We had 266 new listings Monday and 126 sales for a sell/list of 47.37%.
Today we had 209 new listings and 201 sales for a sell/list of 96.17%. Inventory was 11,289, of which 2,689 (23.81%) were over 90 days old.
Of todays sales 41, or 20.40%, went over list. Average list price was $574,994, while average sale price was $565,770, a difference of $9,224, or 1.45%. Average days on market were 41.
The Best Real Estate Anywhere! 
Must be a conspiracy, Rob. On a day with a sell/list of 96%, the numbers are posted by 5:30pm!
Realtors are salesmen to the core…. They will tell you and do anything you want to hear. It is their livelihood at stake.
One day blip? Will be interesting to see what happens in the next couple weeks.
98.6 and the dollars’ got a fever. Did you say BOC .25% cut next week?
how come so many expires everyday?
even the sales going down,Inventory is still sitting at 11290?
Of todays sales 41, or 20.40%, went over list. Average list price was $574,994, while average sale price was $565,770, a difference of $9,224, or 1.45%. Average days on market were 41.
Instead of saying 20% sales were over list,You should say they were underpriced …
Canadian inflation – August (due out any day here) BOC doesn’t set interest rates until Oct 16.
I said BOC may hold or may cut 25 bbp, but I have to see what some other numbers come in at first.
“Instead of saying 20% sales were over list,You should say they were underpriced …” – Helen
Helen, you can’t get Rob to concede to ANY price weaknesses. Good try, though.
“Of todays sales 41, or 20.40%, went over list.”
Rob,
In the past, you mentioned that North Vancouver was an area that is well known to price homes below market value to generate greater interest resulting in sales price above list price.
Out of curiosity, how many of the 41 “went over list” was North Vancouver?
That 50 point basis cut in the Fed Funds and Discount rate certainly took me by surprise.
The fed in it’s statement admitted that inflation fears where still there but the credit monster was in danger or dying and had to be revived at all costs.
Interesting times.
I have no idea what the BOC will do, David Dodge has been talking tough about speculators taking their medicine…but then so did king in the Uk and Bernanke in the US and they both still caved in.
With the CAD at 30 year highs I am sure he will under pressure to cut.
Will this give another little boost to housing here…may do. Making it even more over-priced and unaffordable and allowing people to over-leverage again.
But I think (and this is very much IMVHO and WTFDIK) this will be only a temp phenomenon.
Fish,
The U.S. cut rates probably to give the people that are near foreclosure a chance to sell as the markets my get a little boost.
Sure it will probably happen here as we’ll…. remember sooner or later rates will rise and we will have to pay our dues to fight inflation.
fish:
I’m confused. I was sure you were with me in thinking that the CBs would talk the talk but not walk the walk. How can you be surprised by the Fed’s move downward?
I’m starting to like the way this is unfolding, if only because I had the feeling they’d choose inflation over recession. (Keep your pants on, coco; I’m not expressing a preference for either, just predicting what CBs will do).
My call on Dodge is that he will stand pat (40% chance) or drop rates (60% chance). I guess I’m with coco on that one.
rob
The CBs will always take the path of least resistence, except for Volker who decided he would break the back of inflation whatever it took.
I wasn’t suprised by a cut, just the magnitude.
They baby-step up .25% a time when housing is flying and every bankrupt loser gets into flipping and yet, they drop both Fed and Discount .5% when oil and wheat are at all time highs, when soya and gold are not far behind, when the dollar is at 15 year lows.
What were they thinking??
Are things really that bad…that they go from cautious on inflation and steady growth to…dang it- take the money we were wrong, in the space of one month!
Imagine you are holding short-term US bonds as a foreign investor. You just got told you will get 10% less interest AND the value of the dollar has dropped the full amount of your annual return in a month.
Congress must have passed a law out-lawing further recessions, and Bernanke is clearly from the greenspan school, that excesses must be left alone and weakness must be bailed with money ASAP.
Dodge should raise rates 100 bps to take the burn off inflation. 3-6 months later drop rates 200 bps to drop the dollar like a stone and add fuel to manufacturing and exports.
It would be fun to watch anyways
they know they are playing with fire (central bankers are): it is certainly easy to ignore inflation and lower rates right now. It takes time for prices to grow. Once they do, you have a big problem in your hands but it might well be someone else’s problem (especially for elected politicians).
