This from the Wall Street Journal I should add the 13th, when the media starts reporting stories like this, the end must be near

1) In the US consumer confiedence rebounded during April

2) The % of people who said that jobs are hard to get went down for the first time in 13 months

3) California’s median house price GAINED 2.2% last months after 18 straight months of decline

4) Sharp is joining many other companies forecasting sharp increase in profits in all its business divisions during the second half of 2009

5) IBM said it will increase its dividend by 10%.  When companies are giving cash away, even if to its shareholders, then they are less worrried

6) The high yield bond market, raised $7 billion dollars in April, which is the highest since last July

7) The stock market helpd up, despite the market nervousness around bank stress tests, swine flu, and the impending forced downsizing of the American auto industry.  Think about it, if things were still real bad for the future would any one of those things been good reason to expect a stock decline? Yup.

Corning is bringing back laid off workers, due to stonger then expected demand for galss for new flat panel TV’s

9) 64% of the 235 S&P 500 companies reported having a pleasant surprise to their frist quarter earnings reports, and all 10 sectors beat their first quarter forecasts

10) The stock market indecies rose in a week as jobless claims edged lower and the consumer comfort index moved higher

11) Portfolio, the glitzy magazine about Wall Street was cancelled.  This may show signs of more conservatism on Wall Street, and the signal to end the bear market

12) Confidence in the Euro zone also went higher compared to last month

Don’t Worry, be Happy.

Yesterday I was at a conference for the Mortgage Brokers of British Columbia where I was a speaker.  At the same conference speaking right before me was Benjamin Tal from CIBC World Markets and here are some bullet points along with my comments.

1) This is the longest recession ever

In the US this recession in now 22 months old, bet you didn’t know that, and although the end is near we are not there yet.

2) We (society) we are cast into this recession totally unprepared

We are essentially wiping out 15 years of bad behavior in two years.  We had approached catastrophic debt to income ratios, and virtually no savings.  For many people this fact and having to have gone through this recession will forever change how they act and conduct themselves financially again.  This lesson will likely set us up to have higher savings rates and become less dependent on credit in the future.  Both great legacies of this painful recession

3)  US Stimulus Package will provide unbelievable lift

The total cost of the pledged stimulus package will reach $1.8 trillion.  Part of why this massive amount has not kick started the economy yet is because it has not all been paid out, and that which has is being parked.  In other words banks are hoarding the money.  The money multiplier which measures the velocity of money and how it flows is at record low levels.  But it will open, think of opening a dam as this is what it will be like massive money coming into the economy for people to use.

4) Business Inventories are falling

This was an interesting discussion where Ben showed that yet another indicator that they look at to forecast the recovery time is the level of business inventories against sales.  The good news here is that business inventories are falling fast.  The reason why this is a good indicator is the good old supply and demand story if inventories fall to the level of current sales there will be balance and therefore more buying etc. However this will cause prices to increases as well

5) US House prices are now UNDERshooting household income in the US.

From previous posts I talked about this was a significant leading indicator to the household bubble bursting when house prices significantly OVERshot household income.  That trend has been completely erased and is still falling.  Clearly pointing that the bottom of the US housing market collapse is near.

6) We are in Emergency Times, which is causing these emergency interest rates

It is an absolute certainly that interest rates will rise, and likely sharply, as the recovery takes hold.  Mainly because inflation will become a concern when we recover.  The irony is that all that Ben Bernanke is doing to fight this nasty recession he knows is bad but it is required and the alternative in unthinkable.

Inflation is a dead lock cinch.  This will cause interest rates to rise GUARANTEED.  People not refinancing their mortgages or purchasing now will be very sorry when the window closes.

7) What will drive inflation?

