Bring On The Soft Landing Predictions

babad“It looks, at this point, like it’s a soft landing. … The IMF said that Canadian homes are overpriced by 10%. … BMO Nesbitt Burns says that in each case after mortgage tightening it took about 7 months for the market to adjust. We’re now seven months in from Mr Flaherty’s latest move. Given 5 yr fixed mortgages below 3%, BMO says we shouldn’t be shocked if we find a floor here.”
Michael Babad, journalist, Globe and Mail video commentary ‘Don’t be ‘shocked’ if home prices find floor again: BMO’, 15 Feb 2013

“We’ve seen the adjustment in the housing market. We think there’s a bit more to come over the next couple of years.”Mark Carney, Governor of the BOC, quoted in G&M, 17 Feb 2013

“In a report last week, the International Monetary Fund estimated that Canadian home prices are overvalued by an average of 10 per cent and predicted an “adjustment” over the next five years.”
from ‘More adjustment to come in home prices: Carney’, G&M, 17 Feb 2013

“The January reading suggests that the housing market may be stabilizing after the cool-down witnessed since tighter mortgage rules took effect in July 2012, writes TD’s Derek Burleton. According to the bank’s research, the impact of new mortgage insurance rules tends to wear out after six to nine months. Burleton expects this to be the case for the latest round of tightening as well, especially since a relatively healthy labour market and interest rates at historic lows should encourage home-buying.”
– from ‘Is the housing cool-down already over?’, Macleans, 15 Feb 2013

This commentator acknowledges uncertainty:

“Whether house prices fell a little in January, or a lot, sort of misses the point… the bigger issue here is how far this market will fall, and how long.”David Berman, journalist, Globe and Mail video commentary ‘What’s ahead for the housing market?’, 17 Feb 2013

Regular readers know to anticipate cries of “it’s only a flesh wound” and premature ‘bottom calls’ from many quarters all the way through the coming price deflation.
After a run up of 200% to 300%, a 10% pullback is noise; a rounding error.
There is absolutely no way that the speculative mania in Vancouver housing will resolve itself with such a minor price pullback.
– vreaa

32 responses to “Bring On The Soft Landing Predictions

  1. Naked Official #9000

    this is all disharmonious splittist ideology!

    loyal cadres, pay no attention to that man behind the wheel of the Ivory Pinamera!

  2. I think B20 will have an effect that none of these pundits have acknowledged. What I think may happen — to the frustration of most reading here — is that if prices do fall quickly the government will step in and reverse some of the tightening measures. The reason is twofold: prices falling too quickly is a vote loser more than off-sheet future liabilities of the type a bailout would constitute, and falling prices have knock-on effects that are heavily anti-growth. As annoying as it may sound, the goal is not atonement of debt, it is accommodating the needs of the many without memory.

    • That’s one scenario… alternatively, there’s the BigBang thesis currently keeping EOD busy in Burnaby…

      “This is a very serious situation… because we’re talking about 10 sticks of dynamite inside a drug distribution facility. And this dynamite is old… it has become extremely unstable.” – InspectorShields, GendarmerieRoyaleDuBurnaby

      [CBC] – Explosive substance forces evacuation of Burnaby highrise

      Investigators were executing a search warrant in a suite in the building. No one was home, but police found cocaine, cash, firearms and 10 sticks of dynamite.

      [NoteToEd: Given her penchant for edgy drama set in conflict zones… perhaps Karen Bigelow’s next project will focus on Vancouver RE… I propose, “ZeroDown40: TheHurtCondo”… ???]

      • Ralph Cramdown

        That’s priceless, Nem. Do I get to see Jeremy Renner, playing the agent, suit up as he preps to tell potential sellers what their unit is actually worth? Buyers and their agents waterboarding sellers?

      • “Welcome to the program.”….

        [NoteToRC: As market conditions continue to deteriotate… The ZeroSum nature of Finite&Declining TransactionVolumes will compell MajorPlayers to respond ‘aggressively’. But somehow, I don’t think the ‘agents’ at either CenturionsXXI or MaximusRealtus are going to like their new training regimen very much. TeeHee!]

    • I agree Jesse. However, the consensus is for a soft landing *nationally* with prices off some 10%, which could mean multiples of that for Vancouver. Policy makers seem comfortable at this point with a soft landing and house prices falling nationally to this extent. Where they will get skittish is if prices fall too far or too fast *nationally*.

      Of course, for this to happen, the weakest markets have to bleed much more than the national average, and this is where the rubber meets the road for Vancouver. Yes, the Feds will review CMHC rules (I doubt B20 will be changed significantly), but not until prices are off significantly across the country and down multiples of that in Vancouver…..or until the economy is teetering on recession.

    • But there is no debt capacity. At 170% debt/income, households here are finished – no matter how much string pushing the government attempts.

      • Then debt is accumulated on the government books, either directly or, as they did last time, through loan guarantees that are future liabilities only and do not directly appear on the bs. There are still plenty of places to stuff debt if necessary, as long as the goal is eventual reversion of price-income/rent, which I think it is.

      • Well, as long as the Canadian government does exactly what worked so well in other western countries, we will be fine.

      • Real Estate Tsunami

        How long can they brush stuff under the carpet.
        Like the NLG plan will pay off our provincial debt.
        Like the car repair commercial of yesteryear “pay me now or pay me later”. And paying later is always more painful.

