Wednesday, January 30, 2008

coming home to roost (or, the sky is falling)

Ew! Maybe that is not the sky falling.

The chickens are coming home to roost. No point in regurgitating the news. The sky is falling.

Here is the Glum and Moan on the continuing blood-letting down south.
As Fed meets, housing hits 'grim milestone'
Inventory of unsold new homes in the U.S. continues to rise

From Wednesday's Globe and Mail

WASHINGTON — — Ben Bernanke and his U.S. Federal Reserve Board colleagues face a stark The housing slump is still getting worse.

House price declines are accelerating, more homeowners are falling behind on their mortgage payments and foreclosures are going through the roof, according to fresh data from the front line of the U.S. economic slowdown.
Oh, oh. Aren'tcha glad that Vancouver has a safety bubble around it? The main page of the Report on Business is juicy, but I'm sure you've seen it

Just a few, strange thoughts that have been nagging me deep in my spooky parts;

Herr Harper is down in DC blowing Bush, er, I mean, telling him how it's going to be in Afghanistan, or, er, something like "can we borrow some nukes? cuz I wanna push the button". But anyhow, how about this for an external event to shake the market - Vancouver is on the map now! We are world class, and dammit, we are famous, and special, and the best place to eat sushi (or something like that). Jihadi says, "Hmm, ain't they gonna have the Olympics? We should pull something off there, that will get some attention. It is a port city, and the Mounted buffoons have so little money for security." (Exactly $175 million for Olympic security. The torch relay has a budget of $31 million...)

And did you hear about the haz-mat/bomb/major crime scene at UBC today? At the Biological Sciences building. Oh cool.


Barak Obama wins the presidency, but is assassinated before he can lay his head down in DC. They don't call it the Whitey House for nothing. Race riots ensue that make the 60's look like a tea party. Refugees flood across our border, and Homeland Insecurity follows them - a defacto invasion. They set up bases here, and all land is seized under the Hullabaloo Act.

OK, so I'm rambling, but you read it here first!

A couple of random quotes for the day;
It is a great thing to know that all one needs is an open
mind and a logical way of thinking to view events with a
proper prism. You do not need to be an "authority".

For instance. If you hear absurdities, you need to call
them absurdities. (JA)
We deny because our arrogance blinds us to the lessons of history.
We deny because we choose to believe that we are too wise to be so foolish. (Randall Fitzgerald)

Saturday, January 26, 2008

pinch me

Oh me, oh my. I did a Realty Link search tonight, just to see what is up. Lotsa listings for East Van., but the range of properties in the same price range is surreal.


$725,000 on a 36x108 lot,


$725,000 on a 33x110 lot.

Personally, I would rather have the first house. It is older, and most probably better built (if you can get around lead paint and lead solder in the plumbing, and the fact that it is on a very busy street - 41st Avenue.)

But the second one looks so...Mediterranean, what with the palm trees, and warm sunlight, and the coral stucco. (still, the realtors take pictures like drunken sailors on leave)

But really, what kind of choice is it at almost 3/4 of a million flipping dollars? Either one of these places will require (at 5% down):

TOTAL Monthly Payment $ 5,495
Household Income Required $ 206,064

If you go up to a 25% down payment, you would only need an income of $160, Rast Vancouver... (I decided to leave that Rast Van. typo in. Somebody must be smoking a lot of weed!)

It really is not even surreal anymore, it's more like a really bad f***ing dream. So many of us expecting to see the dam break, but there is no apparent sign of that.

There are desperate attempts to avoid recession afoot, but will they work? I do not think so. I think that it will just ensnare a few more suckers, and make the fall even harder.

I have made several references to Garth Turner lately, and it has nothing to do with politics. Turner reminds me of a badger, or another member of the Family Mustelidae. He has been writing of economics for many years, and is very concerned about the RE bubble. He is promising to write more on that in the coming days. It is worth reading to see what a Member of Parliament has to say specifically on the topic.

One more thing:

This place that I have been watching for a while now, has been on the market for a solid 7 months. The price has been at $799k for about 4 months. They change the picture every once in a while to keep it fresh.

I believe that price is their break-even point. Trouble is, the carrying costs must be really biting hard. I reckon at least $20k has been paid to those costs already - net of property taxes.

Wednesday, January 23, 2008

staying the course?