To put some more substance behind my previous comments about inflation being a certainty are the reasons WHY their will be a recession

a) The money multiplier indicator is at a record low.  This essentially means that all the money that has been and will be injected into the economy is not flowing…yet.  Once it starts flowing the economy will overheat slightly.  Overheated economies result in inflation, the degree to how much they overheat determines how the medicine to stop it is administered, and therefore how quickly interest rates go up.

b) Food prices.  During the worst global recession in history food prices continued to rise.  Demand is still far exceeding supply. especially for meat and grains, (another good thing for Alberta and Saskatchewan).  So, if during these terrible times food prices are rising what do you think will happen as the globe recovers?  Of course demand will increase, but where and how could supply increase?  As a side note this is why any companies involved in food production, or distribution will be good stock buys in the recovery.

c) Oil prices.  Once again although the media has tried to really ramp up the fact that oil prices are at $50 during the worst recession in history, the fact remains that they are still $20 over the long term historical average.  In fact not that many years ago $50 oil was considered to be very expensive.  Funny how perspectives can change. So, once again if during the worst recession in history oil prices were $20 OVER the long term average where do you think they will be in the recovery when demand SURGES back, particularly from China.  It is incredibly likely that oil prices could settle in the $80 range in the recovery with an .80 cent candian dollar puts the revenues and profits to the oil patch in the very high range once again.  Higher oil prices though as we have learned is in lock step with higher inflation.

Of course many buyers in the herd these days are still struggling with “when is the bottom”.  I have recently video blogged about this and as I have repeatedly mentioned that although the current stats are suggesting we are leveling off one should look at other areas to be sure that they are comfortable moving forward.

So here are the top things to consider when deciding if we are at the bottom

1) Local Employment

Garth Turner in his blog has been incredibly harsh on this and continues to use this stat as the primary reason that we will see continued crashing of the market.

However in Calgary, and Canada for that matter, with the obvious exception of Ontario, the doomsayers will point to the recent rise in unemployment as suggesting that especially because it is a lag indicator that we will see continued dramatic dclines in House prices.

However according to Benjamin Tal of CIBC world markets althugh unemployment is up in Canada and will likely approach close to 10% one must consider these very important facts about the labor market that of course go unnoticed by the media and doomsayers like Turner:

1) Participation rate is at record highs.

This means that more people as a per centage of the overall available workers are in fact working.

2) Job quality is up.

This comes during the worst recession we have had since 1945, so why?  Mainly because there are more women in the workforce today then there ever was and they are in high quality jobs, that are turns out largely recession proof.  Most of the job losses are males.  In previous recessions when the male in the household lost his job then both spouses had no job, but now that is not the case, so families are managing better today with the wifes job.

3) we are closer to the end of this nast recession then the begginning.

4) The market has already factored in the dreary job numbers.  There is not news lately that seems to rock the market, because they have already accounted for the worst.

this means that the level of job losses will start to level off.

In Calgary we lead the nation in the lowest unemployment, the highest participation rate, and the highest job quality.  The short spike we are seeing in the unemployment will reverse I think quickly in the recovery of 2010.

2) Return to a normal baseline of historical sales

To understand market dynamics one must compare current results to historical averages.  The media and many other doomsayers, conveniently continue to compare our recent drops to 2008, 2007 or since the peak in 2006.  However what we have seen in Canada, again according to Mr. Tal we have now arrived at the historical average level of activity for the Canadian real estate maket.

3) Reduction of available inventory

This is a big one, especially in Calgary.  We have dropped from almost 10 months of supply to four months from September to now.  This is significant, with no real signs to a significant increase in supply, and demand edging back this will continue to lead to an improved market

4) Current values versus relacement cost

I think that this is appropriate especially in Calgary.  We have seen housing starts fall to a very low 3,000 or so annualized.  This is largely to do with the fact that prices are getting dangerously close to the actual coast of construction.  If builders can’t make a profit they will just stop building, which they have done in a relatively quick manner.

The challenge this can cause is all the people who are not buying now will pour back into the market when prices and/or interest rates start to edge back up and combined with the natural demand at that time will potentially overheat the market with the lack of supply that is being created, scheduled inflation rising, and jobs pouring back into the market in the recovery …here we go again.

HERE IS THE BOTTOM LINE…

For potential buyers today, finding bottom is less important than knowing it is near.  It is virtually impossible for anyone to accurately predict when the market is precisely at the bottom the educated buyer who understands the sins of recovery will already be settled into the opportunity of a lifetime while the rest of the herd is battling with each other over the best listings as the market rebounds and edges back up.

