Credit Crunch Fallout

The credit crunch is a funny thing.  I don’t think its as straightforward as “US homeowners can’t afford to remortgage, so sell, so prices drop, ergo real estate isn’t safe”.  Its not clear to me who have lost more: people in real estate or people in mortgage backed securities that were sold with dubious AAA ratings. 

My real estate is here, and its obviously doing very well, and I didn’t have much exposure to sub-prime debt, so I don’t know exactly where that is hurting most (my equity holdings have suffered from the volatility, obviously, but they haven’t lost much ground).  When you don’t feel the pain directly, you don’t always appreciate it, and (so far at least, as I’m sure the bears will hasten to remind me), I haven’t felt the pain at all, let alone directly.

The question I throw out for discussion is:  where will the sub-prime spawned credit crunch hurt most?  In the actual real estate markets where it began? In all real estate markets? Or in other areas?

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57 responses to “Credit Crunch Fallout

  1. Snick

    “In all real estate markets?” – Rob

    Since you asked, yes.

  2. fish

    Rob

    3 days with 50% list sales and not a comment out of you – I wondered what was holding up the numbers?

    The total listings dropped though, meaning those that where trying a price out for size, are pulling them off the market.

    Where will sub-prime hit us?…well if you have money in Canadian commercial paper now, you may be facing some pressure, watch the USD money market funds, I just sold all mine- even Canadian funds companies-because many have exposure to mortgage-backed paper.

    Looks like we will see a Seattle-like landing. No big rise in listings, but less buyers, and a gradual shift from a sellers market to a buyer’s market.

    Even Muir said that the first time buyers have been squeezed out. The big buyers are still buying and no sweat. Couple I know, both lawyers, bought $2 M house on the westside, and are only now getting ready to put their house up for sale- no worries about carrying the bridge loan or paying two taxes etc.

  3. /dev/null

    Maybe he’s been at the hospital and maybe he’s got other things on his mind.

  4. Johnnyrent

    Fish

    While I think we’ll parallel Seattle with a run up in inventory, I think that’s where the similarity will end. Seattle’s price increases have been comparatively very modest relative to ours and their median income level versus median home price ratio is very much lower than ours.

    They say the higher and faster they climb, the harder they fall, which has been Vancouver’s well documented experience.

    That said, the bears will be wrong if and until they are right. So far, this market seems to have defied history, economic fundementals, gravity and sanity. Who knows, maybe it will be different this time.

  5. fish

    Johnnyrent

    You may be right, or we may be both be wrong. my realtor e-mailed me just now that there were 60 new listings in North and West Van yesterday and only 19 sales.

    Thing are getting worse in the US foreclosures were the highest reported in 55 years AND just reported a 12% drop in pending home sales between June and July (this is even before the financial mess broke in August)

  6. Johnnyrent

    Fish

    This market reminds me of the words to a popular Billy Joel song: “you may be right, you may be wrong, but it just might be a lunatic you’re looking for….”

    Seems to me there are no shortage of lunatics in this market so far.

  7. Jesse

    i am interested in how the asking price changes.

  8. crasher

    The problem is that we’re in uncharted waters here and it’s hard to know how much more steam this subprime train will gather on the way down. Some of the deeper thinking financial gurus have suggested that we may only be in the 2 nd inning of a full game.

    We don’t know how many or how close to the brink some lenders or hedge funds might be, but Bush and Bernanke’s boys are obviously scared sh*tless of the possible consequences.

    Needless to say, this monster could turn into our worst nightmare, if it feeds on itself by driving prices lower and spurring ever more foreclosures that could easily spread to prime and even prime-plus mortgages.

    So much for that soft landing that some dreamers or wishfull thinkers were predicting just a few months ago.

  9. The question really is, if things aren’t going to break wider, why is the fed absorbing all that crap paper and trading it for perfectly good cash injections into the US banking system?

