Globe and Mail Video: 25% Basic Vanilla Pullback For Canada If Interest Rates Flat; For ‘Unstoppable’ Vancouver Pick Your Own Number [Ours is 50%-66%]

From ‘How bad could it get in the housing market?’ video at Globe and Mail, 20 Jun 2011
Rob Carrick: “You’re predicting a 25% decline over 3 years, is that the worst case scenario?
David Madani, Economist, Capital Economics: “No, it’s basically a baseline view .. the fact that prices have risen so much relative to income… we can’t see how income growth alone will close this very large gap between price and income…”
Carrick: “Where do rising interest rates fit into that?”
Madani: “Actually our outlook right now for the next few years is one of interest rates remaining where they are…
Carrick: “So if interest rates were to rise, that could make things substantially worse”
Madani: “Yeah…

Carrick: “The Canadian market is often distorted by what’s going on in Vancouver… I mean, that market is just unstoppable…”
Madani: “25% is an average… this is not just a Vancouver story, we see this bubble-phenomenon across Canada.. … we don’t think it’ll get as bad as in the US, but we do think a ‘substantial decline’ is in store for Canada .”

So, 25% basic vanilla pullback across Canada.
In extreme markets like Vancouver, with or without interest rate hikes?
We’d bet Madani would now say “over 50%, easy”.
We at VREAA now foresee a 50%-66% price crash for Vancouver.
– vreaa

11 responses to “Globe and Mail Video: 25% Basic Vanilla Pullback For Canada If Interest Rates Flat; For ‘Unstoppable’ Vancouver Pick Your Own Number [Ours is 50%-66%]

  1. VREAA, I think his name is actually Madani (with only one “n”).

    [Many thanks; corrected. -ed.]

  2. Ever wonder why corrupt Chinese officials are flying out of the country?

    Here is a potential reason: http://online.wsj.com/article/SB10001424052702303936704576394910531229004.html

    [Thanks. Wow..
    From the article: “When the global financial crisis impacted China’s exports in 2008, Beijing ordered its banks to support a massive credit expansion to create jobs and stimulate growth. The banks eagerly went into action and in 2009 and 2010 made new loans amounting to a total of 20 trillion yuan ($3.1 trillion).” -ed.
    ]

    • Why is this position any more precarious than America’s or Great Britain’s at the moment?

      • China was supposed to support the world’s economy during this recession/depression. In fact, they are in an economic situation as bad as (if not worse) the US. The economic outlook for the near future looks really depressing, that’s what I got from that article…

      • A quick google puts America’s debt to GDP ratio at 96% for 2010. The FT alphaville blog states two different figures for Britain, one at 60% the other at 154%, the difference being the latter figure includes “interventions”. I’m not savvy enough to understand what any of this really means but apart GOP debt ceiling posturing aside, I don’t think anyone is really taking the possibility that either of these countries are going to go by the way of Greece. If China’s debt to gdp ratio reaches 80%, what can we expect to see happen? Bond traders gone wild? You don’t simply go from double digit GDP growth from one year to nothing in the next do you (without mass starvation, war, insurrection or all 3)?

      • Matt, I don’t disagree with you. The double digit growth for years was driven by massive investments in China. A lot of these investments led to over-capacity (steel production), inadequate and inefficient infrastructure (high speed rails), and above all, a gigantic real estate bubble (Shanghai being the Vancouver of China) with dozens of ghost cities.

        If a Financial crisis hit China, they can say good-bye to their phenomenal growth:
        “Is it too soon to start predicting the next boom and bust financial crisis? Maybe not, said Prof. Rogoff. Just look for another housing bubble. “Housing is the best single indicator of whether you’re heading toward a financial crisis,” he said. And most Americans may not realize it, but one is already underway right now—in China.
        (…)
        For Prof. Rogoff, China looks like “the best candidate” for the next financial shock wave—at some point. “It’s an accident waiting to happen,” he said. There is no transparency, yet all the world and their personal trainer is now wagering that China will be able to grow without end for the next 40 years. “It’s the best ‘this time is different’ story,” he said.”

        Have a read at this article… What’s awaiting us is really scary.
        http://online.wsj.com/article/SB10001424052748703323704574602030789251824.html

      • Thanks Makaya

      • Chine-following economist Michael Pettis agrees with Rogoff; China seems to be in an investment bubble where savings are being transferred into investment, when it should be the other way round. The comment Pettis made is that capital based enterprises like construction are able to bid for capital and labour to a higher degree than service-based ventures. As a result ventures that are required for longer term growth of the economy, like hospitals for example, are not competitive with capital intensive industries and either shut down or refuse to expand. Think of it as a plant whose root system is growing faster than its foliage and starves itself.

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