I stayed the course. I didn't sell anything on the markets this week, even though I have been tempted to do so for the last year. There was a free-fall this week, and then some wacky correction type action today. Volatility is not good. No one really knows what's up.

BCE has a sale agreement with the Ontario Teachers' Pension Plan for $42 something a share, yet BCE is selling for about $32 right now. OTPP says the agreement stands, and it is staying the course. The Big Banks are offering discounts on new shares releases too.

The US gov't is staying the course with crazy attempts to stave off the inevitable recession until that little redneck GWB is done in the WH. I guess he is trying to protect his legacy of fucking up anything that he touches.

What about you? What course do you see ahead for yourself, and for the larger world?

Monday, January 21, 2008

how low can she go?

I've been up to my arse in alligators, hence the lack of pies.

I stole the image below from Garth Turner's blog posting Pop Heard Around The World. (don't think that he didn't lift it from somewhere) Politically, he's...well anyway, he is telling it like it is vis-a-vis the economy, and some of the comments are good too. It's kind of like wading through comments at Rob Chipman's , but there is stuff worth reading.

Look at that down slope. Pretty steep. And the timeline - aren't we "two years behind the US"?

This is it. The Wile E. Coyote moment has passed. How about that 600 point drop on the TSX today? And the 900 points off last week? That is some 12% down in seven days. My stock list is a sea of red - except for the ones that have Halts on them :[

Oil down below $90. the CAD below .97. Quebecor up shite creek in a lead colander.

Some are talking about TSX below 12,000, try below 10,000. The rout is global. Look for 8700. Then buy. Rinse. Repeat.

Oh, and house prices? How low can she go?

I know that we are immune to everything, elsewhere, but I am in Vancouver, and I'm watching my stocks go down. And I thought that I was different. It's so great to be living down a rabbit hole in The Land of Oz.

Here is some light reading at the Gloom and MarketCrash

And just to round things off -

Wednesday, January 16, 2008

i'm not the only one...

I could not resist, and took drachen's suggestion for the pic'. The original was intentionally boring, but maybe just a bit too much so.

I read a couple of things worth reading over at Garth Turner's blog, which I have redacted below. (some of the commentary is good too - if you can get past the masturbation)

Whatever one might think of Turner the politician, he does know a fair bit about finances.
In any case, don’t let the media fool you. Stock market stories are not about stocks. They’re about the economy. Markets, you see, are harbingers. People who trade on them spend a lot of time betting heavily on what comes next. Right now, they’re worried.

The world economy, dragged down by the States, is slowing. America has never been so in debt, or so long at war, or with such a weak currency. And on a day when realtors in Canada were trumpeting the greatest sales volume ever for residential homes...far too many buyers here could be in as much trouble as a couple of million of Americans who losing their houses. We...categorize the subprime mess as giving loans to people who did not deserve them. But...we are busy selling $400,000 homes to young couples with between 1.5%... and 5% down, and with 40-year mortgages that turn a $300,000 debt into one of $884,000 at current rates.

This is unwise. It’s gambling. Canadian banks have been handing out mortgage loans like candy... offering a zero-down option, asking them to come in with enough money only for closing costs.

No wonder Bay Street’s worried. Nobody in the world of financial securities would extend 98.5% leverage, and yet we are soothing your homebuyers into precisely that. Should the US slowdown affect our economy, which it will, buying an expensive house with no money might not look like such a great idea.
This was worth quoting too;
Like the North Star, we are a bright light for others to follow. Canada has emerged as a shining example in an economic universe of rapid change and uncertainty. We are leading the way with our tax cuts, our debt reduction and our focused and responsible spending. Our fundamentals are strong and we are well positioned to weather any sudden economic storms.
- Jim Flaherty, budget speech, October 30, 2007

“There’s reason for continuing concern about the weakening in the U.S. economy. The subprime reality … continues,” he said. “It’s broader and deeper than originally predicted and it’s reason for caution as we look forward.”
- Jim Flaherty, interviewed in National Post, January 2, 2008

In the sixty-odd days between those two comments, what happened?
The "experts don't know WTF is going on. You and I know better than the Federal Finance Minister. That's what freaks me out...

Monday, January 14, 2008

the quickening

There is a lot going on these days, despite the "roaring silence" that has been for a while. drachen linked to this video over at mohican's place. The collapse of the US dollar and economy, and perhaps US society? They are going down, and we, and a good part of the world will be going down with them.

