worry that the Canadian housing market is heading for a hard landing, and are looking to short, or bet against, Canadian investments.
[as quoted by the Wall Street Journal, 28 May 2013]

Other excerpts from the same article:
“Last year, Mr. Flaherty had voiced concern about the condo markets in Toronto and Vancouver.
“When I look at the housing market, I’m looking for the ‘doom and gloom’. I don’t see the ‘doom and gloom’. I see some moderation in demand. This is a good thing,” he said.

Flaherty’s wish for bad ‘luck’ for the ‘shorts’ is the equivalent of a hope for good ‘luck’ for the (immensely greater) ‘long’ position; a long position that he has, after all, attempted to shore up for many years. Flaherty cannot calculate the damage that the housing bubble has done, nor that which its resolution will end up doing. It’s natural for him to be simply trying to keep it going at this point.
Regarding those betting against price increases:
Any healthy market has to be able to tolerate the possibility of people speculating against price increases.
There are strong arguments that the ability for individuals to short a market improve that market’s strength. Shorts improve liquidity, make for more valid ‘price discovery’, and are around to buy when nobody else wants to (near bottoms).
There are no ways to directly short the Vancouver RE market (it would likely have benefited if that had been possible!).
Some are attempting to indirectly short, and hope to profit from price drops via their likely effects on the values of the shares of certain stocks or other instruments. For the record, vreaa is not trying to do anything like that. We’d simply like to see sane valuation of Vancouver housing.
– vreaa

37 responses to ““I Wish Them Bad Luck.” – Jim Flaherty, on those who wish to profit from Canadian RE price drops

  1. Hmmm… speaking of “short” and disingenuous politicos… it turns out that our ProvincialPiggyBank is missing a QuarterBillion or so.

    I know, I know, IllustriousEd – it’s only a paltry CDN250M. But 250M here and 250M there… and pretty soon you’re talking real money.

    More to the point, it would appear that most of it was funneled into the private coffers of certain regional corporate media outlets. QuelleSurprise.

    Love him or loathe him, our resident PremierMuckracker AGT broke the story yesterday and is going to air with it on CKPM this morning.

    DearReaders, your WednesdayMorningZen:

    [AGT] – ‘EXCLUSIVE’ BREAKING NEWS: BC Liberals Have Been Gutting Education and Healthcare for a Decade, Sending ALMOST A QUARTER OF A BILLION TAX DOLLARS to 2010 Legacies Now/Lift Philanthropy Partners!!!

    …”Why is it that for a decade the BC Liberal government has siphoned off from almost every provincial ministry $240,651,926 and sent it over to 2010 Legacies Now/Lift Philanthropy Partners?!?

    Christy Clark told us last week that not one dollar of any allocated funds for education have gone to anything but education. Really?

    In 2003/2004, as Minister of Education and Deputy Premier, Clark attended a meeting with Kim Haakstad, her long-time assistant, and Deputy Minister Emery Dosdall. In that meeting, Clark HERSELF, suggested that “media buys” could come directly from ministry monies. Dosdall, who was hand picked by Gordon Campbell to keep Clark in line, was incredulous.

    But the BC Liberals found a way to siphon off almost a quarter of a billion dollars in taxpayer funds, that were allocated for almost every single government ministry, and send those funds to their favourite NGO.
    …In that meeting in 2003, with Mr. Dosdall and Ms. Haakstad, the then Deputy Premier, in front of several witnesses, suggested that three media sources, to begin with, should be targeted with the money removed from various budgets–including her own in the Ministry of Education.

    Clark suggested the editorial boards of the Victoria Times Colonist, The Vancouver Sun and The Province, be informed that advertising monies were “on the way.”….

    http://tinyurl.com/pr8f399

    • Somehow I have a feeling that the average person on the street just doesn’t care, will still elect Liberal cuz NDP are just devils spawns and communists.

  2. Basically, Flaherty is right. He’s talking about overall real estate in Canada. Sure there are single family homes in Richmond and condos in downtown Toronto, that have had ridiculous increases in both pricing and building. These places will see drops from astronomically high levels.

    But the rest of Canada will only moderate. Sales are down, but the listings have not materialized (yet) like all the doomers predicted. Thus we have seen prices fall. It appears that some markets (like Victoria) have moderated and rebounded a little.

    If you look around Vancouver at the huge price reductions, it is mainly on the absurdly high listing prices from speculators and ultra greedy sellers. Homes priced well, around assessed value are selling (albeit at a slower pace). Prices have not yet fallen much on middle class homes or condos. There also doesn’t seem to be the huge run up in listings. So, the average sales price will be down. But just like a few huge and ridiculous sales skewed the sales figures on the upside, the lack of them will bring the averages down.

