blake, i'm not

Yesterday's post was a bit feeble, but what I meant to express, was that things are unhinged in all sectors. There are massive amounts of money-cum-credit floating around, and it is hard to tell the difference. I think that it tends more to be credit, and that is what I was getting at about "selling ourselves". I heard (or read) some time ago that credit is now the most dominant market and would continue to expand. As long as central banks keep propping up the sickness that pervades, that is easy to understand. Mutual funds, hedge funds etc. have been knee deep in extending credit, and trillions of dollars in bad loans got wiped out of peoples' portfolios. Who are the winners?

On another note, I wandered into charles hugh smith's - Two Irresistible Reasons Housing Will Retrace to 1997 Prices and ripped off what is below. I don't know just how he arrived at his conclusions, but the Japan graph is striking.

The one thing that is not often taken into account is world population. In 1950 there were about 2.5 billion people on earth, now we are heading for 7 billion. While billions of those are living in abject poverty, many are enjoying previously unknown prosperity. So, is it possible that historical ratios just don't apply any more? Is it really different this time? (Wikipedia suggests that in 1999 North America had 5.1% of the world population, and that will fall to 4.4% by 2050 - when the world population is projected to be 8.9B)

Nah. I don't think so. I don't reasonably expect 1997 prices before I buy (2017?), I want to watch trees grow, and I am not that cheap. I'll settle for 2003 prices.

Here's an excerpt of what chs has to say. Read the whole article at the link above. It's interesting.

Speculative bubbles in the stock market tend to shoot up and then plummet in relatively short time spans. Here we see that the dot-com era bubble in NASDAQ took a mere 3 years to reach euphoric heights in which risk was banished, and a roughly similar length of time to give up all the bubble's gains, and then some.

Real estate trends stretch out over much longer time spans, and as a result we can foresee a lengthy, painfully drawn-out decline in housing values over the coming decade.

Just as stocks break free of fundamental metrics of value in speculative manias, so too do houses. But just as stocks retrace to historical levels of price-earnings ratios, so too will housing retrace to historical levels of income-to-value ratios. Historically, this is about 3-to-1: long-term, houses cost about 3 times household income. Since the median household income in the U.S. is about $46,000, U.S. incomes would support house values of about $125,000 - $140,000.

As I have noted before, my parents/step-parents each bought houses in highly desirable locales in the early 70s (Honolulu and Pasadena) at 2:1 (twice annual income) and 4:1 (four times a schoolteacher's annual income to buy in highly desirable Manoa Valley in Honolulu.)

As recently as 1997, friends were purchasing small homes in very desirable S.F. Bay Area communities for $160,000 - $175,000--four times a modest (for this area) household income of $40,000.

In other words, to return to a normal trend line, one that was in place a mere decade ago, even the most desirable areas will command no more than 4 times median income. That would put house prices in Honolulu, the S.F. Bay Area, West L.A., Connecticut, Northern Virgina, etc. at about $180,000 - $200,000 -- not $600,000.

Thanks to cheap realty for the link to chs.

betting on winners

I think that sometimes we are all subject to tunnel vision, or worse, seeing only what we want to see. Here, and others' places, we focus on RE, and sometimes into the stock and money markets. But there is so much more in the big picture. I have believed for a while that there is a massive reallocation of cash going on, and have only little questions about who we are selling ourselves to. That's what a 40 year mortgage amounts to. I digress.

I scanned the images below from canadian art magazine. The first image is from Heffel Auction in Vancouver, and outlines recent sales of Canadian art. The results are as mind-boggling as the meteoric rise of real estate prices. A Lawren Harris that was estimated to sell for between $200-250K sold for $1.667M. Other paintings throughout the mag. sold for similarly astronomical prices. On the overleaf appears an advertisement for leveraging one's art collection for "Term Loans and Acquisition Financing", "Bridge Loans" and "Lines of Credit". It admonishes to "USE YOUR VALUABLE ART TO MEET YOUR FINANCIAL GOALS". Just like a HELOC.

