I have been reading lately some people wondering about the same questions, here is my take:

Question: What happens when supply of listings skyrockets in the spring, with all the people who came out of the market in the fall to wait for a better market?

Answer: IF that happens there will likely be a continued drop in Real Estate values because as we know supply will far exceed demand, especially demand that is just waiting for the bottom. However consider the possibility that many of those sellers have left the market and won’t come back?  Some will rent those second homes, some of them only “wished” to sell if they could get a big dollar, and have since decided to wait.

Question:  With all the supply we had, how come prices didn’t fall further.

Answer:  Mostly because many sellers were unrealistic with their listing price and were holding out.  Consider this example as an analogy.  Let’s say you buy a stock for $10, and it drops to$9.  You say to your self, yikeswhen it goes back to $10 I will get out this dog stock.  Then it drops to $8.  You then say if it goes to $9 you will sell.  this same lunacy continues as the stock slips into pennny status.  Of course all the way through this slide you could have sold the stock for way more then its current value.  This is the same thing for real estate.  Many uneducated people with little or no guidance just kept pricing wrong all the way down.

Question: Could there be an absolute free fall in real estate prices.

Answer:  It always comes down to the sellers motivation or more importantly their options.  For the most part in Calgary people have options.  They will either rent or carry the vacant houses they hold if they cant sell.  For those who do not need to sell they willleave the market.  The market forces of supply and demand will find the bottom, that point where supply will be balanced with the amount of motivated buyers. There will be people who will just leave the market rather then sell for the 50% decline in prices that some people on on-line message boards suggest.

Question: What is the herd mentality with respect to the real estate market?

Answer: The ironic thing about people is that they always follow a herd.  Too often the herd is headed to the slaughterhouse, yet they still follow just like the cattle do without a thought as to where the herd is going and should they still be falling?  What are the herds:

Sellers:  People kept their real estate listing prices to high because everyone else is at that price amount as opposed to breaking from the herd and listing your home below the market and get a sale.  Another phenomenon was when they all decided to leave the market at the same time.  The danger is that they all come back at the same time and then hold off dropping their home to the right price to get their home sold.

Buyers:  This one is really interesting.  The herd is saying “don’t buy now as the bottom has not happened” and really you can’t blame them for this as we saw above many sellers have not got realistic and prices still may go down.  However here comes the irony, when wil the herd move back in to buy…wait for it…when the bottom hits.  Not withstanding that no one really knows when the bottom really is,  the herd will move.  Two funny things happen though as the herd moves this spike in demand will raise prices for those last few listings remaining in the market.  The other issue is that if the herd waits to long to move back in then as the global economy starts to rebound inflation will be a big concern which will bring increased interest rates.  So congratulations herd you bought the home for $75,000 less but paid 2% higher for a mortgage rate…oops.

What is the lesson, I live my life always trying to avoid the herd or at least act opposite what the herd does.  Why?  If I am following a herd often it is bumpy as everyone jostles, and besides lets face it the view is never good when you are following.

If you find a home you love in the right area, buy it.  Who cares if you pay a little more then later, relish in the fact you bought the right home for you and your mortgage rate is unbelievable.

Today a story came out where Jeff Rubin has forecasted the stock market will be at 11,000 by year end.  I know that everyone is not ready for over inflated forecasts right now, BUT if you allow your mind to open slightly to the possibility his arguments have some rationality to them.  Time will of course tell…

Gimme a break.  Don’t you just want to scream at a banker?  This latest spin doctering by the bank brass says “Business is as usual”.  RBC’s CEO says “nothing is out of the ordinary…”

I guess no one told him about bank spreads higher then ever before in history.  Or what about the cut in available credit in the last Canada Mortgage Bond Issue that means only the best of the best get insured mortgages these days, oh and what about variable interest rates going from deep discounts below prime to premiums of up to .75% above prime.  Maybe his people are hiding from him that they are cutting or demanding lines of credit from small business people who are current.  Oh and of course the fact that the banks are not matching the Bank of Canada’s trend setting rate to be a part of the solution in the recovery…

Gimme a break, now I remember why I sometimes hate bankers

As a consumer of travel parity of course is nice, but wishing for that is the same as when we were all wishing Gas Prices were at .70 cents instead of a $1.30 earlier last year, how does it feel now that that wish came true?

The same may happen if the Canadian dollar reaches parity, due to a falling US dollar.  Why?  Well for starters as we are trying to recover from the slowdown  the last thing we need is the inflationary presure that a strong Canadian dollar brings as this slows interest cuts or worse makes it necessery to raise interest rates.  The second bad thing is the pressure it puts on many bsinesses that export their goods, which when they are all teetering on the brink of disaster now, what could that do those businesses and more importantly the jobs.

China is poised to maybe dump some of their $1.3 TRILLION dollars of short term debt, and they are saying they may not be in much of a position to pick up some of the $800 BILLION Obama dollars coming soon in a US budget deficit.  Who else will buy Obama’s debt offering?  Doesn’t matter but if demand to buy it is low which it will likely be and the US printing more money, combined with China dumping US dollars MAY tank the US dollar by year end.

For the reasons above this could slow our recovery some more…sigh.  Whatever you do, PLEASE don’t wish for the Canadian dollar to have parity has your collective Karmic forces may make it happen and then you will feel like you do right now about your wishes for gas prices to fall…

I have been thinking about this for a while…We are technically in Canada now entering likely a technical recession (remember class the definition of a recession is two quarters of negative growth).  For review the US has been in a technical recession for all four quarters of 2008, and in Canada although the numbers are not out yet it appears the fourth quarter of 2008 may be negative, and likely the first one or two quarters of 2009 may also be, but let’s not get ahead of ourselves.

