Erroneous Theories For Falling Prices #2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash

“The Conservative government has repeatedly reduced the mortgage-amortization period, dropping it from 40 years to 35 years to 30 years, and finally, to 25 years.
Many potential first-time buyers, in particular, have trouble affording a home in Greater Vancouver when they have to repay their loans within 25 years.
Senior bankers have been cheering on Finance Minister Jim Flaherty, supposedly because they are worried about a housing bubble.

“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate.
That’s because the investment side of the financial-services business generates fatter profits—most of the time—than boring retail banking and those unglamourous mortgages.
In addition, chartered banks are not competing with credit unions to nearly the same degree on the investment side in comparison to the mortgage market.
So by shortening the amortization period to 25 years, Flaherty is, in effect, shifting financial resources away from real estate and into paper assets.
If the housing slowdown continues, don’t be surprised if we start hearing about financial troubles in the credit-union sector.
That’s not Flaherty’s concern because credit unions are regulated by the provinces. …
I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”

– from ‘Stephen Harper is playing a dangerous game by declaring war on the Vancouver housing sector’, Charlie Smith, Georgia Straight, 3 Aug 2012

A crash follows a speculative mania in the same way that night follows day.
The exact flavour of the descent may be influenced by government policy, but the crash itself will occur one way or another regardless of policy.
People who see politicians expertly manipulating markets are overestimating their power (often because the alternative is more scary – that we only have very limited control over market cycles).

– vreaa

Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa

#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
thinkandact, commenting at the Globe and Mail, 2 Aug 2012

#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
Charlie Smith, Georgia Straight, 3 Aug 2012

17 responses to “Erroneous Theories For Falling Prices #2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash

  1. People blaming the finance minister always leave out the part where the Conservatives helped drive this speculative mania by introducing the 0-down 40-year mortgage to Canada. I’m honestly quite shocked at this level of intellectual dishonesty.

  2. Truly bizarre for a newspaper which started as an alternative counter-culture voice and has now morphed into a cheerleader for the local real estate and development scene. Maybe they’ll invite Bob Rennie to be a Guest Editor next week? Then again, I looked at how much advertising developers buy in the Straight these days and counted about 4.75 pages.
    I guess Charlie is seeing his gravy train being threatened by all these changes at the federal level. Why hustle to sell advertising when developers come running to the Straight’s offices with cheques in hand to access their readership of gullible young hipsters?

    • We attempted some similar math previously:
      “The latest print edition of the Straight [25 Aug- 1 Sep 2011] has 72 pages total, 44 of which are ads, 7 of which are RE ads. By rough estimate based on one edition, 16% of the Straight’s total revenue comes from the RE industry.” – VREAA, 26 Aug 2012

      • If the Straight’s RE advertising has gone down from 7 pages to 4.75, that’s a 32% decrease YOY (slightly more… like 12.5 months).
        No wonder Charlie is waving his RE development pom-poms.

      • Don’t forget the full-page condo-sized modern furniture store ads. Those places are as dependent on new condo sales as the developers.

  3. Carioca Canuck

    The concept of page counts in the print media can be quite interesting when linked to the number of directly placed RE fluff articles masquerading as “news”.

    Take my personal favorite, the Calgary Herald…..which years ago lost it’s title as a “news” paper and became nothing more than a printed shill for the pumpers in the local RE market.

    To wit…….on any weekend you might count a total of 125 pages from the front page to the back, 35-50 of which are nothing more than complete RE advertising articles. They’ll have a ..NEW HOMES section, NEW CONDOS section, REC PROPERTY section…..the regular classified ads, a CREB newspaper insert….etc….and ad infinitum…….the constant pictures of glowing 20 something chicks standing on dirt in a subdivision 90 minutes from their job, with their stunned, but not quite so enamored male “catch” right beside them, looking like he’s been broadsided by a Brink’s armored truck, is becoming too much to bear.

    Now having owned a business that advertised in the Herald I know what a full page “can” cost if you don’t haggle. $15K is a good starting point for a color page based on a one time insertion….and $10K for B+W……..now, obviously there are some serious discounts that can come into play for volume and consistency in the buying pattern, but still, you’ll get my point if you do the math. Even using $10K a page……. and using 40 pages a weekend…….that $400K a weekend, or $1.6MM a month……$19,200,000 +/- a year of pure cash flow for basically producing nothing, but lies carefully fabricated for the general public.

    Realtors lie for much less………..and really no one else is advertising in the newspaper any more at all, save for a few car dealers. But they only account for about 1/5 the RE industry’s page buys.

    “Ladies and gentlemen, “ethics” has left the building”……..

    Oh yeah…..I too agree that the conservative government is also directly to blame, for creating the financing rules that blew the bubble up to such disasterous propertions and for not regulating the criminals, liars, cheats and thieves that populate the “REIC”……for if you were an investment advisor, or even a car salesman like I am, you could not say 99% of the shit that these morons regularily get away with, because it would be illegal………

  4. So how is it again that the banks bought up all the large Canadian brokerage firms and not the other way around? This guy’s completely clueless. I especially love the term “paper assets” to describe ownership in, or loans to companies that employ hundreds of thousands of people and do almost all of the capital intensive, useful things that modern society relies on.

    I think I prefer the modified version of this theory, that Flaherty did the deed in order to cool the Toronto condo market and he didn’t know or care what impact it would have on poor ol’ Vancouver (too short to see over the Rockies, maybe). It adds that frisson of Western alienation and Ontario bashing that’s been sorely missed in the national dialogue these last few years.

  5. I did a quick page count of last week’s Georgia Straight.
    2 1/4 pages direct RE, kind of low.
    5 1/2 pages furniture, heavily dependent on RE sales.
    3 1/2 pages phone/data/web/tv plans.
    About 2 various legit dating/body improvement stuff.
    Page after page of thinly veiled prostitution, in all flavours and colours. (Very thin veils!)
    Lots of entertainment/gigs/restaurants etc. That part is still strong and true to the roots.

  6. My suggestions for upcoming installments:

    – Mortgage rule changes have scared away buyers (because the 2 tightenings before had no effect)
    – Gloomy MSM articles and segments changed public opinion
    – Spineless permabear bloggers finally “got to” the public
    – Investor/skilled immigrant program changes
    – Slowdown in China

    OK, well some of these may be having an effect but the point I would make is that, if prices are indeed above their “fundamental value” (i.e. detached from long-term price-rent and price-income), all these factors are the wrong things to be looking at in terms of root cause analysis. They caused the crash as much as a lightning strike in a tinder-dry forest caused a forest fire, heavy rains caused a washout in a clearcut, or a spark from a non-ignition-proofed control panel ignited dust in a sawmill that until recently dealt with wetter wood.

    • Agreed.
      And like your list of erroneous causative theories that are likely to be offered… we’ll headline them when we see them articulated.

    • Aren’t these called “False Flag” operations?

    • The slowdown in China may actually be a legitimate contributor. It’s not just that the HAM dried up, but many recent immigrants have financial and familial ties there. The Chinese economy performing at a lacklustre pace may further sink the Richmond and condo-horny Vancouver market. We’re already seeing the buying-without-seeing West Van Market end up as a greasy fireball on the tarmac. Soft-landing my ass.

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