Mike Mc sent this link from July 28, 2005 warning of a bubble in Vancouver and Victoria (thanks Mike). That was 2 1/2 years ago, and things have continued to inflate since then. It is now so out of whack that it has become like a lost chapter in Through the Looking Glass.

Today we hear that the Provincial Guv'mint is talking about a roughly 14 billion $ transit initiative. Just tack it on to our property taxes on top of the infrastructure costs for the boondoggle. I mean, Olympics.

Meanwhile, Surrey NDP MLA's are calling for Translink to roll back the latest transit fare hike.
"You can't have someone who makes $8 an hour have an increase in a fare and end up paying something like 18 per cent of their income on transportation. It's just not fair."
Too true. After coughing up 71% of income for mortgage payments, and 18% for transit, there will be a scant 11% left for food, entertainment, clothing, retirement savings, property taxes, up-keep, etc. Does anyone know if those percentages are net of tax?
Stephen Harper announced a billion dollar fund to help displaced workers in the manufacturing and forestry industries.

The rising Canadian dollar and an economic slowdown with Canada’s biggest trading partner, the U.S., has forced many mills and factories to either let workers go or shut down completely. In response, the Harper government has announced a plan that is not only ludicrous in its approach but politically underhanded as well.
I guess Stevie is worried. But a billion bucks is not going to cut it once things really get going.

The sell/list ratio over at Rob Chipman's place has gone from 200-odd % before Xmas to 30-odd %, and we are not seeing regular #'s there these days. (some might say that the Chipper is withholding because the #'s are grim. I don't buy that, but if the #'s are grim, who will be surprised - besides the greater fools?) Seasonal, or harbinger?

I had a whole bunch more interesting links, but I will not travail you with them now. The shite is hitting the fan in dribs and drabs, but it is quickening.

Friday, January 11, 2008

slo' mo'

I was going to post otherwise, but serendipity led me to this video.

I think that it is demonstrative of what has been going on here in the Vancouver RE market. First, the predator (VANOC?), then the scared silly goose (panic buyers?), and finally, the balloon popping in slow motion.The balloon popping is exquisite, and has an unexpected action.

I like how the guy takes a bath at the end.

Tuesday, January 08, 2008

the bubble book

I bring you some levity in this time of alarm bells ringing from the south. Maybe I am just hearing spooky, dis-embodied voices in my head, but I don't think so.

Back to the levity - li'l solipsist has a book for the bath called Bubble Book, and I was inspired to take a little artistic licence with it. I re-wrote parts of it, and of course, had fun with Photoshop. Enjoy.

Young James has noticed that there are several housing bubbles outside. He begins to worry. Young James has bought beyond his means, and is beginning to understand.

Little Lucy snickers as she realizes that Young James has not noticed her Rennie The Raptor poster. Well, duh! she says.

Learnin' Lenny is doing his sums. He differentiates between mortgage payments and rent payments while Young James the Reformed explains the idea of compound interest. "Much better to earn interest than pay it" he admonishes. Learnin' Lennie wonders if Young James the Reformed has heard of market cycles. He also realizes that his $1000 bills stuffed into a soup can up on the shelf are earning no interest.

Young James the Reformed invites Scared Silly Sally out for a walk while he posts his mortgage payments. She is very worried about being priced out. Young James the Reformed begins to hatch a scheme in which he sells his place to Scared Silly Sally for "2008 prices". Scared Silly Sally has never heard of compound interest, but she thinks that maybe she is not priced out forever - what with the new zero-down, 50 year amortized mortgages (I'll be paid off by the time I'm 60, she ponders excitedly).

Stay tuned for the next exciting instalment - It's Just Bubbles Down the Drain.

Monday, January 07, 2008

canned goods & ammo

I have had a few people write to ask me what I do with my cash while waiting for a correction. Frankly, I do not know what the heck to do with it. Stuff it in my mattress? Hide it in plain sight? Good question.

My response has been that I am very conservative with my capital, and because it is so hard to come by, I keep it in the bank - either in GIC's, or these days, in a "high" interest (4%) savings account at a big bank. I have had the option of putting it into market-linked GIC's, but stayed with the staid old cashable GIC.

