Royal Bank and Bank of Montreal cut interest rates yesterday.  RBC cut their four year by .75%, likely because they don’t want to compete in the 5 year market where everyone else is, smart move I have to say.  BMO dropped their 5 year rate by 1.05%. (link)Why?  Mostly because of the Government through CMHC providing additional liquidity to the market by purchasing insured mortgages, this allows the banks to lower their spreads (profit if you will) because they do not have to price in as much liquidity risk.  This is a small indication that government interventions are working.  As rates continue to drop both fixed and variable will bring many more buyers into the market, due to a significant increase in affordability, for people who were forced out of the market during the boom.Ready, set, GO! 

For those people who are not concerned about there job or the prospects, and economic slowdown can be good news as you get to save some money.  I filled my car up yesterday at Safeway for .79 cents a litre, I seriously can’t remember when prices were that low.  My mortgage is a variable rate mortgage and is therefore tied to the prime rate, I was also lucky enough to have arranged this mortgage when variable mortgages had discounts of up to .90% off prime.  Therefore my mortgage rate has dropped 2.25% since December 2007.  The market is pricing in  a rate cut of for certain .50% on December 9, 2008, and there is a 36% chance that it will drop by .75%.  The market is also pricing in that the Bank of Canada will further drop the prime rate by .50% to .75% in 2009.  That will mean by this time next year we could have a Prime rate of 2.5% so for those of us who have .9% discounts off prime will see out mortgage rate at 1.6%!!!!! Are you kidding me?What effect would that have?  Well lets look at an average mortgage in Calgary of $330,000 at prime minus .90% your payment a year ago was $1,997.04 for 25 years.  Today that same mortgage would be $1,582.12 a 21% drop in payments in one year.  Now, what would that same mortgage payment be a year from now if we see the drops we are projecting and a stunning rate of 1.6%; how about $1,335.36.  This would be a 16% drop next year on top of the 21% drop this year, some people who negotiated smart mortgages a year ago could see a 36% drop in mortgage payment by this time next year…niceTell me those people won’t spend money?  Retailers will be dropping prices all year next year to entice buyers, soooo those of us not worried about our jobs, take advantage of the deals and the extra spending cash you will have. 

A story from Sunday in the Vancouver province, besides having some errors is maybe focussing on the wrong point.  Is it really about when the bottom is?  Quite frankly know one knows when the actual bottom will be, and furthermore even when we are at the bottom people will miss opportunity because as the markets rise, people will think “it is only temporary so it will drop” and this will delay most people to jump back in.I think it is more about whether you are looking for short term “get rich quick” stocks or are you a long term investor?  If you are long term investor then already today there are some great buys.  Many companies are trading at below the amount of cash they have in the bank.  I could certainly go on, let’s switch to the housing market.If you wish to buy a new home, then now is a great time because you have choice and you have unprecedented discounting going on, when those existing inventory homes, or those lots currently in a builders inventory are gone or substantially lower then the rices will rise.  New home are now being sold well under the market.As for the errors in the story, the writer states that stocks have not been this low since the 80’s.  He may be singling out certain stocks, not sure, he was not clear but if you are talking about the overall market the prices are down to 2003 levels.  Sadly this downturn has erased over four years of value but smart money will see these returns come back with a vengeance when we come out the other side.  

Just on the heels of my other post we find another story where the reporter makes sweeping predictions based on a very narrow focus.He uses a $4 million dollar home that is not selling and having to drop prices by close to 10% as an example of our ailing housing market in Canada and further goes on to predict that maybe we are following the US into a measured slow down.  Did it ever occur to this genius that maybe the home was over priced in the first place?  Or that a $4 million home likely does not well represent the overall Canadian real estate market as a whole.  Did he ever bother to look at the facts when he reports that a small area of West Vancouver and its woes of recent price declines again does not really reflect the overall Canadian market in either size or scope, or the make up of the typical Canadian real estate participant?So, once again, know the facts.  The current media reports of large price drops in Canadian Real Estate is as a result of micr areas like West Vancouver that in the short term can skew the numbers.  Also know the facts, our mortgage market and our real estate market are no where near the same fundamental challenges facing our neighbours to the south.Don’t fall into these stories written by uninformed sensationalists who are just trying to get their name in lights.  