It's all gambling and greed - plain and simple. I'm old enough to remember when the Irish Sweepstakes, Los Vegas, Reno, etc., were the only real gambling chances for the average Joe. Then came the Olympic Lottery in 1976, and suddenly we all had a chance to spend ten bucks to win a million. It went on from there. A bunch of fairy dust was sprinkled, and everyone wanted their money for nothing, and their chicks for free.

The smart ones got very rich (Buffet, ET AL), while the rest of the poor slumps are about to get very poor. This decadence is a pestilence, and a cleansing is in order.

Rant complete.

bad blogger

Oooh. I'm a bad blogger. I'm chest-deep in chihuahuas these days. Child, churlishness, chicanery, choices, chumps, chicks, and chutneys. In other words - it's summer, and I've been really busy. Did I mention the chihuahuas?

On top of all of that, WTF is going on? The RE market is nothing short of surreal. I pass "For Sale" signs daily that have been there for months. Some are sporting "Price Reduced", but it looks like the summer doldrums, and buyers' fatigue. Chipman's numbers are all over the map. The stock markets are again accelerating, my contrarian holdings are holding, energy stocks are up and down, I see moving trucks and construction cranes all over the place, business is picking up...

I have little time to read, but I see new characters "on the blogs", and the "old" ones fading away. Even "bulls" are quiet. Is it just the summer doldrums? Then why is the market still so active? We are seeing near-record sales. What's with that? I just can't get a real pulse of the market. Is this a "calm before the storm"? Is the storm a cyclone of dropping RE values?, or a storm of new buying?

I haven't got a clue. Do You?

things I read

One of my favourite reads is The Republic of East Vancouver. I pulled a couple of excerpts from it that are vaguely pertinent. Emphasis is mine.

The first is in regards to speculator-held CONdo's in the downtown (Coal Harbour) and the homeless. I don't draw the same lines between them, but it is interesting thought anyhow - especially the reported vacancy rate.

Appearances aren’t always deceiving

A source informs The Republic that the occupancy rate in all those new condo towers blocking the view along Coal Harbour is around 18%. Those who bought them are the offshore class who own similar prestige homes around the world to which they pay occasional visits as their elite whims dictate. They don’t bother with the dirty commerce of renting out their homes when they’re not using them.

Add up all the vacant homes in that one sector of the city alone. The number comes coincidentally close to the estimated number of true-to-life Vancouver citizens who are forced to live on the street due to lack of rentable homes.

It’s not a question of supply, it’s a question of distribution. Of course no one would suggest for a minute that the homeless be housed in the vacated condos of Coal Harbour. That would be an affront to entrenched and untouchable concepts of property rights. But we would have a quandary explaining ourselves to future anthropologists, who are going to find the strangely discordant phenomena of many unused living spaces alongside evidence of many people not living in spaces at all. link

Regarding phenomena (in the same edition) - This is actually an essay about GW Bush, but the ideas can be applied further to the recent RE phenomenon that has swept the globe, and the nay-sayers that have been warning of the situation, and those that blithely repeat the mantra that "real estate only increases in value", "this time it's different", etc.

I guess I just like to make connections in my purview from out here on Pluto.

In his metaphysics, Kant made a distinction between two types of reality that he referred to as “phenomena” and “noumena” in the plural, and “phenomenon” and “noumenon” in the singular. A “phenomenon” is an object as it’s perceived by our senses and our thoughts, but our senses and thoughts are very limited. For example, unlike bats, humans don’t navigate with sonar, and unlike sharks we can’t perceive electrical fields. Similarly, people with average intellects are often blind to things that are obvious to the intellectually gifted. We can use education and technology to overcome some of our perceptual limitations, but even the greatest minds using the finest technology can only perceive the tiniest fraction of the world’s unfathomable complexity. Kant used the term “noumena” to refer to the realm beyond the reach of perception and cognition. If the word “phenomena” refers to things as they appear, then “noumena” refers to things as they are.

Now I wouldn't say that those who perceive this market as beyond reason are necessarily "intellectually gifted", but we can say that on average, the preponderance of the populace is blind to the obvious.