…you have been warned.

Ok I realize that we as a society have gone through a tough storm in recent months.  In fact it is officially the worst recession since 1945.  But what if for a second you stopped panicking, and tuned out the negative chatter and listened closely to the positive side of the equation, because there is one.

This recent recession and related housing market correction has led to some serious opportunities for level-headed who want to get rich the right way instead of the quick way.

The interesting irony of recessions and plummeting consumer confidence is that it creates a favorable environment for those who are methodical and pay attention to the real data.  Interest rates are WAY down, in fact they have never been here before, Benjamin Tal of CIBC World Markets has called these “emergency interest rates, for emergency times”  suggesting that of course they will go back up, and when they do then the proverbial window of maybe the best time to invest in real estate in the next while will have closed.

What about the fact that property prices have depressed as much as 20% in some major cities?  I know you will say but they will still go down further.  Maybe they will but consider that we have 90 days of stable prices and by most accounts the recession is over by year end.  Inflation will come back with the recovery which will push house prices back up, even if only at the rate of inflation.

The bottom line, according to “Real Estate investing for Dummies” is that there is a wrong way to invest in real estate and a right way.  The wrong way led to the housing market crash we saw, and the right way can lead to great financial gains for LONG-TERM thinking investors.

Here are the top 10 methods for pursuing a solid real estate investing plan:

1. SAVE, SAVE, SAVE

You need to develop a rainy day fund for , unexpected costs or repairs, vacancies, or to be flexible and reactive when a hot deal comes around

2. Get your Credit History in top notch shape

The best opportunities, and the easiest time comes to those investors who have cash and excellent credit.

3. Buy in areas that are progressing

Being the first in most things can reap big rewards.  Look for good deals in new areas.  Often builders will also be motivated, particularly right now, to offer better deals to the first few homes sold in an area to spur on activity.  As the area devlops and prices rise you gain from that natural momentum.

4. Buy the Right property at the right price

Duh? I know sounds like a no-brainer but many inexperienced investors get this wrong.  Experienced investors rarely if ever buy a property that is fully completed or renovated, unless it is in the path of progress as in point number three, or in super prime spot.  The main reason is all the value added and/or appreciation has been taken by the current owner.

5. Don’t fall into the do-it-yourself trap

I know many friends or clients who have flubbed this one.  They buy a fixer upper with the intention that they will do all the work to save money.  They are missing two important things.  The time value for THEIR time, and most important that they almost ALWAYS go way past the scheduled and ideal completion time, which adds on very expensive mortgage interest cost, and sometimes pushes them into a less favorable time in the cyclical market to be selling.  Hire an experienced and proven contractor to get the job done.  Bonus and/or penaliz him for holding him accountable to the completion date.

6. Keep on top of market rents for your area

Many inexperienced investors leave money on the table, or worse price too high and therefore have their home sitting to long.  The reason?  To lazy to do the research.  It is imperative you research at length to get the right market rent for your newly renovated home.  Consider this, if you are asking $1,500 for a home that is really worth $1,200 and you miss say even three good leads and the home goes past the first of the month (i.e. you lost a months revenue) then you bring the price down to $1,200 and rent it.

7. Recover Renovation costs by refinancing

A real key element of the “get rich right” model is to use your capital properly and know when to leverage, and mange your equity position.  Acquiring and renovating the property requires your cash reserves.  Do a thorough analysis at completion of the additional value you created by renovating, and strike the right balance between replenishing your cash reserves by refinancing, and maintaining sufficient equity to weather the ups and downs of the rela estate market

8. Know when to fire your tenants

Don’t get caught keeping your bad tenants or inheriting tenants from the seller that you don’t know just because you think you can’t afford the potential lost revenue.  Sometimes you can reposition your tenant situation with better higher quality tenants, but once again you have to work at it.

9. Refinance or sell and defer again.

If you are an investor who was fortunate enough to have bought your home long before the meltdown of 2008/09 then you may want to consider taking some equity out by refinancing so you can use the cash more effectively, or sell and get into the market again with depressed housin prices.  Although it is imperative that you have sufficient equity to weather market swings, it is also bad to have too much equity as it lowers your overall returns, and the cash in the property is lazy and not working.