So, I am making 4%, but factor in inflation (supposedly ~3%, and income tax on the earned interest, and I am not really getting any further ahead. I could gamble with ABCP, oil futures, pork belly futures, precious metals, the stock market, or the casino, but those are not guaranteed safe havens. I sure could have made money in TSX-linked GIC's, or gold, but I also could have lost money. I could have bought a few pre-sales and made money too (if I bought 3 years ago, and sold this past summer, I would have done well), but I also could have lost it all (I have been expecting a correction for a while...).

What are your safe havens? My 4% earned does not add up to a hill of beans.

Friday, January 04, 2008

taxes & interest

In the last post, Larry questioned whether our savings from renting over owning were net of tax. I found it an interesting question, as I've never really thought about it, so I did.

Firstly, the principle of savings is tax free - the money itself is not taxed, but the interest is. The tax on the interest would be relatively little. Putting aside appreciation in my example, we still saved more than we would have paid on the principle of the mortgage. Then there is the thirty odd thousand that we would have paid in interest. We make about $500/month in interest on our capital, so in the last 3 years we have made about $18,000 on that, less maybe $5K in tax (to be honest, I have never paid any attention to what percentage I pay in taxes, but it doesn't seem any where near 25% of gross. I don't really mind paying taxes, as long as they are spent wisely. They seldom are, but I don't have to pay thousands of dollars a day to stay in the hospital, and Canadian universities don't charge 30-40 thousand a year for tuition, etc.). Add that $13K to the $24K in rent/own savings and we are up at least $37K.

OK, I have to address the appreciation. I thought at the time (2003-2004) that prices were due for a haircut (as did many of you). I was wrong. But what if prices had retreated by 10%? There would be no appreciation, and that $400K house would be worth $360K - maybe less because of it's problems. The $18K in principle pay down would mitigate things a bit(?), but... There would also have been about 6K in property taxes over that time, plus PTT, agents' commissions, etc.

Then I thought, wouldn't that $30K in interest paid be a kind of taxation in the truest sense of the word?

Oh well, I have always recognized that you have to spend money to make money, unless of course, you are a money lender. Then you get your money for nothing, and your chicks for free.

I take some solace in the idea of a 50% correction, which would put that house back to about $350K. Our down-payment will be bigger, and our mortgage will be smaller.

Thursday, January 03, 2008

what if?

Back in 2004, my wife and I felt that we had enough of a down payment (better than 35%) to buy into what we thought was an outrageously over-priced market. Problem was, we saw very little that caught our fancy, and what we did look seriously at were all involved with bidding wars. I thought to put an unconditional, full asking offer on a character house that had obvious issues, but my agent suggested not to bother. It went for $150K over.

So what if we had been reckless, and got the place? It needed foundation work, modernized plumbing and wiring, a new heating system and a new roof, not to mention windows and what not. I could have done a lot of the heavy-lifting, but it still would have cost at least $50G's that we did not have. Second mortgage? The first mortgage, including property taxes. would have been $500/month over what we were/are paying in rent. We would have had some tough months even without a 2nd mtge. Doing the work mostly myself would have been a few years' project in itself. Looking back, I'm glad that we didn't, because we would have been buying at our margin, and at the time, I thought that a turn-around was probably imminent. Appreciation was far from my mind.

I guess I was wrong about the appreciation, the place is probably worth $700K now. Maybe more. We missed out on a couple of hundred G's. That sucks. At the same time, we had a kid, and our income has dropped a bit, so we might be a bit uncomfortable now.

There are certainly intangibles to owning, and I wondered what those might practically be. Starting with interest rates: we were approved at 4.2%/5 years. If we had taken a 3 year term and had to renew at today's 5.79% or there abouts, we would be priced out and would have to sell. Mind you, we would walk away with a nice chunk of change, and go travelling for the time it takes for fundamentals to return. I would have gone for 7 years at a slightly higher rate though, and would be sorely tempted to cash out. Ooops. I forgot about li'l solipsist. I guess we would be locked in... But, as of December 07 we would have paid down $18,174.81 in principle, and $30,102.78 in interest. Instead, we have saved over $24K in the difference between rent and own, and we have been making interest instead of paying it, and I always feel better about that. And then there are those pesky repairs and maintenance, and increasing property taxes. But oh, yeah, the paper equity.

Bottom line is, I don't really have any regrets. It was over-priced.