Anyway the part that is weird and perplexing for me is all the abbundance that is still out there?  For instance both WestJet and Air Canada defied the ’stalling economy’ and brutal weather and reported RECORD load numbers for the second month in a row in December.

Last night I went out with a good friend for a couple of pints and the bar we were in was absolutely jammed and boisterous.

Earlier this weekI was at The Keg on a Tuesday night and the restaurant was jammed.  OnFriday night we were at Earls and there was still a 45 minute wait for a table and the lounge was jammed.

Going into Costco, superstore, safeway, et al on a weekend is still an exercise in insanity.

Malls?  Are you kidding me, the parking lots mid week, in the evening are still extremely busy.

Talking with a bunch of other Dads, at our 7:45 am practice this morning (why is it always only the Dads who are at 7:45 am practices??) and everone was talking about the holidays they booked, and where they were going skiing, and european vacations in the summer?

What’s the point of all this?  WHERE is the RECESSION?  When are people going to act like there is one?  Listen I know there has been some adjustments, particularly on major purchases, but if you think about it many people are still going about their life, certainly they are more aware of what they are doing, which ultimately I guess is great and what corrections/slowdowns are meant to do.

Post comments on this as i am interested in a conversation over what peoples thoughts are on this phenomenon

What will the Bank of Canada do with the trend setting bank rate on January 20? Well, in a survey of 11 of the top securities economists in Canada 6 have predicted a .50% drop and 5 predict a .25%.

I think it will be .50%, or gasp….75%.  Why?  First of all The Bank of Canada knows that the banks are still not matching their rates in lock step so if they go .25% then their will be ZERO effect on the economy as the banks are less likely to drop.  If they go .50% then that allows the banks to drop .25% which may be all they Bank of Canada wants?

If the jobless numbers for December are worse then the Bank is expecting then they will want a .50% drop by the banks so they may go .75%.

We shall see…

Lots of talk recently about the discussion between the banks and the federal government regarding the banks role in helping us out in the economy.  The federal government has been pressuring the banks to be lending more to small business and individuals.  What was the banks response?  They emphatically have said they are lending…yeah right.

I always am suspicious when an industry is spouting off about anything and then is not willing to prove it with stats?  All they are doing is talking.  For what it’s worth I can tell you that in residential mortgage lending they are definitely lending less.  Credit is extremely tighter and only the best applicants are getting loans.  Any minor blemish is becoming increasingly more difficult to get approvals.

All the more reason clients today should be working with a mortgage broker who has many options at their disposal. If you are a strong credit risk then a mortgage broker will help you get the best rates as rates are definitely all over the board right now as lenders jockey for position and play with unprecedented interest spreads.  If you have any blemish or small challenge with your situation then a mortgage broker will be critical as you will definitely need to talk to more then one lender to get approval.

The Globe and Mail reported yesterday that the Canadian real estate industry is in for a correction, not an outright collapse.

For what it’s worth, if it is only a correction it is deep correction.  Cosider Calgary alone, since the peak the average sale is down  almost 17%, if according to many economists and Royal Lepage we may see as much as a further 10% down in 2009.  That is 27% over two year, that is a deep correction.

As I have said before we will be in a better position to forecast the health of the Calgary Market after we see how much “bounce-back” in listings inventory happens.

As to the seasonal component argument of Radley’s analysis those of you thinking that the drop in inventory is largely to do with the season are missing the fact that never in this same time period did inventory fall 41%.

With respect to supply forecasts for 2009 consider this as a possible alternative to the doomsayers. MOST of the increased supply since mid 2007 was due to speculators (especially in the condo sector), and people who thought they would sell their home for no other reason hen to cash in. So what has changed?

Well number one, builders (who were arguably the biggest contribution to spec construction) have adjusted spec construction. At the height spec building was 15% of total residential construction, now that number is just below 5%. Builder spec inventory and houses they got back from people who did not close have been drastically reduced. Despite what Lesson One is saying there is very little inventory for builders to absorb in 2009. Again, their spec construction is down 10%, and starts are projected by CMHC to be at around 4,500 (down from almost 11,000 during the peak) so less inventory will come on from builders, and the trickle down of more re-sale homes going on from those absorbing the newly constructed homes. For certain people who were selling to simply cash in and get a big payday are re-thinking that strategy and many will likely abandon the idea of coming back to a market that is not going up. I am not ready yet to call it, I want to see both the “new listings added” and “inventory” numbers for January, February, and likely March. If we see them still going down then the market will stabilize and a flat year will be welcome. IF the “bounce-back” happens (some people think that all the listings that came off the market in Q4 will come back in spring for a ‘better market’) then we will see a drop in the neighborhood of 10%-15%. 

This is easily the best interview I have read about the current economic crisis from a guy who has some serious credentials.  Take note of his credentials at the beginning of the article then ask yourself, am I more qualified then him to criticize his opinions?  I think not.

Maybe idiotic journalists will stop abusing history as Mr. Coxe puts it and stop comparing our current economic challenges to the great depression.

Also of course I need to agree that the government of Canada should and likely will protect the Oil Sands, BUT I always worry when the government is controlled by Ontario and Quebec whether a new NEP is some day on the way.  It’s like sleeping with one eye open I guess.

Also was interested in his opinion on Real Estate.  If you look at demographics maybe he is right, if we have less people buying up the homes of all the people dying  then you have supply outpacing demand?  You know what happens there class?  But this is something that will happen over a generation, not a few years.  In fact look at it this way, if our population is aging, then as they age they will just hang on to their homes which keeps supply out of the market as more young people want to buy.  OR they all make an exodus to seniors homes and specialized multi family buildings putting all their older homes n the market, once again over supply.  Honestly there are more then a few scenarios how this could play out so I’ll stop rambling, read the article…