10. Consider using a property manager

If you have three or less properties you probably are better off doing the property manager work yourself.  If you have more you will quicly find out that your life balance is seriously affected, and therefore sometimes your properties don’t get the attention they need to avoid bad and costly mistakes.

A new study released by the National Association of Realtors (yes this is an American study) but I think there is likely some parrallels to Canada.  If anything the numbers may be more skewed as we have a higher number of people per capita on-line then the US does.

Anyway of all home buyers in 2008 87% used the internet to search for a home, this is up frm 84% in 2007.

As a Realtor it is vitally important to use the internet to market homes.  I would recommend expanding your marketing to social media sites like facebook, and twitter as well as probably the ever powerful Craiglist.

Why Craigslist?  Well, it has 20 billion page views per month, 50 million UNIQUE visitors per month, which makes it the 7th most visited site on the internet.

You are probably saying, I don’t want to show my home to 50 million people around the world, which of course I understand, but Craigslist is in 570 cities (including all major ones in Canada).  It is incredibly powerful.  Oh by the way did I mention it was free?

I only do this once in a while but for fun I will set off some predictions of where I think things will shake out in the coming months.

Recession Recovery:

The bank of Canada announced yesterday that they are dropping the bank rate by a further .25%.  The best part of all they said they will keep it at this level until June 2010!  The markets certainly will like this commitment. The bank of Canada also downgraded it’s forecast on the GDP for Canada for 2009 and 2010.  No surprise that everyone is forecasting 2010 to be a positive increase in GDP which would therefore be by definition the end of the recession.

Keep in mind what needs to happen is increased consumer spending, which is starting to happen.  We will start to see improvements in the economy for certain by next quarter and will feel the full effects of recovery s we enter 2010, we will not have to wait until well into 2010.

Housing Market:

Locally the housing market has already started to show excellent signs of recovery, and there is many indicators proving that we are certainly at or near the bottom of the recent 12 month decline in prices.  Couple the significant reduction in home prices with the histrically low “emergency rate” environment and we are set up for a continued stability in the Calgary real estate market. We will be fully in a balanced market by the time the April statistics are realeased.  As far as price appreciation goes, we will likely only see very moderate if at all price increases for the balance of 2009, which quite frankly is a good thing.  Remember what happens when prices rise to fast and affordability gets in the way?

Oil Prices:

China will lead the globe out of this recession.  Why?  Well for one they do not have to pass their stimulus plans through congress, or get support from any other country.  For a second thing they are the only major economy in the world with major cash reserves, and consequently very low debt.

So what will happen when China rises from the ashes?  The demand for commodities will soar.  This will start to really gather steam in 2010.  The challenge for the global economy is this significant rise in demand from China, coupled with the increased demand from the US as they recover will NOT be matched by an equivalent increase in supply, mainly in the energy sector where future capacity is being reduced at an alarming rate.  This will FOR CERTAIN lead to higher oil prices in the future.  Of course this is good for Alberta in general but most specifically for jobs to be created again, and a significant rop in unemployment in Alberta.  in 2010 Alberta will once again have the lowest unemployment in Canada.

A wild card prediction will be an increased in inter-provincial migration again for Alberta as many people who are losing their jobs in the East may once again flock to the west.  Saskatchewan, and BC will likely benefit from this as well.  If this comes to fruition then look for increased demand on housing again, and this may put upward pressure on prices depending on how supply responds to this potential increase in demand.

Mortgage Rates:

We have already seen what the bank of Canada has said for the prime lending rate which influences the variable mortgage rate.  But what about fixed rates which fell once again this week to an unheard of level of 3.69% for a five year fixed rate?  I would say through the all important spring market look for further reductions in interest rates as lenders jockey for their share of the reduced market.  The spreads on fixed rates is still historically high which means lenders have room to offer “specials” and they will continue to do that.  As well many lenders who are struggling with early refinances of their mortgages ave to replace those mortgages back in their pools to the investors and thus will be in a panic situation at times and will offer very low rates especially in a “quick-close” situation where your mortgage will close in less then 30 days.