There has been more and more experts this past week or so to all agree that the recent media reports regarding the housing market have been overstated (link)“We argue against taking an overly alarmist view to domestic housing prospects,” said Adrienne Warren, economist and real estate market specialist at Scotiabank. “This is not a U. S.-style bust caused by over building, speculative buying and imprudent lending, but rather a cyclic slowdown accompanied by a valuation adjustment in several large centres where booming demand conditions and temporary supply constraints led to an overshooting in prices.” In a separate analysis, TD Bank calculated that home prices last month were down only 4.6 per cent from a year earlier, less than half the 10.9 per cent reported by the Canadian Real Estate Association.“As suspected, the difference arises predominantly because of large double-digit drops in sales in some of Canada’s most expensive markets in British Columbia, which our index controls for,” TD said, noting that sales in thatprovinceweredown50per cent from a year earlier. “Since average prices in British Columbia are the highest in the nation, the drop in sales tends to overstate the extent of price declines.”Putting EVERYTHING into perspective, even for people in western Canada is that even if there is a drastic 15% drop in prices since the 2007 peak, this will leave much of the appreciation in the market over the last 10 years in tact.As we have said numerous times in the recent future.   If you are a seller, and you need to sell. Then accept your fate and know that your house has to be priced at 2007 peak prices or slightly lower.  If you can’t accept that, then wait 2-4 years or longer to see if our market can get to your expectation of 15% to 20% higher then 2007 peak prices.If you are a buyer, then buy properly priced product.  It is out there.  Get your realtor to show you what the home sold for or what very comparable homes sold for in 2007 that is the price, and if you get it, then you are doing well.  Enjoy the buyers market. 

Many people ask me why is falling prices bad.  Other then the obvious threat to companies who sell the goods making less profit, and maybe cutting employment etc. there is the bigger risk to the economy that people in the herd put off major purchases in anticipation of cheaper prices.  This race to the bottom mentality comes full circle to put additional pressure on businesses profit margins etc. I know it is hard not to scream and cheer when you pull up to the gas pumps and see .80 cents a litre for gas remember what that does to the overall economy.  If your livelihood depends on a strong economy then be careful what you cheer for.

You know what really drives me crazy, when the media or in this case our government use the media to play games with us.  On the front page of the Calgary Herald today our finance minister says things like, ”In fact, the manager of the provincial purse strings believes Alberta will be lucky if it can rebound from the economic slowdown within two years and suggested Wild Rose Country is entering a period of “figuring out what you can do without.”

“I’ve never seen anything like it,” Evans said in an interview Friday.

“It was a very difficult week.”“You’d be a fool not to consider that a wake-up call,”And this from our genius Liberal leader;“My hunch is that Alberta has seen its last boom,” Liberal Leader Kevin Taft predicted Friday. “The last week could go down as a historic week, the week the economy hit the ditch.”The last paragraph tell it all and thank god to the reporter for putting it in,

McCormick agrees the province is faring better than other parts of the country where deficits are now being calculated. However, the government is trying to manage expectations by talking about tough times ahead.

“It’s directed at universities, hospitals, school boards and government employees who are thinking about salary negotiations coming up — that’s who they are talking to,” he said. “They are trying to get rid of boom-talk and boom-mentality now.”So in times like this I think our government should be doing like the national Tories, “yes times are tough BUT this is what we are doing about it”Our government people should not be using the paper to be political to send a message to interest groups and government employees to simply posture.  We need our governments to work on the issue and maintain a positive outlook.Iris, stop being a politician for a minute and lead our province out of this slowdown please 

In todays Calgary Herald  There is a story reporting that according to a recent survey almost 40% of Canadians still believe now is a good time to buy.  Granted almost another 40% believe it isn’t, BUT this survey was taken last month when we saw sales activity fall off the map.  You know what, it is a good time to buy.  If you like choice, and you like bargains then buy, If you want to wait until there is less choice and more competition in the market for that perfect home then wait. 

Andrew Kyle is a respected Realtor in Calgary and I would say his comments are very true.  Sadly many people who prefer to follow the herd will not heed these comments.  They will dismiss them as “He is a Realtor, so his comments are biased”.  He may be a Realtor but his comments are based on facts, break from the herd…you will be happy you did. Link

Seriously, think about this.  We have so much media influence from the US and this is artificially bringing consumer confidence down in Canada. Most of the time you hear that we should be feeling bad, and that we should be bracing ourselves because our biggest customer is going to go through a serious recession.Good article today confirms what we already know that the US is going to be bad, BUT it goes on to say that Canada’s recession will be weak, and in fact may not even be a recession but rather a slowdown.One of the rumours I think they are debunking is that we don’t automatically get dragged into a recession just because the Americans do.  In fact previous recessions in Canada could have been proven to be self inflicted.The last major recession we had in early 90’s saw the Bank of Canada having interest rates at 13%, and right now we see rate at 2.5% and falling.  That is a major different story and will prove to keep our economy floating.Finally look at the comparison to unemployment rates in previous recessions compared to the forecast for 2009.  Although yes it is bad that we will see our unemployment rate rise by 1% which equates into a disappointing 190,000 less people working, compare that to unemployment rates rising 4.5% during the last major recession, and seeing what is happening down south would confirm that our pain will not be as bad.The last silver lining to look at is all the news about Canada is national, meaning that most of the bad news is from our most populated region in Central Canada.  Western Canada will be fine, yes slower, but fine.