I think today’s news is dire news for the long-term prospects of western economies. We are a trading a bit more growth today versus a lot less growth in the later future. But, then again, it seems that people don’t care right now and everyone wants this caravan to roll on…..
From today’s FT:
“Prominent Democrats and Republicans rushed to applaud the Fed move, which came amid considerable political pressure for a rate cut.”
This just confirms what I said before: politicians (who need to be voted in) are loving it.
I am sure also real estate agents, speculators and over-extended families will not be too sorry.
Will this solve the big debt problem? No, it might actually make it worse.
Will it delay the painful outcome a bit longer? You bet…at this point I am short-term bullish on asset prices and homes. Long-term we’ll pay it dearly, but nobody seems to care about that yet.
The inflation is an interesting way to play it. Suppose you have a bunch of people who holding overpriced assets and a lot of debt, and you’re worried that if the asset prices fall, it will hurt the economy.
If you inflate, the asset prices fall in real terms, but might be propped up in absolute terms. And the huge amount of mortgage debt that people owe falls in real terms.
Yeah, you’re killing your dollar and totally screwing the elderly and other people with savings. But the dollar was going to fall anyway due to your irresponsible trade and budgetary deficits. So really, you’re only rewarding the speculators and Wall Street and punishing conservative investors. But speculators + Wall Street is probably a bigger group than conservative investors anyway when you look at savings rates, so at least you’re pandering to a majority.
It all seems like a reasonable decision, until other countries wise up, stop lending you money, and your standard of living plummets. But that could happen a decade from now, and on someone else’s watch, and they’ll be blamed for it, not you.
It will all work perfectly, until one day, it doesn’t.
I just saw CAD go over .99, parity in the morning?
If this maintains, the high dollar will be used as the inflation killer justification for rate cuts next month. I though for sure it was only going to be .25 today, Bernanke’s a bluffer.
Makes a guy wonder if the economies are totally addicted to credit and the slightest withdrawals threaten to bring the system to its knees. Therefore the only solution is to give more and more credit.
I think the central banks do understand that their primary mandate is to prevent inflation. They understand that if inflation takes off, it will be far more painful to reduce it than to prevent it in the first place. As Greenspan’s Bush-bashing memoirs make clear, its wrong to assume that the central banks are just working for the politicians.
Therefore, Bernanke’s 0.5% cut means that he sees a high probability of recession looming. The stock markets are as usual far too optimistic in seeing this cut as a reason for higher stock prices, as stock prices typically fall about 30% during a recession. I also agree that rate cuts are coming in Canada, because both the high Canadian dollar and a US/Canadian recession reduce the risk of inflation here.
However, a cut in short term interest rates does not mean a cut in mortgage rates, as longer-term rates are not set by the central banks and there is also a credit crunch. In addition, a recession will itself be very bad for the housing market. A change in market psychology is also much stronger than a change in interest rates, as shown by recent US history. I do see hard times coming for the Vancouver housing market, and these small adjustments by the central banks will have little effect on how it plays out.
Hey Rob, you’ve probably answered this before .. but are the sales reported .. are they firm? And if so, what do you think the average lag time between when the offer is made and when they go firm is?
Dodge is backed into a corner. Inflation for August is slightly lower, but certainly not quite low enough for a rate cut as that can fuel inflation again.
Inflation came in lower because of lower gasoline prices and now that trend has reversed itself. Wage increases have been high and consumer spending has also been high.
The Canadian dollar is now weakening due to the slightly lower than expected inflation numbers. I really don’t think Dodge will lower in October, but if he does it will be very little 25 bbp.
I would say there is more of a chance leaning towards staying put than lowering rates.
I was surprised that the Fed cut so much. Almost like it slapped the inflation horse on the hind quarters and said “Giddy Up, Let’s Go!”
Trying to avoid a recession by lowering interest rates in the U.S. may fuel inflation in the future and then in six months the Fed may have to raise rates.
Too much inflation is just damaging to the economy as a recession is, but in different ways. Inflation is hard to tame, the longer it rises, the deeper measures required to get prices under control. It is hard to tell if the U.S. is actually avoiding a recession by lowering rates or just delaying it until inflation sets in.
rate cut or increase won’t make much difference at this time as the prices have gone way beyond fundamentals.
After creating bubble and defneding housing prices for so long,Mr. Greenspan is saying prices will drop for years..WTF he was doing when he was fed chief?
No accountability again…And they call that ediot most successful in financials…He allowed two bubbles and he didn’t have any idea at all..both the time,only poors got killed.