All eyes are on the US economy again right now.  Rightfully so.  Before people criticize that we should not be following the US economy but rather our own should know that we can not exit this recession ahead of the US, we will follow them out.

The stock market seems to be taking some solace from “less negative” news.

• Consumer spending is improving.  Households are still cautious BUT this important indicator is no longer retrenching
• Car sales actually improved last month.  Certainly lower energy costs are contributing here, after all US households currently spend only 1/3 of what they spent on energy just last summer
• The all important statistic of housing cost as a share of household income has fallen to it’s lowest level EVER.  This is a sure sign that the bottom of the real estate nosedive is near.
• Overall inventory of homes for sale in the US are now at the long term average, signs that the market is certainly balancing

In Canada our affordability index is also at historic levels.  We really get the sense that if people don’t buy in the coming months of 2009 they will definitely want to kick themselves.

In light of the current market and tightening of credit underwriting standards by both lenders and insurers these days I though I would send out a friendly reminder to mortgage customers about being real careful what you do between the time your mortgage is approved and when it funds.  A few mortgage lenders and insurers have been doing something lately that they have not done in a long time, and that is pull new credit bureau’s prior to funding, especially if there is a long period from the time of your approval and the funding.

You may think the 8 rules below are onerous but in these tight times I would follow them.  If you don’t just understand you are “rolling the dice” and the consequences can be costly.

1. Don’t buy a new car, or trade-up to a more expensive lease. In fact if you have a lease coming due during your approval then disclose it as being paid off, and consider renting a car for the month or so during your approval waiting period.
2. Don’t quit your job, or change jobs.  I know this seems obvious, but trust me I have seen everything.  People think “but it was a better job, and better pay”  but what if it is on probation and you have 5% down, and a gifted down payment, and a 650 beacon score?  Your approval is in jeopardy.  At least talk to your professional mortgage planner BEFORE you do anything.
3. Don’t change industries or go self-employed or on contract, even if it is in the same industry.  Delay the start of your new job, self-employment or contract status until AFTER the funding date of your mortgage.
4. Don’t transfer large sums of money around between bank accounts.  Lenders get especially skittish about this one.  Be ready to document ANY cash transactions, or money movements.
5. Don’t forget to pay your bills, even ones that you are disputing.  This one is a killer.  If the lender pulls your bureau prior to closing and sees a collection or a delinquent account the best you can hope for then is that they make you pay off the account before they will fund.  You do run the risk they pull their approval and then you are seriously scrambling.
6. Don’t open new credit cards.  You know you can wait until after funding.
7. Don’t accept a cash gift without documenting properly with your mortgage planner.  This one is most common often right around a wedding.  If you have a bunch of cash to deposit before your funding date, then talk to your mortgage planner as the best way to do it BEFORE you deposit it.
8. Don’t buy furniture on the “Do not pay for ____ years plan” until after funding.  Even though you don’t have to pay it will still be reported on your credit bureau, and will become an issue, especially if your approval was tight to begin with.

I am not saying you can’t break one of these rules, but if you need to or want to then check with your mortgage planner BEFORE you do, to be safe.  Times have changed and lenders are tough.

Entertaining news story today from the Calgary Sun.  Especially in light of the talk of the town these days.  Our beloved Calgary Flames enter the playoffs this week with an injury problem.

Great analogy I thought about how the rest of media continues to compare our market today with that of yesterday?  Enough already.  It is not relevant.

Compare month to month gains and report that we are edging ever so gently and responsibly to a balanced market.

Go Flames Go!

You may have heard in the media about the special report released by the economists at TD last week.  The report had some scathing shots at Canada’s home builders and very dark predictions for the future of the real estate industry in Canada.

In my video I will show that once again the media relies on a report that has some flaws in the data, the timing, and most importantly in some of the conclusions, particularly regarding the prediction for the future o home prices in Alberta

here is a link to the full report (TD Special Report)

Commentary on the TD Economic Special Report from Greg Williamson on Vimeo.