    Another $30 billion liquidity injected today? That’s like $200 billion of crap paper reabsorbed by the fed in the last month. Where is the report of any repayment of any of these “loans” that provided these needed injections of liquidity? Meanwhile, the underlying loans for all that crap paper are still not performing as hoped for – which means the income streams expected have been massively turned off.

    Gentleman, the housing ATM is dry.

    The fed is playing a dangerous game, but these days, Mark Knopfler said it best, “you get your money for nothing and your chicks for free”.

    Sorry, it’s time for some real estate tycoons to reap the whirlwind, along with a few financial institutions to boot.

    Financial devastation and lower housing prices will be a lot better for the generations following the baby boomers – check out this post that was mentioned at Seattle Bubble – if a housing bust is coming due to demographics – maybe it’s better to get it over with quickly.

    Over to you.

  10. Alpha_Bear

    The question I throw out for discussion is: where will the sub-prime spawned credit crunch hurt most? In the actual real estate markets where it began? In all real estate markets? Or in other areas?

    It’s hard to predict where the most pain will be felt, however, there will be a lot of pain in the following areas:

    Real estate
    Stock market
    Money market accounts
    Pension funds
    Consumer prices

    It’s starting to look like 1929 all over again (except worse).

    Got gold?

  11. blueskies

    where will the sub-prime spawned credit crunch hurt most?

    huge can of worms there Rob.

    any “creative” financing may be difficult to obtain:

    – loans based on a “mortgage helper”

    – bridge loans for owners who buy before they sell existing home or who may want to hold 2 mortgages

    – no down or low down payment mortgages

    …… the only soft landing i can see is into a big pile of used a**wipe

  12. Goldielocks

    It’s starting to look like 1929 all over again (except worse).

    Got gold?

  13. ObserverX

    I think the difference today vs. 1929 is that the markets are much more sophisticated and there are many more mechanisms for spreading risk. Think, for example, of the insurance industry. You can insure almost anything these days — and there are re-insurers to take risk off the hands of the front-line insurers. As long as these types of companies continue to operate, there may be pain all around but no danger of a sudden collapse and I think this type of industry is what the Fed & CB’s is thinking about when they’re trying to maintain liquidity.

    (The problem is that the ordinary person on the street is oblivious to the real intent and sees the machinations as being efforts to bail out individuals. This creates moral hazard: “Gee, if I’m gonna get bailed out, I might as well indebt myself as much as possible!” which further exacerbates the situation.)

  14. coco

    Today’s top stories causing market turmoil.

    Allan Greenspan compared today’s stock market to 1998 and 1987.

    -4000 U.S. jobs report and that figure doesn’t include all the subprime/construction related layoffs that came at a later date.

  15. paul

    coco- and the “experts” expected an increase of about 100k jobs. That’s quite the shocker.

  16. coco

    Fed rate cut or no fed rate cut, the economy will take some kind of hit and nobody knows when or how this subprime mess will actually play out and how it will end. Liquidity may just be fake liquidity driven by credit. Americans have been living beyond their means fueled by the inflated equity bubble in their homes. We are about to find out that debt doesn’t equal wealth and the consequences of that over the next few months to come.

  17. blueskies

    debt doesn’t equal wealth and the consequences of that over the next few months to come.

    …. and the introduction of a buyers market to Metro Vancouver.

  18. Anonymous

    “I haven’t felt the pain at all, let alone directly.”

    I wonder if this blog would be around if the case were any different.

  19. robchipman

    Fish:

    See /dev/null for the reason I’ve been semi-awol. That’s the numbers hold up. The hypothesis that I hold up numbers on bearish days isn’t borne out by the evidence.

    JR: Re: Vancouver’s well documented experience””…yes, the harder they come, the harder they fall, …and Vancouver’s rise has been very strong. I think its worth pointing out, however, that it is not like ’81/’82, where we saw this kind of increase in one year. That led to a 40%-50% loss. It was a much more volatile time.

    Greg:

    “Sorry, it’s time for some real estate tycoons to reap the whirlwind, along with a few financial institutions to boot.”