    • The US tried to quickly “un-tighten” housing rules after the bubble popped. Didn’t do much good. The Fed’s main interest rate has basically been at zero for five years. Mortgage rates have been lower than during the bubble years. If no one wants to borrow money, and the banks are suddenly scared of lending them money, it doesn’t matter what the central bank does.

      • “and the banks are suddenly scared of lending them money”

        That’s an interesting point because I and a lot of people tend to think mainly in terms of will the potential borrowers be too scared to take out loans.

        I wonder just how “mild” any drop has to be before the banks start thinking this could be like the U.S. and start tightening up lending criteria on their own.

  3. But, the situation in all of Canada taken at once may seem like a “soft landing” because many places did not run up to the same extent. So I’m thinking that we should expect these folks to begin to focus on national, rather than regional, stats to better vend their snake oil.

    • Not at all! You see, 2011 is the new “normal”, therefore since Vancouver has dropped more than the national average, and the bottom is definitely in (everyone says so), it’s a great time to buy.

      • That’s right, Alex, once buyers realize the bottom is in, they’ll be back.

        Actually to be quite frank, I can’t recall too many people who have held off from buying; all those who have bought have bought (duh…), so perhaps the barrel of monkeys is empty and it has little, yet, yo do with falling prices. Just a thought…

      • Ralph Cramdown

        O Bottom, thou art changed! What do I see on thee?

  4. Bias is a really funny thing. Never has the statement “it is impossible to understand something if your income depends on you not understanding it” been more true.

    clearly, based on all the fundamentals, real estate prices can only go one way (up!)…….for some reason that I will now invent.

  5. Before we jump to conclusions, let’s wait until our authoritative Tsur and the various Cam’s wade in with their well informed objective opinions on the state of the market!

    I just can’t wait.

  6. “A 10% pullback is noise”

    You nailed it Vreaa. Nice comment and very pointed. I would prefer a soft landing though even if I side with you that little can be done to stop a long slide. It will make a difference that it comes slowly or drops like a rock. Lets just say a little prayer that gradual increments are the flavour for the next few years.

    • “Slowly, then all at once.” — Hemingway

      I’d wish for a soft landing, too, but it’s not to be. Too many employed in related industries, too many speculators, too few people who don’t already own. Even low inflation works against us, as we get quicker and larger negative YoY price prints. We know how it busts; the same way they all do.

  7. Real Estate Tsunami

    In my long walks through Richmond, I have noticed that indeed there are more Sold signs than there were in January or the prior 3 months.
    I was actually surprised to see 2 SFH in Steveston sell within 14 days.
    These properties were priced way below investment, are in a desirable location and therefore sold quickly.
    However, most of the listings continue to sit because the sellers want what “they” think the house is worth, oblivious to the fact that properties around them are now selling well below assessments.
    Direction of house prices is dictated by the most recent sales, and the direction from my vantage point is down, way down.

    • Yea, more homes in Richmond were sold in February – the ones that were priced 100k below the last years assessment + they accepted the offer lower by 100-150K of the asking price. We have a home in the area that was sold 150K cheaper then it was bought 6 month ago. New stats are starting to accumulate for the realtors to show to the perspective sellers – how do they have to price their homes and consider the offers if they want to sell. It sets the new normal to sell price and we will go further from there, including the next years assessment that is going to bring many recently bought property technically under water – are the banks going to go after the people that own them more than the house is assessed?

  8. “Soft landing”: the financial equivalent of being “slightly pregnant”.

  9. I understand these soft-landing forecasts in isolation, but the favourable economic and employment conditions they refer to depend on overbuilding. Housing’s share of the economy and growth has been at historic extremes for so long that I doubt anyone has a firm grip on how a reversion to the mean would play out. I think there is a lot of uncertainty here.

  10. Dimitri Tishchenko

    Sounds awfully familiar.

    “Optimists are betting on a so-called soft landing, characterized by flat or slightly declining prices. After analyzing soft landings in once-hot markets such as the United Kingdom and Australia, a report by ING Wholesale Banking said the U.S. housing market won’t crash.”

  11. When times are good, we’re all proud of our mutual success as plucky and conservative and hard-working Canuckleheads. The media will even go so far as to state that as a group, Canadians can weather any downturn.

    When times are bad, as they are about to be, empathy will evaporate and the scared masses (and MSM) go on a witch hunt. “Toronto condo buyers” and “Vancouver speculators” will become the new despised among us; the new scapegoats; just like NINJA/SubPrime borrowers and ABCP vendors were in the US.

    When the lower mainland becomes a financial killing field, we will see reporters and economists crucify Vancouver and Toronto for “distorting” the national stats downward.

    The newscasters will replace their former optimism with thinly-veiled blame: “Canadian homes lost an average of $30,000 in equity this year, but experts tell us that this is mostly due to Vancouver and Toronto’s precipitous declines.” The subtext being that Canada is doing okay, and Toronto and Vancouver (and Montreal and Calgary and Regina and Victoria, et. al,) are just not really Canadian.

    It’s horrifying to watch. Like an avoidable traffic accident that last for years, in which you know that most of the participants will not survive.

    • The blaming of Toronto and Vancouver will be a phase, likely along with mortgage brokers and non-bank lenders. Who knows, we may even see brief popularity of the word ‘contained’ as in the problem is contained to borrowers who gave 40 and 35 year mortgages, the GTA and GVRD, brokered mortgages….

      And then it’ll drag on and we’ll discover that some ‘prime’ 25 year borrowers in Fort St. John and such places weren’t quite solid…. &c. It’s so easy to predict because we’ve seen the exact script.

    • I think this is a brilliant comment, Burnabonian.

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