“I don’t see a price bubble”

“I don’t see a price bubble and I don’t see that we need the mortgage criteria tightened as is suggested in some quarters”Helmut Pastrick, chief economist of Central 1 Credit Union, Financial Post, 19 Dec 2010

[Quote also archived in the ‘What Bubble?’ side-bar]

Central 1 Credit Union is the umbrella organization for credit unions in British Columbia and Ontario. Member financial institutions have nearly three million customers and hold about $70-billion in assets, the lion’s share of which are in British Columbia, home to some of Canada’s most expensive housing markets.

17 responses to ““I don’t see a price bubble”

  1. It’s cheeky – but in view of Pasternick’s uncanny resemblance to Chamberlain… I just couldn’t resist this…. 😉

    http://tinyurl.com/2bj8zxd

    Perhaps it’s time for another new VREAA category… ‘Famous Last Words’???

    • Nice image, Nemesis, thanks.
      “High Housing Prices For Our Time” – Pastrick

      (I see the ‘Bubble’ and ‘Hubris’ sidebar collection as kinda like ‘famous last words’, of sorts…)

  2. I love this quote from the body of the article.

    “I’m not of that view,” Mr. Pastrick said. “Obviously, the market over time will have some periods where prices decline, but for the most part history shows that housing prices have risen in Canada … so it’s an appreciating asset.”

    I wonder if his compensation is tied to the short term profitability of the credit unions.

  3. TooExpensiveToBother

    The sad part is that he calls himself an economist. Like Cameron Muir, they let their personal interest guide their data analysis. They are the equivalent of those scientists employed by the tobacco industry who produce “independent” research.
    I agree with him that any government measure to restrict debt will affect the economy, BUT letting people increase their debt load might create a worse outcome to the whole society than having a slow economic growth next year. If you watch a baby carrying a knife, wouldn’t you take that knife away from the baby? Just because the baby it going to cry doesn’t mean you shouldn’t take the knife out of his hands. But Mr. Pastrick doesn’t want to see the baby cry.
    I also agree the 150% debt to income ratio is an arbitrary number, BUT nevertheless is a reference point. At what point would he be concerned that debt/income in Canada is reaching dangerous levels? Or is he suggesting we just through debt/income ratio in the garbage?
    I’m sorry but he is patetic … “it’s just a broader trend in the economy and society that we are more reliant on debt than before”, sure we can take more debt than ever before and than anyone else in the world, but he conveniently forgets to mention that interest rates are also the lowest it is ever been and that is why debt level now are a major concern to every serious economits that cares even a bit about improving the living standards of ALL Canadians (and not just of those who issue their paycheques).
    What do you get when you put self-interest people to express their opinion in the natinal media as if it is independent analysis? Half-truth! Sure his is not lying, he just “forgets” to present all the facts in his assessment.

  4. Pastrick tells the truth – people will run the Credit unions. Simple.

    The jig is UP, folks.

    Portugal gets downgraded – to start the European parade – Canada’s loonie got creamed. WHY? Because we are all in the same gluepot, that’s why. CDO’s and SIV’s – when they get marked to ‘market’ not marked to ‘maybe’ – watch out, Virginia.

    UK admits a SHOCK coming with 1.5-2% rise in rates by Spring, latest.

    The Yield Curve is going parabolic.

    The Bond Vigilantes are riding, armed and dangerous.

    This is NOT the time to buy – just watch the avalanche of listings, after Christmas, and then a torrent by February.

    The Feds will chop the 5/35 Mortgage and up DP requirements, in the next “budget”.

    TR O U B L E.

  5. So presumably, Helmut is spouting “official” Central 1 Credit Union policy?

    That does make me a little leery of keeping any money at these credit unions, especially given that accounts at credit unions are not CDIC insured.