    That’s really where my questions are going. Will it be real esate holders and a “few” financial institutions that reap the whirlwind, or a lot of financial institutes, and a lot of corporations with ABCP? (Cameco, for example, a uranium miner, has big ABCP exposure, apparently; aside from their mines and processing facilities I don’t think they’re big real estate holders).

    So, will the pain be restricted to real estate, as bluekies seems to suggest? (I think not). Or will it spread further? (I think so). Will it re-create 1929’s crash? (I don’t think so, a la ObserverX).

  20. coco

    CTV news net….Vancouver housing boom, the real estate market that won’t go bust. First interview…. a realtor that predicts market will go up next year. Next interview…. Michael Levy who says the subprime is like an octopus with long reaching tentacles that will affect every country in the world. He said, Vancouver prices eventually would be affected too, it is just a matter of when.

  21. coco

    Paul, yesterday I posted under the stats about friends in Calgary who were saying prices have been falling the last couple months.

    Now, it seems we are the last hold out or are we?

  22. Lex

    If things go really bad (a la 1929) I really don’t think the “crunch” will be what economists will blame for the downturn: like how blk tues. wasnt the cause of the depression.. . i think the more likely culprit would be unsustainable home valuations in the face of rising supplies coupled with untested loan structures.

    Vancouver has two of these elements: unsustainable home prices & rising supplies.. and it used to have the exotic loans to lesser degree.. (well vancity’s sharesies mrtg might still count). It is also a luxury city where the wealthy come to buy real estate… those thinking its still cheap alternative to london/paris/monaco/ny/etc.. are wrong today, unfortunately: ask rob.

    So if the richest country in the world, which also happens to be far and away our largest trading partner goes into recession, it stands to reason that Vancouver, canada’s only luxury city, will suffer.

    If financial doomsday does come.. so should our listings or else a lot of people will lose a lot of $$ and/or the deeds to their homes/grow ops.

  23. Fozzie

    “The question I throw out for discussion is: where will the sub-prime spawned credit crunch hurt most? In the actual real estate markets where it began? In all real estate markets? Or in other areas?”

    I believe the effect will be spread broadly, although perhaps not evenly, throughout the economy. Initially in the US, then ultimately in Canada. This is not a minor event.

    As far as Vancouver RE, I think it has been priced for perfection for quite some time. I don’t think there will be a collapse, but I can’t imagine how it won’t be affected. The economic inputs are no longer perfect, and as they deteriorate I suggest that prices can only move in one direction.

  24. VHB

    Two distinct impacts of the mortgage mess in the US (It’s not just “subprime”. Prime Jumbos, Alt-A etc. are also in trouble.)

    1. People who invested in various flavours of MBS and CDOs either directly or through hedge funds take a haircut. Some big; some just a trim. With some skill, the central bankers should be able to keep the financial system from total meltdown. This matters for the richies and pension beneficiaries who have money invested in these instruments. Very little direct impact on real estate. This involves a repricing of loans made in the past.

    2. The second impact is forward looking – the loan market in the future. Loans that were being made 3 months ago are no longer available. People were able to buy 900K bungalows in the OC only because there was someone willing to make the loan. No more loans, no more 900K crappy bungalows. That might take some months to work through, but by the time we start seeing post-August housing sales numbers (these will be out in October or so) we will see a VERY drastic change.

    Factor #1 doesn’t matter much for Vancouver. Factor #2 matters a lot. The people who buy securitized bonds don’t care too much if the underlying loans are in Burnaby or Boston – they just really care now about being paid a premium yield. Goodbye loose lending. Goodbye housing boom.

  25. blueskies

    VHB good to hear from you!

    you are right !
    the punch bowl is empty
    big party is over…..

  26. coco

    BOC and Fed only react to economic circumstances by raising or lowering interest rates. Interest rate hikes/cuts take months to work their way through the system. If the BOC and FED could predict economic reaction with precision we would never have too high inflation, too much economic growth, economic slowdowns or recessions.

    VHB,
    Factor #3 Fear/Psychology shift. Can be set off by a variety of things.