No central banker is a clairvoyant into future on the consequences of lowering or raising interest rates. They can only react to the economic curcumstances at hand and hope they make the right decision.
That said, some of them have made some bad decisions in the past. Have they learned their lessons or will we see their decisions affect the economy for the worse in the future.
The US Fed is a committee and the decision yesterday was unanimous. BB has been on the Fed for years and probably has only 1 vote like the rest. I don’t know what they are seeing but I’m sure they did exactly what they had to do…. cut the rates.
another thought on 40 year amortizations.
you are merely renting the money from the bank, not really owning anything for the first 10 years or so…. which in effect makes you a lowlife renter but with property tax obligations and maintenance duties and you can’t give your notice. Hotel California indeed
not a win-win scenario
Plus, we have that old standby….economic slowdown or recession in every ten year period. We have been on a good run for six years. So…sometimes in the next four years.
Considering said: “However, a cut in short term interest rates does not mean a cut in mortgage rates, as longer-term rates are not set by the central banks and there is also a credit crunch.”
Indeed, take a look at, say, the yield on 10yr US Treasuries before and after the announcement:
http://finance.yahoo.com/q/bc?s=%5ETNX&t=5d
Rob says 41 sales went over list!!! Ah, you bears, when will you fess up and admit the market is hot, hot, hot. It’s still summer so take off your furry parkas before you are really left to sizzle as these over-list sales (I repeat. 41 of them!!! Rob just doesn’t pull these figures out of his hat!) are a harbinger of things to come.
Next Spring will witness the biggest run on real estate since the allies stormed the beaches of Normandy, and will send prices through the roof. (The roof? Well, prices to the sky is what I mean to say) Right Rob? Help me, (sniffle) Rob.
100 largest metro areas by population that are forecast to witness a decline in the median existing single-family house price
Rank Area State Peak Bottom Peak to bottom
home price decline
1 Stockton CA 06Q1 08Q4 -25.0
2 Palm Bay-Melbourne-Titusville FL 06Q1 08Q4 -24.9
3 Sarasota-Bradenton-Venice FL 06Q1 08Q3 -24.8
4 Reno-Sparks NV 06Q1 09Q1 -22.4
5 Modesto CA 06Q2 08Q3 -22.3
6 Detroit-Livonia-Dearborn MI 05Q3 09Q1 -21.3
7 Fresno CA 06Q2 09Q1 -20.0
8 Oxnard-Thousand Oaks-Ventura CA 06Q2 08Q3 -19.2
9 Sacramento–Arden-Arcade–Roseville CA 06Q1 08Q4 -19.1
10 Las Vegas-Paradise NV 06Q2 08Q4 -18.7
11 Deltona-Daytona Beach-Ormond Beach FL 06Q1 08Q3 -17.9
12 Phoenix-Mesa-Scottsdale AZ 06Q2 08Q2 -17.8
13 Hartford-West Hartford-East Hartford CT 07Q1 08Q4 -17.6
14 Cape Coral-Fort Myers FL 06Q1 08Q4 -17.3
15 Visalia-Porterville CA 06Q2 08Q4 -16.1
16 Riverside-San Bernardino-Ontario CA 07Q1 09Q2 -15.9
17 Bethesda-Gaithersburg-Frederick MD 06Q2 08Q4 -15.9
18 Lansing-East Lansing MI 05Q3 09Q1 -15.7
19 Bakersfield CA 06Q2 09Q1 -15.6
20 Warren-Farmington Hills-Troy MI 05Q4 09Q1 -15.4
21 Newark-Union NJ-PA 07Q1 08Q4 -15.4
22 Vallejo-Fairfield CA 06Q1 09Q2 -15.3
23 Orlando-Kissimmee FL 07Q1 09Q1 -15.1
24 Santa Rosa-Petaluma CA 06Q1 08Q4 -14.0
25 Poughkeepsie-Newburgh-Middletown NY 06Q2 08Q3 -13.9