We don’t know much

Because noumena are beyond our perceptual and intellectual grasp, whatever value judgements we make about things are necessarily judgements about phenomena. Since phenomena convey only the most simplified, superficial, and often contradictory information about reality, our judgements are always lacking: it’s impossible to understand the ocean by tasting a teaspoon of seawater. The rational response to this predicament is to withhold value judgements whenever possible, and when judgements have to be made, to recognize that they’re provisional, partial, and very possibly wrong. The realization that phenomena are only the shadows of noumena, that whatever we perceive is only a mask concealing an endless mystery, nurtures the development of an attitude of intellectual humility and reverence. link

The Republic is an erudite read. Sometimes one needs to read around the politics, but it is always thought-provoking.

the grab bag # 8

It's better to be a dog in a peaceful time than be a man in a chaotic period.

These are interesting times to be sure. Everyone breathe. I feel that morbid fascination that one feels as they pass a funeral procession, or approach a train wreck. You know something is up when you see flashing lights ahead. The lights have been flashing for quite a while now, and the visceral thrill of regarding the carnage is building.

The markets are still crashing - despite the massive cash infusions of the central banks. Markets post big losses as credit concerns persist.

Bad paper is knee deep, and investors are sitting things out (aside from cashing out).

Shares of Toronto-based finance company Coventree Inc. plunged 72 per cent Tuesday as it warned it may face lawsuits — one day after the Canadian financial company said it couldn't find buyers for $250 million of its asset-backed commercial paper.

That's asset backed paper, and nobody is biting.

Financial market turmoil could lead to lower interest rates, economists say.

I think this mess is going to be with us for a while, and I think that RE prices will become less dependent on interest rates, but will subside due to fatigue and uncertainty. Unemployment is low in the west (Alberta 3.3%, BC 4.1%) and gets higher as you head east. Ontario is at 6.5%, and by the time you hit NFLD, it's 13.6%. The east could use lower rates. We don't want them here. And, someday they will return to historic norms (7-8%). Maybe they haven't sucked everyone in yet.

Chaotic times indeed.

The lights are still flashing.

Update - Thursday, August 16

TSX wipes out 2007 gains

Globe and Mail Update

August 16, 2007 at 1:25 PM EDT

Canada's benchmark stock market
plunged more than 575 points Thursday, as the mounting uncertainty in credit
markets knocked it further into official correction territory.

The fat lady has not begun singing yet...

a crawl space of your own

We have been looking at rents on Craigslist, and talking about the disconnect. Rent vs Own calculators, vacancy rates, etc. Just be thankful you aren't in Whistler - where a crawl space rents for $650 a month. That's right - a crawl space!

(CBC) - A severe shortage of rental accommodations has forced some residents in the resort town of Whistler, B.C., to get down on their knees to find a home - literally.

Residents like Warren William have been living in crawl spaces under condo units, happy to have any place to call home. "You gotta duck in to get in," says Williams, "I have a four-foot-tall door."

Even such tiny quarters aren't cheap.

At $650 a month, including utilities, the crawl space where Williams lives is inside the Nordic Vistas townhouse development, and he considers the price a steal.

Cramped and crowded rental housing is common in the resort community, where real estate prices are among the highest in Canada. Every winter, thousands of young people in low-paying resort jobs struggle to find homes.

In 2002, a single home was shut down after it was found to contain nearly 80 beds, with 24 in the attic.

What's next? Cardboard box CONdo's at the Whistler dump?

I thought that Canada was a "First World" nation.

There is something hideously wrong here.

note - I lifted the pic above from another site and photoshopped it. No credit because I don't remember where, and it was most likely lifted from elsewhere anyway. If you sort of recognize the pic, thanks!

the jitters

Oh you blogging bears. You've done it! Given the markets the jitters! Who would have thought that a bunch of nut bars' comments would have been heeded? Finally...

It's no news that things are going sideways, I just haven't posted on it because everyone else has already covered it. I've just been listening in fascination, and wondering if I am OK with the portent of developments. I think I am.

This is supposedly all about sub-prime exposure, but I think that it is much bigger than that. There has been talk of boycotting the Beijing Olympics because of human rights issues, Tibet, etc. vis-a-vis the Chinese. Guess what? They do not give a crap. They are holding $1.33 Trillion US Dollars, and are making rumblings noises about dumping them. What better way to save face than by ruining your adversary?