  27. paul

    The credit crunch will also effect the demand side of things here in Vancouver. My mortgage broker said that the sub prime guys in Vancouver have basically closed up shop. He was doing quite a few of them before mid August. There goes the last of the first time buyers and drug dealers etc.

  28. robchipman

    VHB:

    Nice to hear from you, btw. Hope all is well with you.

  29. fish

    Ron- “See /dev/null for the reason I’ve been semi-awol.”

    Hope the matter is resolved quickly and with a good outcome.

    As to the fall-out, seems to be hitting the market hhard today. Even gold stocks are dipping.

    the problem is no-one knows if this will lead to bank failures (it could) or be contained.

    Either way it has already dried up cheap, easy high-risk credit and has a way to go yet.

  30. fish

    Ooops- sorry. Meant ‘Rob’. Hope everything works out OK.

  31. Geezer

    Coco wrote:

    “CTV news net….Vancouver housing boom, the real estate market that won’t go bust. First interview…. a realtor that predicts market will go up next year. Next interview…. Michael Levy who says the subprime is like an octopus with long reaching tentacles that will affect every country in the world. He said, Vancouver prices eventually would be affected too, it is just a matter of when.”

    Levy was on CKNW earlier in the day. When a caller asked him if his predicted correction is coming next week or in 5 years, Levy replied “That’s the $64,000 question, I don’t know.”

    That seemed like a pretty vague time frame to me and it makes it a prediction that few will argue with. If the eventual downturn comes in 3 or 4 years he will still probably say “I was right”, just like some of the bearish posters who have already been saying “a correction is coming” for more than three years.

  32. Tony Danza

    Geezer, Your posts have got to be the second most useless posts in the blogosphere, just behind satv.

  33. WHY BUY

    Just wondering what reason is there to buy even with 25% downpayment. I have 200k at min %5 anyway you look at it renting is a + situation. The days of %10 yoy gains are way behind us and if it just evens out as everyone is wishing its basically free to rent and keep on saving. Opinions ???

  34. Al

    WHY BUY, you have your 5% with GIC, I guess?

    Don’t you worry that it is taxed as income? Different, if you buy RE.

  35. robchipman

    Tony:

    Excellent contribution.

    Geezer:

    Michael Levy has been calling for a reversal in the real estate market for quite a while. ike me, he realizes that you can’t pick a date, and that’s fair. However, he’s a little prejudiced against RE. That doesn’t hurt right now, but like many RE bears, he’s been, um, conservative while others have made hay. He’s a smart guy, but you need to take what he says with a grain of salt.

    Fish:

    The tough part is that the patient is elderly, so nothing is resolved quickly. Its one serious challenge after another. That said, things are looking up. I’ll get back to average DOM, prices, etc, as soon as I can.

  36. coco

    Geezer,

    I think the point of the story is the new media coverage on real estate, it’s just not the realtor who states real estate is going to keep going up and up being aired only like it was in the past.

  37. coco

    Rob,

    You can have bushels of hay, but if you don’t sell it and the price falls, then you really only have hey, hey, hey, what happened on paper and not in cold hard cash.

  38. Gadwin

    VHB Wrote:

    >The second impact is forward looking – the loan
    >market in the future. Loans that were being
    >made 3 months ago are no longer available.
    >People were able to buy 900K bungalows in the
    >OC only because there was someone willing to
    >make the loan. No more loans, no more 900K
    >crappy bungalows. That might take some months
    >to work through, but by the time we start seeing \
    >post-August housing sales numbers (these will
    >be out in October or so) we will see a VERY
    >drastic change.
    >
    >Factor #1 doesn’t matter much for Vancouver.
    >Factor #2 matters a lot. The people who buy
    >securitized bonds don’t care too much if the
    >underlying loans are in Burnaby or Boston – they
    >just really care now about being paid a premium
    >yield. Goodbye loose lending. Goodbye housing
    >boom.

    Interestingly, looking at Edmonton’s meltdown, the credit crunch had little to do with the panick ongoing in Edmonton now. Edmonton’s meltdown is purely related to psychology and fear, rather than the inability to get a mortgage.