  6. That should have read like this:

    “I don’t see a price bubble in Phoenix anymore”

  7. for the love of god how much longer is this going to drag out for?
    i’m starting to believe the bears

    • Then you are in a small minority.
      As these things drag out, the bear camp is usually depleted.
      But there does seem to be a groundswell of realization that something is amiss.
      (Carney knows, we suspect some of the back-room boys in the FM and PM offices know, some of the bankers know, more and more thoughtful citizens are beginning to suspect, etc)

    • Buck up, some of us waited from five years for the U.S. to correct.

  8. I wanted to ask the simple question of “how can rich Chinese” invest in Vancouver? I am not sure if anyone here actually reads any over seas newspapers or not; however, here is an interesting responce that I recieved from a person in China.

    “There aren’t many rich Chinese investing abroad, as they can’t exchange much money into foreign currency. Only Chinese companies that do business abroad and the Chinese government can invest abroad… That’s also the reason why China could develop so successfully in the past twenty years: all Chinese invested in China, not abroad. Ok, it caused a housing bubble – but it also produced jobs and destroyed poverty for millions of people in China.”

    here is a link to the whole page. Taken from http://www.chinadaily.com

    http://bbs.chinadaily.com.cn/viewthread.php?gid=2&tid=687787&extra=page%3D1

    • High inflation in developing economies is quite common, see Reinhart and Rogoff. It happens when they undergo rapid change, such as industrialization, urbanization, and the creation of a middle class. China is undergoing all of those things at once, and their rate of change has been incredible. Many families have gone from agrarian peasants to industrial workers to university educated entrepreneurs in three generations. The one-child policy, which I personally think is horrible, was undoubtedly a major contributor to rapid social change. China will sort all this out and they will surely have a great big bust. It’s normal and expected.

      What can’t be excused are the housing bubbles across the developed world, which are individually the result of flawed monetary policy and government induced moral hazard fermenting a culture of get rich quick. Countries that maintained lending standards did not have bubbles. See Germany, for example.

    • I was told by a realtor dealing primarily with the Chinese segment that many of the purchases are investment properties bought by people already here, using their first home’s equity as leverage to get a downpayment AND mortgage. As for overseas purchasers, they put down 40% cash and the rest is a mortgage from a Canadian bank. In fact, he told me many take out mortgages here with the favourable rates, and invest them in China and pocket the difference in interest!

      The realtor himself owns four, rented out, and plans to sell and retire with the equity a few years from now.

      As an aside, I have been a blog reader for the past few weeks – it has been eye-opening. I have since been collecting my own anecdotes. Apart from the above, here are two:

      A family friend bought a 2 bedroom, maybe 700 sf condo during the late 08- early 09 correction for around 350000. He rents out the second bedroom to a tenant. I asked him if it was working out ok in such a tight space… a pained expression flitted across his face: “yeah it is a little tight… but it works out okay.”
      uh huh. Comfortable.

      An acquaintance with a townhouse, decent sized, good for two kids, bought long ago told me she dreaded her family friends coming over for dinner. Recently the friends bought a house for 850000 in N van, with help from parents’ downpayment. Since then, each time they visit the wife keeps on telling my friend that “you should get a bigger place. you really need more space.” They shopped for months before they found the place, and it is in dire need of renovation and decoration. My friend says it is really grotty. But they seem so pleased with themselves. To me it sounds more like they need others to affirm they see the emperor’s clothing, because their nagging subconscious sees the scam they have fallen victim to.

  9. “There is no real estate bubble. Bubbles are for bathtubs.” Kendra Todd

  10. Max Keiser talked about what is going on in canada in his show. It is interesting to see how NON canadian people sees what is going on in canada.

    “When you are in a bubble you can’t see it for what it is”

    Watch the Video at 15:00 when they talk about canada

    http://rt.com/programs/keiser-report/episode-105/

  11. Pingback: Spot The Speculators #22 – “The realtor himself owns four, rented out, and plans to sell and retire with the equity a few years from now.” | Vancouver Real Estate Anecdote Archive

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