    Don’t get me wrong, I don’t believe real estate in Vancouver is a good investment for the next several years. But, it won’t be a bust also.

    • UBCghettodweller

      Agreed. I’ve been predicting a %5-10 inflation adjusted for devaluation of property that will last the better part of a decade- with decreases being closer to the mild side of that range. By then, things will have corrected, more or less, to historical norms for Vancouver. There won’t be a sudden crash, but anyone who has been wagering their retirement on their house will really start feeling the crunch.

      • UBCghettodweller

        That should read:

        I’ve been predicting a %5-10 inflation adjusted for devaluation each year of property prices that will last the better part of a decade- with decreases being closer to the mild side of that range.

  3. Did Flaherty say ‘bad luck’? I thought wished ‘them luck’ but said it, you know, in a mean-like way that means bad.

    The sentiment shift on Canada shows what a bind he’s in, trying to influence free markets and all that.

  4. I doubt he particularly cares about the luck of the hedge funds. It is a cheap way of making him sound patriotic. A free way to get something in the news aside from Duffy, 90k payments, robocalls, etc.

    • Ralph Cramdown

      The boy don’t know how to trash-talk speculators. Here’s how a past master did it:

      “We cannot simply expect those famous currency speculators to shut off their computer terminals, hang up their red suspenders and get a life. But what we can do — what we must do — is take effective, concrete action to minimize the vulnerability of national economies.”

  5. Luck has nothing to do with it. These guys see an opportunity to place capital in an advantageous way after carefully weighing the available alternatives. They might win, they might lose but odds are that these guys can out manoevre Jack & Jill how-much-a-month, which is really the other side of the trade.

  6. For no particular reason [other than that these stories seldom, if ever, conveniently arrive on a SaturdayMorning], it’s NonSequitur BonusZen time…

    FirstUp… Think your recent PerformanceReview was bad? Then Pity Poor Moktar – brutally characterized as, “an unmanageable rebel whose hostility to leadership is looked upon as a bleeding wound” and subsequently vehemently criticized for unauthorised HostageNegotiation PriceCutting…

    “You never answer your phone, you don’t file expenses and you miss important meetings.” – TheManagement

    [UK Independent] – International terrorist Moktar Belmoktar receives dressing down from al-Qa’ida leadership in newly discovered letter

    http://tinyurl.com/oqgqvpc

    #CouldBeWorse

    [G&M/AP] – Beaver attacks and kills Belarussian

    ….”Once hunted nearly to extinction in Europe, beavers have made a comeback as hunting was banned or restricted and new populations were introduced. In Belarus, a former Soviet nation between Russia and Poland, the beaver population has tripled in the past decade to an estimated 80,000, according to wildlife experts. That has caused beavers increasingly to wander into populated areas, creating more grounds for conflict.”…

    http://tinyurl.com/omamekg

    [NoteToEd: Well, thematically speaking, those two pieces were at least apropos of “BadLuck” and “ModerationInDemands”. Personally, I would have gone with a different leader on the Belarus story, though – “FatalAttraction: Belarussian Beaver’s No Pu**y”.]

    • [NoteToEd: A particularly intense day of Scholarship combined with a Plethora ‘O Rosé necessitates a PublicConfessional… I actually felt sorry for PoorMoktar, having once been similarly admonished by MyManagement {albeit, TheOfficialOpposition}… and as for the Beavers ‘O Belarus, I can only say that I was once myself nearly consumed by Hypernatremia following a prolonged, aggressive and enervating ‘attack’ by a MonophyleticCalifornian derivative; metaphorically speaking.]

  7. Real Estate Tsunami

    UBC, Generally agree.
    I am watching the “price reduced” number, and we have now over 100 price reductions per day.
    I predict a “RE death by a thousand price reductions”, as homeowners (paticularily boomers nearing retirement) are slowly waking up to face the reality of declining prices.

    • UBCghettodweller

      Exactly. The run up in prices since 2003-ish was the same processes in reverse.

      A couple of people I know recently sold their condos, all of them posted at assessed prices and were negotiated down a few percent lower that that. For reasons in life other than making a speculative profit, or at least minimizing losses, they took lower offers because they justed needed to offload the property and move else where with full knowledge that other units in their building had been sitting on the market for months and month when listed at higher prices. If minor price reductions like that continue over a few years, the compounded effects will be very noticeable.

  8. This one is interesting:

    http://www.ecorealtyinc.ca/listing?id=260296821

    Just went on the market for $625,000, last October it was on the market for $729,900. Quite the drop. It is one of Rennie’s developments. There is also a property on his website with smaller square footage for $799,000:

    http://www.rennierealty.com/condos/2952-2515-woodland-drive-vancouver

    What is strange is that in the seller notes on the new $625 listing it says it is a court ordered sale. No expert but it doesn’t make sense to me for a new development. Any ideas?