    Ironicially, the credit crunch will just add fuel to the fire in Edmonton going forward … buyers will have an even harder time getting a mortgage. I wonder if the credit crunch will be the nail in the coffin that reverses Vancouver’s market?

    Gadwin

  39. Snick

    “I think its worth pointing out, however, that it is not like ‘81/’82, where we saw this kind of increase in one year.” – Rob

    Really? That’s why this one will be worse. The LONGER this has gone one = the more brutal the downturn.

  40. Anonymous

    coco wrote:
    September 7th, 2007 at 5:16 pm

    “I think the point of the story is the new media coverage on real estate, it’s just not the realtor who states real estate is going to keep going up and up being aired only like it was in the past.”

    Coco, Right on!
    Whether one agrees or disagrees with Michael Levy, his name is well known.
    Kudos to CTV for quoting him on “the subprime is like an octopus with long reaching tentacles that will affect every country in the world.”
    I was presently surprised when I watched that clip on TV last night.

    The clip also showed a fairly young guy who just bought because he was afraid that prices would increase some more.

  41. robchipman

    I don’t think anyone disputes that the sub-prime is like an octopus. But, if its like a long tentacled octopus, it stands to reason that the effects won’t be restricted to real estate. They may not even effect real estate as badly as they effect other things (anyone want to buy some mortgage backed paper? Yesterday’s post speculated it might go 50 cents on the dollar. Do we expect a 50% devaluation of real estate?)

    Levy is well known, and he’s a smart guy. He has also been calling for a correction in real estate for a long while now. In that regard he’s no more of an expert that most other people who read this blog and who generally have more in-depth info sources than CTV. (No offense, but connect the dots: the sub-prime problem became noticeable when it began effecting equities, and one of the first problems was in France. That’s weeks old now. Pointing out that its going to have a long reach isn’t exactly news).

    Coco:

    If you don’t sell you don’t realize your paper gains. You also don’t realize your paper losses. The key issue is housing demand and whether you can hold, and you know my advice on that. Real estate, unlike hay, doesn’t rot.

    Snick:

    Strange and slightly perverted wishful thinking. History doesn’t support your thesis.

  42. Anonymous

    Rob, how long have you been a real estate agent?

  43. The unthinkable "Renter"

    VHB,

    WTF is this it or what. Is this really the END>???

    Please post links and/or supporting info.

    We’ve been hearing the sky is falling for 3 years now.

    Do I drop $300k on a house or
    do I enjoy 5% $18,000K per year

    HAHAHHAHAHAHAHAHAHAHAHAHAHAAH!!!

    It’s all mine!!!The register is empty!!!

  44. Johnnyrent

    Rob

    If you’re referring to Snick’s observation that the longer something has gone on, the harder it will fall, I’m in agreement with Snick. Moreover, in examining the historical charts of Vancouver’s ups and downs over the past few decades, Snick’s thesis would seem to stand up to scrutiny.

    Are we at the top? Who knows? I think we are but then I thought we were last year at this time and I was proven wrong. All I know (and, I think most of us recognize) is that nothing goes up forever. It stands to reason that if it has gone up very significantly over a protrated period, it has the risk of going in the other direction, significantly, for a protracted period.

    Smart RE investors like you will work successfully around any contingency, real or projected. It is the great unwashed who potentially get their proverbial knickers in a knot who might be victims in any downturn. We’ll all see how the cards play out – but, if I were a betting man, I wouldn’t be betting on GVRD residential RE at this particular time, unless I’m in for a very long haul.

    My two bits worth. JR

  45. Jacob

    Rob said:
    Real estate, unlike hay, doesn’t rot.

    except for: leaky condo’s, wooden shacks, cookie-cutter townhouses…

  46. fish

    Looks like Friday will be a very big listing day..wonder what the list/sales ratio is?

    http://vannumbers.wordpress.com/

  47. News Flash

    “Michael Levy has been calling for a reversal in the real estate market for quite a while”

    I remember Michael Levy on Money Talks in April 2004. He was commenting on the line ups at Yaletown Park presales. He said if they are lining up for them, it is probably time to get sell. Yaletown Park condos have since gone up 75%. If you put the standard 25% down your return is 300% over 3 years.

