Wednesday, December 21, 2011

Garth Lays Out What Happens Next in Canada

This man sounds optimistic.

I said recently (for a variety of reasons) the average house price could decline 15%, then enter a long comatose period. That seemed to disappoint some and enrage others, who believe real estate must (and therefore will) decline until they can afford it. So they pile on and forecast a 30-50% rout, taking a SFH in 416 to $450,000 and in Van to half a million. The justification (other than their own finances) is Phoenix or Vegas or Miami.

Well, ain’t gonna happen. Nor should you wish it. A halving of housing prices would drop our GDP by 5%. That compares with the sharp 2.6% contraction in the US economy in 2009 – enough to throw 14 million people out of work and gut the government. So imagine the consequences of a slowdown twice as severe in a country with one-tenth the population, and a commodity-dependent currency, run by people who want to buy more fighter jets and prisons.

In fact, it seems many of our delusional visitors have no idea what 15% means. First, this average number would translate into a 0% change in, say, La Broquerie or Chicoutimi (or Fredericton and Thunder Bay), but something closer to 20% in Brampton and 30% in Surrey. Given local conditions, there’d even be individual neighbourhoods exceeding that.
This might seem, like, weird. But there’s a reason stuff costs money. Some things should be earned. Our debt today, and the housing reversal it’s about to cause, is the direct result of unbridled consumptive lust, usually by those virgins. Home ownership without equity is called renting, but without the freedom or mobility tenants enjoy. Those who will suffer the most from the coming correction – whether it’s 5% or 30% – will be the ones who couldn’t wait to buy, and traded their hormones for indenture.
Yes, but this is always true. That's why financial policy should take it into consideration. And if it doesn't take it into consideration it should be automatically assumed to be a policy to suck the middle class dry to the monetary benefit of the people who move assets around inside computers. And the real estate agents and developers. A handful of lucky sons of will fund their retirements, but that will be an accident of the setup.

The system is designed to do what it is is doing right now . . . indenturing the young and impoverishing the middle class.

1 comment:

Anonymous said...

Ozzie Jurock was a guest on Michael Campbell's radio show (Money Talks) yesterday (Saturday) on radio station CKNW in Vancouver, Canada.

It is well worth listening to 2 minutes and 15 seconds of this interview where Mr. Jurock discusses recent house prices in Vancouver.

The link at the end of my post will take you to the audio vault page of the radio station. You do not have to register with the station to access the audio vault.

At the top of the audio vault page put the date Jan 7 in the first drop down box and 9:00 AM in the second drop down box. Then click on the "listen" link. When the page loads use the slider to fast forward to the 43 minute part of the program. Be sure to listen to the full 2 minutes and 15 seconds of the interview as there are two good quotes in it.