26 Edison NJ 06Q3 08Q4 -13.3
27 Worcester MA 05Q4 08Q3 -13.0
28 Baltimore-Towson MD 07Q2 09Q2 -12.8
29 Peabody MA 05Q4 08Q3 -12.5
30 Nassau-Suffolk NY 07Q2 09Q1 -12.3
31 West Palm Beach-Boca Raton-Boynton Beach FL 06Q1 08Q3 -12.2
32 Tampa-St. Petersburg-Clearwater FL 06Q4 08Q3 -11.7
33 Tucson AZ 06Q2 08Q4 -11.7
34 Santa Ana-Anaheim-Irvine CA 06Q2 09Q1 -11.6
35 Washington-Arlington-Alexandria DC-VA-MD-WV 07Q3 09Q4 -11.5
36 Fort Lauderdale-Pompano Beach-Deerfield Beach FL 06Q1 08Q4 -11.5
37 Flint MI 06Q1 08Q2 -11.3
38 Cleveland-Elyria-Mentor OH 05Q3 07Q4 -11.3
39 San Diego-Carlsbad-San Marcos CA 06Q1 08Q4 -10.9
40 Los Angeles-Long Beach-Glendale CA 07Q3 09Q1 -10.6
41 Oakland-Fremont-Hayward CA 07Q3 08Q4 -10.3
42 Portland-South Portland-Biddeford ME 06Q1 08Q3 -10.2
43 Rockingham County-Strafford County NH 06Q1 08Q3 -10.2
44 Miami-Miami Beach-Kendall FL 07Q2 08Q4 -9.9
45 Boston-Quincy MA 05Q3 08Q4 -9.4
46 Providence-New Bedford-Fall River RI-MA 06Q1 08Q3 -9.4
47 New Orleans-Metairie-Kenner LA 06Q2 07Q3 -9.4
48 Wilmington DE-MD-NJ 06Q3 08Q3 -9.2
49 Cambridge-Newton-Framingham MA 05Q3 08Q3 -9.0
50 Youngstown-Warren-Boardman OH-PA 05Q1 07Q4 -8.7
51 Toledo OH 05Q4 07Q4 -8.3
52 Salinas CA 07Q3 08Q4 -8.1
53 Colorado Springs CO 07Q1 08Q3 -7.8
54 Boise City-Nampa ID 07Q2 08Q4 -7.7
55 Winston-Salem NC 05Q2 07Q4 -7.6
56 Denver-Aurora CO 06Q2 08Q3 -7.6
57 Lakeland FL 07Q2 08Q3 -7.5
58 Portland-Vancouver-Beaverton OR-WA 07Q3 08Q4 -7.2
59 Pensacola-Ferry Pass-Brent FL 06Q1 08Q3 -7.0
60 New Haven-Milford CT 07Q3 08Q3 -6.7
61 Jacksonville FL 07Q3 08Q3 -6.4
62 Camden NJ 07Q2 08Q3 -6.3
63 Minneapolis-St. Paul-Bloomington MN-WI 06Q3 09Q2 -6.0
64 Albuquerque NM 07Q3 08Q3 -5.9
65 Tacoma WA 07Q3 08Q3 -5.5
66 New York-White Plains-Wayne NY-NJ 07Q3 08Q4 -5.3
67 Grand Rapids-Wyoming MI 05Q4 07Q3 -5.3
68 Bridgeport-Stamford-Norwalk CT 07Q3 08Q4 -5.1
69 Lexington-Fayette KY 06Q1 08Q1 -5.1
70 Fayetteville-Springdale-Rogers AR-MO 06Q2 07Q4 -4.6
71 San Jose-Sunnyvale-Santa Clara CA 07Q3 08Q4 -4.4
72 Virginia Beach-Norfolk-Newport News VA-NC 07Q3 08Q3 -4.1
73 Columbus OH 05Q4 07Q1 -3.7
74 Dayton OH 06Q4 07Q3 -3.7
75 Indianapolis IN 05Q3 06Q4 -3.7
76 Provo-Orem UT 07Q3 08Q3 -3.6
77 Chattanooga TN-GA 06Q3 07Q4 -3.5
78 Tulsa OK 06Q3 07Q4 -3.4
79 Salt Lake City UT 07Q3 08Q3 -3.4
80 Allentown-Bethlehem-Easton PA-NJ 07Q3 08Q4 -3.3
81 Philadelphia PA 07Q3 08Q3 -3.1
82 Lake County-Kenosha County IL-WI 06Q3 08Q2 -3.1
83 Wichita KS 07Q1 07Q4 -2.9
84 Seattle-Bellevue-Everett WA 07Q3 08Q3 -2.9
85 Ogden-Clearfield UT 07Q3 08Q3 -2.9
86 Milwaukee-Waukesha-West Allis WI 06Q3 07Q1 -2.9
87 Birmingham-Hoover AL 06Q3 07Q3 -2.9
88 Jackson MS 06Q3 07Q4 -2.9
89 Richmond VA 07Q2 10Q3 -2.8
90 Cincinnati-Middletown OH-KY-IN 05Q3 07Q2 -2.8
91 San Francisco-San Mateo-Redwood City CA 07Q3 08Q2 -2.7
92 Albany-Schenectady-Troy NY 07Q2 07Q4 -2.7
93 Springfield MA 07Q3 08Q2 -2.6
94 Spokane WA 07Q3 08Q3 -2.6
95 Omaha-Council Bluffs NE-IA 06Q2 07Q4 -2.1
96 Kansas City MO-KS 06Q1 07Q2 -2.0
97 McAllen-Edinburg-Mission TX 05Q1 07Q2 -2.0
98 Fort Worth-Arlington TX 06Q2 07Q1 -1.9
99 Oklahoma City OK 07Q3 07Q4 -1.6
100 Memphis TN-MS-AR 06Q2 07Q3 -1.1
buy today and see 20-25% correction in next couple of years..don’t miss this opportunity.. get in guys ASAP
Has anybody ever seen the actual basket of goods that make up the CPI?