    I like Michael Levy, but it is hard for someone to change their “direction” once committed.

    BTW – Michael Levy owns his own home in South Surrey so maybe he wasn’t so sure back in 2004.

  48. Snick

    “Michael Levy has been calling for a reversal in the real estate market for quite a while”

    Like most people, he probably didn’t realize the exent of the financial shenanigans that will be coming to light.

  49. crasher

    NewsFlash said
    “but it is hard for someone to change their direction once committed”

    No sh*it….this coming from the blindest of the blind hast to be the understatement of the week.

    Wake up man, the party’s over.

  50. robchipman

    Jacob:

    “Under all is land” is the definitive quality of real estate. 10 years ago leaky condos were a horror story; people who were able to hold (or even purchase more distressed leakers) have more than recovered; I’ve sold countless building lots with old structures on them for excellent prices; I’ve collected rent for more than two decades off cookie cutter townhouses.

    You’re confusing the income generator (the building) with the real asset (the land). The land doesn’t go anywhere, and it doesn’t go bad.

    Newsflash:

    If your quote about Levy is correct (“He said if they are lining up for them, it is probably time to get sell. Yaletown Park condos have since gone up 75%. If you put the standard 25% down your return is 300% over 3 years”), then he’s simply done the same thing as a lot of other bearish observers. I don’t think the point is that he was wrong, but that a smart guy like him was not able to accurately predict what this market will do. Is he right now? Maybe, but let’s not forget that he (like me) doesn’t commit to a date. Its kind of foolish, in light of that, for a bear to point to him as an oracle of impending doom. (Btw, thanks for backing up my own memories of his position, and yes, I realize that you’re not one of the bear’s pointing to him).

    Crasher:

    People have been saying “wake up, the party’s over” for a few years now. Has something changed to make it accurate this time? Are you taking off the sarcasm tags when you say “It’s different this time”?

    Johnnyrent:

    The longer the rise, the harder the fall? That’s the hypothesis, right? And you think that Vancouver history over the past few decades support this?

    1980-81 we doubled in a year, then in 1981-82 we dropped 35%-40%. Short run up, large fall. In fact, the largest drop we’ve had, percentage wise, in the last few decades. ’84-’90 we had a steady run up and gained almost 200%. Then we droped 15%-20% between ’90 and ’91. Long run up, smaller drop, percentage wise and and in absolute numbers. ’91-95 we saw an increase of about 80%. That dropped about 25% over the next 4 years. That brings us to the current run up.

    The shortest duration run up had the biggest drop. The 6 year run up had the smallest drop. The medium length run up had the medium size drop.

    One thing you need to remember before you buy anything Snick has for sale: he doesn’t let facts get in the way of his opinions.

    When you say “I think we are but then I thought we were last year at this time and I was proven wrong. All I know (and, I think most of us recognize) is that nothing goes up forever ” I think you’re expressing some pretty common, and pretty solid beliefs. You know that I feel the same way.

    When you say “It stands to reason that if it has gone up very significantly over a protrated period, it has the risk of going in the other direction, significantly, for a protracted period” I think you’re on shaky ground. The risk exists, yes. But length of price expansion period doesn’t seem to contribute to length of price contraction, and it doesn’t seem reasonable to me to assume that it should or would. There are too many variables. I thik its arguable that holders of particular equities (say in companies with too much cash waiting (on their banker’s advice) in ABCP) will suffer more than a guy holding real estate in a neighbourhood that sees historical highs for foreclosures. We’ll have to see as this thing unfolds, but its certainly possible.

  51. Johnnyrent

    Rob

    Points taken. Let me revise the thesis by observing that the steeper prices climb in a relatively short period, the greater the risk to significant declines. Basically, the frothy market syndrome.

