Thursday, December 21, 2006

stagnation



Here we are at the shortest, darkest day of the year. It's a sleepy time, and it seems as if the housing market, and the economy at-large, is sleeping. Is this the end of the bull cycle? The markets are giving up some of their gains, and we are seeing price reductions in the Vancouver RE market (although that is somewhat difficult to quantify at this point).

The Central Canadian economy is in a slump, while the western economy (particularly Alberta) remains fairly strong, though oil and gas exploration is going down, and oil production is down. There is talk of the BoC cutting interest rates (presumably to stimulate Central Canada), and that is something that I have been pondering, and will address in another post.
Economy stagnated in October; sluggish manufacturing offset energy growth

OTTAWA (CP) - Statistics Canada says economic growth was basically stagnant in October...
The agency says manufacturing and the service sector stood still, although energy and utilities showed good growth.

The energy sector grew by 0.9 per cent in October, led by production and distribution of natural gas, a rebound in electricity and a jump in refinery output.

Oil production and oil and gas exploration declined.

Manufacturing was down for the ninth time this year, ... as auto and steel makers cut production.

Of the 21 major manufacturing groups, 12 showed decreases.
link
The thing is, auto manufacturing and steel production are the biggest drivers of the Ontario economy, and oil is really only an issue in Alberta and NE British Columbia. As other economies head into possible recession, we will likely see less demand for oil, which will stifle the oil driven economies of Western Canada. Like any well-built house of cards, once it starts falling, it won't stop until it is completely collapsed.

And in the US;

Housing slump weighs on U.S. economic activity, no change expected.

The U.S. economy felt the strain of the housing bust and lost momentum in the late summer, with more sluggish performances expected in the months ahead.

...most analysts do not expect the troubled housing market will undermine the economy to the point it slides into a recession.
Would that be the housing bust that was not going to happen? Does the prognostication that the economy will not slide into recession carry the same weight of the one that the housing market would not crash? That the slumping US economy would not have any effect on the Canadian economy - because we are so well insulated?

The housing slump will bite into overall growth, but not too badly, some economists hope. Housing will continue to "contract during 2007 but at nowhere near the hemorrhage of the third quarter,"
Interesting choice of words - hemorrhage - where there was so much talk of there being no chance of any reversal of fortune. And hope springs eternal - for some...

The Fed predicts core inflation - while still too high for its tastes - will fall in the months ahead as economic growth remains subdued.

Against that backdrop,the central bank has felt comfortable holding interest rates
steady, which it has done since August.The Fed's goal is to slow the economy
enough to thwart inflation, but not so much as to cripple economic
activity.
link

But with manufacturing declining, the trade deficit with China, et al, it seems that the US economy has been just as much propped up by housing as the Vancouver economy. Retail sales are reportedly lack-lustre, which indicates less discretionary spending as people struggle to make their mortgage payments.

I think that we are really going to have to wait for spring/summer to see how this shakes itself out, but I strongly feel that the party is over, and all that we have to look forward to is the hang-over (for the exuberant), and some much more affordable RE for the patient.

25 comments:

Uncertain Buyer said...

When the US gets a sniffle Canada gets a cold.

solipsist said...

And colds often turn to pneumonia.

Uncertain Buyer said...

Economic growth slows on both sides of border By Michael L Levy

patiently waiting said...

If there is a recession, will there be high unemployment? There is a labour shortage right now and with babyboomers retiring, this may be a different kind of recession from the early 80s (which I vaguely remember).

patiently waiting said...

Recently, I've seen some longtime listings sell. I see that as a possible good sign as most of these had already come down a bit on the asking price. I suspect that the sellers became even more flexible and accepted lower-than-desired offers. Sadly, I don't have access to those numbers and don't want to deal with a real estate agent right now. For me, the important December stat will be the actual sales price, nothing else.

Why don't realistic potential buyers go on Craigslist and name their price? Give the sellers something to think about. This might help poison the market.

Paul said...

It's like doing the limbo. How low can she go!

Anonymous said...

Speculating on real estae is a fool,s game. It requires huge luck as its almost impossible to time, either on the upside or the downside. It seems safe to bet on the downside right now. But I wouldn't wait too long before jumping back in. Say 3 years tops.

Anonymous said...

Both the early 1980's and late 1990's RE bear markets took 4 years to bottom out. So what makes you think "it's different this time"?

If anything, I would expect a longer recovery, since the US is entering the biggest RE bust since the Great Depression. Also locally, I think the point of maximum pessimism will be reached after the Olympics once people realize all we have left is the bills.

Freako said...

"Interesting choice of words - hemorrhage - where there was so much talk of there being no chance of any reversal of fortune. And hope springs eternal - for some..."

Don't know exactly who said what, but I have noted a refusal of the industry apologist to refer to the present as bad. They can spin the present to be fine fine fine when the sky is falling. And then all of a sudden they will refer to the past as "hemorrhage" (or similar), in contrast to the rosy present and future. The present is never bad.