Choice quotes from just another article:

A CHINESE Government researcher has issued a veiled threat to US policymakers not to get too tough in insisting the Chinese yuan should appreciate.

The researcher, He Fan, told the state-run China Daily that China had accumulated "a large sum of US dollars" and that its holdings contributed "a great deal to maintaining the position of the US dollar as an international currency".

If the yuan's exchange rate against the dollar did not remain stable, said Mr He,..., China could be forced to take strong action.

I wonder if such veiled threats add to the jitters.

If China was to dump its US currency, it would hurt its own pocketbook because it is such a large investor. "There would be turmoil in the financial markets," said Menzie D Chinn, professor of economics at the University of Wisconsin. "It's not really a credible threat."

Look - China does not have to dump it's green backs to cause turmoil - it is already starting. This noise just makes the markets shakier, as people realize just how tenuous this whole house of cards is.

"And then another point I've made for some time is … what the Chinese hold in treasuries is less than one day's trading volume in treasuries. We have a broad, liquid market."

Phew! That is reassuring. Almost as assuring as the mountains, the 2010 Olympics, Blab Rimmer, and Scam me Somemore.

I am drawing a quavering line between a possible boycott of Beijing, China's US $ holdings, the present shakiness of the stock markets, and Vancouver RE, but that link is there. Vancouver RE is meaningless in overview.

The BIG PICTURE is very...big.

deal of the week

In desperation (of new material), and anticipation of what is to come, I am starting a new series - Deal of the Week.

# 106 1429 E 4TH AV,
Grandview, Vancouver East,
$260,000.00

I don't know that this place is such a smoking deal, but hey! a quarter of a million will actually buy one somewhere to lay one's head in Vancouver.

The building is 25 years old, and the blurb claims The exterior of this well managed building was redone in 2001 and planned re-piping has been paid for by the sellers. That's encouraging. Isn't it? I just wonder how the exterior was redone. 100 gallons of epoxy paint? New vinyl siding? Proper rain-screen protection? A new wisteria and some gladiolus in the garden.

Nice to know that the piping is planned for provision - and paid for. Too bad you will move into a six month construction project that will see your walls and ceilings torn apart. Maybe the odd asbestos particle floating about too. (Actually, asbestos was not still used in 1982, but it makes it a more scintillating essay...)

The place is a "garden suite" (read dark and gloomy), and boasts 625 massive square feet, with a 110 sq. ft. patio. Fuggetabout The "W", you can live Off-The-Drive for only $416 per square foot! (plus interest, and $196.94/month maintenance).

For those off you who are calculation challenged (or didn't see the handy mortgage calculation button), and have a $26 G down payment burning a hole in your pocket, the Bottom Line is;


% Down Payment 10 %
Mortgage TERM : 5 Yr
Down Payment $ 26,000
First Mortgage Amount $ 234,000
Insurance Fee ( 2 % of mortgage ) $ 4,680
Total Mortgage Amount $ 238,680
Monthly Mortgage Payment $ 1,561
Monthly Property Taxes $ 61
Monthly Condo Fees $ 197
Monthly Heating Costs $ 0
TOTAL Monthly Payment $ 1,819
Household Income Required $ 64,530

Now we're talking fundamentals! The median family can almost afford this place!

Stay tuned, I have a feeling that this might become an ongoing feature here. Don't laugh. I had a dream last night.

Disclaimer - David Campbell seems to me to be a decent realtor. I have worked with his close associate - Sean Holden - and was impressed with his integrity. This is not a paid plug.

breaking the silence

Helloooo.

I regret my week of incommunicado status, and thanks to all for continuing to visit, and to comment.

I have been having a bit of a health crisis as of late, which has precluded activity here and elsewhere. My wife always tells me to tell people how I am feeling, so I am breaking my silence.

I feel like yesterday's fish left out in the sun, and my brain is oozing out through my eye sockets. OK - not really, but, I have been quite under the weather. I will resume my incoherent rants as soon as I am able.

In the meantime, here is your chance to break your silence. Rant about whatever you would like. I would be especially glad to hear tales of those who have bit off more than they can chew, and are sweating cod fish, or whatever. Those are high hopes, but...

Feed me some schadenfreude, and make us all feel better.

I'll be back soon.