  52. Id

    “Has something changed to make it accurate this time? Are you taking off the sarcasm tags when you say “It’s different this time”?”

    Rob, something called subprime lending has disappeared in Canada since August 2007. The pool of buyers has effectively gone smaller. This happened quietly without RE media mentioning this fact at all. What is going to replace subprime? Is it 100 year mortgages? Japan had them, but the prices fell 100% in 17 years. Mortgage interest tax deductions? Possibly, but the government needs more, not less taxes from us…

    June 2006 looked like a top just before CMHC lowered down payment requirements to 20% and started insuring 0% down mortgages. The 40 year mortgages also came just in time to support the market. This has gone longer than anybody anticipated, because the credit bubble was feeding on easy credit, low rates, ideal economic conditions and a pool of new buyers. (I have personal anecdotal evidence that a some buyers are existing owners leveraging up to the teeth and holding a few investment properties)

    So, what is different now? The easy credit is pulling out, the pool of buyers will be shrinking, and economic conditions are changing with US going into recession this fall. The rates are subjects to banks and bond market risk valuation. The bonds yields may fall, but the mortgage rates may go up. The margin requirements (i.e. down payment) will also get tighter.

    There is also difference between US and Canadian banks lending. The lenders in the US has shifted bulk of risk to investors via special mortgage investment vehicles (MBS). They are going closing down because the commission stream is gone when investors stopped buying MBS.

    The Canadian lender are taking more risk in carrying mortgages on their balance sheets at the current RE valuations, so they will feel the pain the MBS investors feel and WILL stop the easy credit machine very sharply once the tide in HPA changes and risk repricing starts.

    Right now, there is no RE value in Vancouver. Period. 4-5% cap rate on CP is not enough to compensate for the risk.

    The real values right now are cash, gas, food, smokes, liquor and basic services – all basic things that paid in cash for or monetized by credit cards. The businesses that provide these necessities are very cheap because you cannot buy them on credit from the bank.

  53. coco

    If we see a few months of price declines or if the “fear” mode grips the market, one can only wonder how many people will panic to sell their secondary (investment) properties.

    Although, I’m no expert; I would probably say there are more secondary/investment properties held now than ever before.

  54. Rob T

    VHB, pleasantly surprised to see you popping up. Can we convince you to bring back the blog?

    I’d like to hear from the market psychology gurus.

    Thought experiment: postulate that it’s exactly as easy to get a mortgage today in Vancouver as it was 6 or 12 months ago. With credit crunch headlines in the US, will that fear alone cause people to go rushing *into* mortgages (“Better get one while we can!”), or will it cause them to rush *out* of RE (“Better bail out before this thing crashes!”)

    I really don’t know, but it’s easy to imagine just the news reports alone having some sort of impact on the rates at which people acquire or divest themselves of mortgages. Certainly lots of people are looking to get out of the sub-prime junk-bond market, but what about the loans themselves?

  55. Rob T

    clarification: I’m not Rob Chipman, but I am a Rob. Don’t add to his stress by blaming him for anything ridiculous I might say.

  56. robchipman

    JR:

    I agree. Rapid price gain is scary. That’s not what Snick said.

    Id:

    There was a lot of sub-prime lending in the US. I haven’t seen a lot of it here. Some, yes, but not a lot. I have seen funny twists to sub-primes here: a building that is easy to finance with regular mortages suddenly can’t be financed with the sub-prime version. Go figure.

    You may be right that easy credit (in terms of US style sub-primes) is a thing of the past, but I think you’re giving it too much credit for our current run up. We have (and had) an different system than the States. Yes, our mortgage rules have relaxed substantially since I began, but let’s just say I think you’re painting a grimmer picture than really exixts. Time will tell which of us is correct on that.

    As for the govt needing more taxes from us rather than less, that would be in order to have what, a bigger surplus this time, or just another surplus to go with the record spending? (Don’t get me wrong. I think they’d do anything they had to to support housing prices. Provided it didn’t cost them anything). 🙂

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