Reminds me of going to the Roxy nighclub back in the day. Felt too young compared to the crowd. Then all of a sudden I felt too old. I must have been sick the one weekend that was just right.

Freako said...

"If anything, I would expect a longer recovery, since the US is entering the biggest RE bust since the Great Depression."

There has never been a national housing bust since the Great Depression.

Anonymous said...

Uncertain Buyer said...
"When the US gets a sniffle Canada gets a cold."

You’re quick on your feet eh! Ever wonder why the Canadian dollar did the exact opposite of what the "experts" predicted?

If the Canadian government has any forethought at all, they will take this opportunity to start new trade relations. There is no need to burn our bridges. The government should continue trade with the States, but look to expand with non traditional markets.

Anonymous said...

patiently waiting said..."Give the sellers something to think about. This might help poison the market."

Wow, your xmas spirit really shines through! Why stop there?

Anonymous said...

Anonymous said..."If anything, I would expect a longer recovery, since the US is entering the biggest RE bust since the Great Depression. Also locally, I think the point of maximum pessimism will be reached after the Olympics once people realize all we have left is the bills. "

Yeah, what will we do with all the new infrastructure??? Then we have that pesky problem with the tourism dollars that will be pumped into the economy....

Since we would have had to come up with the money anyways, or just argue for years, and make due with the same old crap we've had for years. I'd say it's a bonus that citizens from around the World will essentially cover part of the infrastructure payments.

Anonymous said...

Then we have that pesky problem with the tourism dollars that will be pumped into the economy....

I'd say it's a bonus that citizens from around the World will essentially cover part of the infrastructure payments.


BWA HA HA HA HA HA!

Olympics->Huge increase in tourism->Huge increase in tax revenues->Free infrastructure->RE keeps going up!

I mean, do you know anything about how tapped out the US consumer is? Do you really think this global party can go on forever?

News flash: Montreal has just finished paying for the Olympic Stadium. 30 years later.

Anonymous said...

There has never been a national housing bust since the Great Depression.

Then this one has to be the biggest, right? :-)

Oh by the way if the forest industry got clobbered in the early 1980's without a national housing bust in the US, how do you think it will do with one?

rentah said...

patiently waiting: Recently, I've seen some longtime listings sell.

Were they definite 'sells'? I've seen a good number of longtime listings of SFH on the westside come off the market, likely unsold, probably awaiting the Spring.
Completely anecdotally, I see (and know of) a relatively large number of SFHs on the westside being prepared for sale in the Spring.
Many of us are expecting a very significant rush of inventory then, and it'll be fascinating to see what prices do through the Summer.
Front row seats!

rentah said...

anon said: Speculating on real estae is a fool,s game. It requires huge luck as its almost impossible to time, either on the upside or the downside. It seems safe to bet on the downside right now.


anon, you contradict yourself!
Most of us bears agree with you that the downside is a safe bet now.
You can't time it perfectly, but you can get it vaguely right, and that's what the bears are trying to do.
I hope to be buying within 3 years, but could wait longer if the market so indicated.

rentah said...

freako: Reminds me of going to the Roxy nighclub back in the day. Felt too young compared to the crowd. Then all of a sudden I felt too old. I must have been sick the one weekend that was just right.

LOL!
I had the same experience, perhaps it's a common one. From innocent to decadent old man without an intervening period of perfect storm. Fun nonetheless.

RentingSucks said...

Inside every old person is a young person going "What the hell happened?"

spark said...

I had seen in a report that 75% of pre-tax income was going to service housing in BC.

I figure next year it should be about 80%.
2008 85%
2009 90%
2010 95%
2011 100%

I figure by 2011 we can eat: the mountains, oceans and the homeless?

Cheers,

SP

Anonymous said...

I had seen in a report that 75% of pre-tax income was going to service housing in BC.

Well of course that's impossible.

What it really means is that for the median household to buy the median house now, it would require 75% of their income.

Which means that new buyers are shut out.

But don't worry, all the rich Chinese/Albertans/boomers will keep the market going.

patiently waiting said...

rentah,

I'm watching New Westminster. A quality SFH on a good street in a good area (like Queens Park) will still sell if priced sharply. Even then, its usually after a wait and price reductions. OTOH, the New West condo market is DEAD DEAD DEAD.

Uncertain Buyer said...

Exports accounted for 38 percent of Canada's $1 trillion economy last year, and 84 percent of the country's merchandise exports went to the U.S., the trade department said in June. Commodities comprise more than half of the exports

Uncertain Buyer said...

I just love this quoute:

"Kevin Clark, president of the Calgary Real Estate Board, said the trend cited in the report merely shows the city's housing market is catching up to its affluence.

"Calgary's marketplace was largely undervalued prior to 2006," said Clark.

"It looks like a falseness but the reality is, it's been a correction."


I just love how these guys can spin things, and make everyone feel affluent.

Freako said...

"
Oh by the way if the forest industry got clobbered in the early 1980's without a national housing bust in the US, how do you think it will do with one?"

How about very very poorly?