    I walk past the block daily and I have never seen anyone in any of the flats.

    • Seriously….. they want $625k for a townhouse with baseboard heaters….? Looks like laminate and cheap carpets, too……

      Ha-ha-ha-ha-ha-ha!!

  9. Real Estate Tsunami

    Went to my barber yesterday, and as usual I asked him for advise on Vancouver RE.
    He said “go short” and proceeded to give me a crew cut.

  10. Welcome back VREAA. Here’s my welcome back present – is it a bed in a bathroom, or shower in a bedroom, or the next step in the evolution of Vancouver housing for the perfect housing unit?

    http://www.vancitybuzz.com/2013/05/vancouver-rentals-a-bed-in-the-bathroom-why-not/

    • Like living in a motorhome. Might even be comfortable.

      • UBCghettodweller

        Although you really shouldn’t ever shit where you eat. Shitting where you sleep is nearly as bad.

        All I can think about is how quickly mould and mildew will grow in that mattress.

    • Thanks for the gift, space889.
      Outrageous!
      In Tokyo, perhaps.
      The underlying message, of course, is that we are Tokyo.
      Again, consider this idea in relation to Canada’s vast expanse.
      The bubble has perverted our thinking.

  11. If Flaherty said the same about flippers and other real estate “investors”, the media, realtors and bulls would throw an epic hissy fit.

    • The difference is it’s difficult to actually short the real estate market, and it looks like these investors are attempting to use Canada as a synthetic short for all those “external” factors Flaherty likes to refer to that absolves his government (and Canadians) from taking responsibility for upcoming fiscal hardship.

      Short selling has become the pariah of first-world governments, looks like old Flats is taking baby steps towards hitching his load onto the wagon.

  12. http://news.nationalpost.com/2013/05/27/chinese-canadians-lured-back-to-hong-kong-by-better-job-prospects/

    This is what the Chinese, Iranian, people from other countries are doing. They just want the security of being Canadian.

  13. The problem with shorts is that they increase the number of longs. In the absence of derivatives (which is what shorts are), there is a limit to the number of speculators who can go long, and therefore sort of a limit on a bubble. Once you allow shorts, more longs get created, which will feed the bubble.

    We saw this in the U.S. at the height of their housing bubble. Mortgages were seen as a great investment, since they were considered to be just as safe as government bonds, but with a higher yield. But, even with massive fraud by mortgage brokers, there was a limit to the number of people who could be convinced to sign a mortgage. However, once investors starting shorting mortgage backed securities (MBS), it created new opportunities for optimistic people to invest in a derivative of MBS and inflate the bubble some more.

    When the bubble finally burst, it was worse because of the shorts. In addition to the lenders who lost money to bankrupt homeowners who couldn’t repay their mortgage, shorts also lost money to bankrupt longs who couldn’t pay. The government proceeded to bail out both banks and shorts, and it cost a lot more than if there had never been shorts in the first place.

    In an ideal world, shorts are covered by longs and losses (or gains) by shorts are exactly balanced by gains (or losses) by longs. In the real world, when the government covers the losses, taxpayers lose to speculators and reckless lenders.

    • Real Estate Tsunami

      Jimsum,
      To make a long story short:
      Governments (taxpayers) should never bail out speculators!

  14. Pffft! Fold up the little umbrella, put down the Margarita, slide out of the hammock and check your email, Boss.

  15. I leafed through the 24 Hours give-away rag at lunch today. About 5 or 6 ads for new condo/townhouse developments had incentives of the mortgage subsidy of type, AKA teaser rate mortgage. One was $1000 paid of your monthly nut for 3 years, another was full mortgage and strata payments for two years. Yes, find a mortgage broker willing to help you flout the rules and get a 0% down mortgage (yes you can!), and you can live payment free for two years.
    Others just talked about the low, low monthly payment with their special program for new owners only, see sales associates for details.

    • There do seem to be a helluva lot more of these flyers/covers/billboards around right now. Really seem to be wringing that last drop from the stone… lots of photos of very, very young couples pleased with their new keys.

      • Helluva?? What the…….?

        Hold on just a sec…….. You can’t be the regular old Vreaa. I think there is an imposter running the site. My old Vreaa never dips toes in the cursives for as long as I can recall. Can’t be a clone or a brain transplant either. Did they put you in a re-education program these past weeks and cuss at you for exposing their shenanigans by any chance? Those realtor-agents have a lot of power I suspect……making bubbles and all. Anyone with the power to blow bubbles can surely make Vreaa swear on a very rare occasion (even if it’s just the party variety saved for use when Grandma is in the house!).

  16. Real Estate Tsunami

    Alex,
    The best one is The Elliot in New West.
    They guarantee rental income until 2020, all strata fees paid until 2020.

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