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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

November 3, 2015 | The Daily Snark

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

 

Ted the blog dog lost his job in Calgary (“along with many others”) two months ago but his wife, mercifully, is still employed in the now-anorexic oil & gas biz. So, he was driving her to work Tuesday morning when he heard an angel. Well, that might be misleading. Actually it was me.

“Turning the corner onto 6th avenue SW to swing west and to organize my household grocery run, my new position since being cast off, I heard a gentle voice on CBC radio opine on how much house prices have actually dropped and explaining how CREB fashions its uber optimistic figures so as not to spook the rubes with money burning a hole in their pockets and advising caution and realism when looking at buying or selling the family pile,” he says.  “I thought, at long last here is someone telling it like it is in Calgary and Lo!  it is my daily breath of snarky common sense Garth.

“Perhaps you are still a lone voice in the wilderness but I wish you could do a weekly local counterpoint to the property pimps who flood the airwaves and  pages  of the local rags to gull the folks into being the envy of their peers by buying their bubblicious dream property in lovely, luxurious Pepperidge Farms, Saddlesore or elegant Spiffington Estates (formerly farmer Brown’s duck slough halfway to Lethbridge. ) Thanks. I hope it did gave a few listeners pause and made some realturds sputter with indignation.”

It did. I heard from a few, after the radio guys tracked me down for a follow on the ‘Pooched in Priddis’ blog published here two days ago. You may remember I featured two houses in the luxury exurb of Cowtown which were recently auctioned, selling for a 60% discount to appraised values. This, I suggested, might be a harbinger of what Calgarians can expect down the road as oil stays stuck in the $40 range, thousands more people are punted from their downtown office cubicles, and the Dippers up in Edmonton pursue their tax-and-spend agenda.

Here’s a key question: how can properties go to auction – which is as pure a market indicator as you can get – and sell for 60% less than expected, while local realtors claim average prices are off just 6%? Huh?

Even that 6% decline in October has shocked the city, since it’s the worst in a generation when combined with a 33% sales plunge and a jump in listings of almost 20%. But when absolutely everybody in town knows three other people who have lost their jobs, or are living in fear of it, how can inflated house prices not reflect street reality?

Remember that the results of those auctions (offered for $3.9 million, sold for $1.5 million) are excluded from Calgary Real Estate Board stats, because they’re not MLS listings. Ditto for many sales by builders to the buyers of new houses. Or private sales which are not listed on Realtor.ca. The numbers are further diddled when you consider the final selling price of a property is reported as a percentage of the last listing value – not the original asking price. Thus a property can be reduced in price several times, and the board ignores the decline. Its monthly package therefore is not an accurate reflection of the steady erosion of the market, which is likely by design. As posters here have reported to us, if you want to move your house in Calgary, you’d better be ready to eat at least 15%.

Further, the local board says prices have now declined two months in a row. Others, like housing analyst Ross Kay, say the air’s been coming out now for nine consecutive months, since last February. And it may be just starting.

Remember, oil is Canada’s big export. Commodity prices are at a 16-year low. And it’s all about to get worse – on December 16th.

Over the last few days bond yields have spiked like an excited gland, and traders are giving 50% odds to an interest rate increase next month by the Fed. That’s a big deal, since two weeks ago the odds were less than 30%. A survey of economists by Bloomberg this week found six in ten of them are thinking rates will soon pop. And we’ll probably know more on Wednesday when Janet Yellen does her thing in front of a Congressional panel.

The Fed has messed with everyone’s head now for months, suggesting rates will rise, only to snatch it back at the last minute. The expected lift-off day in September was nuked by turmoil in China, and the October window was shut by a weaker jobs report. But all that fear has melted away, thanks partly to hot car sales numbers (2015 may be the best year ever), a steamy US real estate market (prices ahead in 20 markets), better-than-expected corporate earnings and a big bump in consumer confidence.

There’s no guarantee the Fed will move, of course, but it seems likely. And here’s what it means:

  • There won’t be one hike. Rather this will be the first in a series – as has always been the case.
  • Rates should grow by about 1% a year for the next two.
  • The bond market will swell in sympathy and since that’s where mortgages are funded, fixed-term rates will also jump.
  • The Fed move will strengthen the US dollar.
  • It will weaken commodities, which are priced in US$ – bad news for Canada.
  • The loonie will also weaken against the greenback. A Bay Street guy who manages billions told me today he’s planning for a 70-cent dollar.
  • And, in Calgary, you know what happens next. Stay tuned.

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November 3rd, 2015

Posted In: The Greater Fool

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