Mike:
Sales on MLS are reported when the subjects are removed and they become firm. That can be from 0 days to, say, two weeks. Longer than 2 weeks would be rare.
coco:
Inflation did come in lower, but I think that’s mostly due to the rising dollar (which is clearly deflationary). Theoretically, lower rates=more economic activity and more inflation, which should mean a cheaper dollar, but the commodities market more than balances out downward pressure on the $.
To forecast which way the i% will go I think we need to ask: who wants a stronger dollar, and who wants a weaker dollar? Who will win that struggle?
I like your confidence, though, especially when you say that the Canadian dollar is now weakening. That takes some cojones.
Domus:
I find it interesting that you think Realtors would blindly support a rate drop and more inflation. Two things to consider. First, the choice is between inflation (an ongoing, but not totally negative problem) and recession (a negative, right now; it might be good long term, but it will hurt, right now. BTW, ask who it will hurt most). Second, Realtors are self-employed capitalist entrepreneurs (that’s a simple matter of fact). Most actually see themselves that way. As such, many of them default to a more conservative position than I think you credit them with.
Blueskies:
You’re right that a portion of the mortgage is really only rent on the money (and in fact if you’re doing an interest only mortgage, all you’re doing is renting). That doesn’t mean it isn’t a win. It’s more complex than that. If you bought a place last year on a 40 year am you could probably re-mortgage today on a 25 year basis, and arguably come out ahead. 40 year amortizations are’t exactly what people seem to think they are, and they don’t serve the exact purpose that many assume.
The other implication of equating moretgage interest to rent is that if rates are low you may well consider a mortgage
a good deal rather than calculating how much interest you’ll pay over the whole term of the mortgage (if you bought in 2003 with a 25 year term at 4.5%, would you be unhappy today?) .
Popeye, with all the agents using the ruse of underpricing housing to create a bidding war, I wouldn’t read too much into what sells over list.
Your post reads like something from 2005 but in 2005 there was no credit crunch, no run on banks in the UK and no former Fed Chairman saying the Fed with have to raise interest rates in the future into the double-digit arena.
Get real. A change is afoot.
Rob said:
“Two things to consider. First, the choice is between inflation (an ongoing, but not totally negative problem) and recession (a negative, right now; it might be good long term, but it will hurt, right now. BTW, ask who it will hurt most). Second, Realtors are self-employed capitalist entrepreneurs (that’s a simple matter of fact). Most actually see themselves that way. As such, many of them default to a more conservative position than I think you credit them with. ”
Rob,
you really confound me there…
What do you mean by saying that inflation is “ongoing, but totally negative” ?
I am talking about a change of inflation from the current 2% to something like 4% in the next 18 months. This would imply:
– higher long-term rates;
– lower labor supply;
– distortions in investment decisions;
– erosion of lifetime savings for most pensioners;
– lower economic expansion in the years to come, as inflation expectations adjust.
Not totally negative? Because we buy oursleves 12 more months of low growth? You beat me…..
As for realtors being liberal entreprenurs: why would a realtor complain if the central bank makes it cheaper and easier for people to borrow more than they could in normal circumastances? Doesn’t that drive up liquidity and flares up demand for homes? Isn’t that what happened after 2001? Would a realtor take the high moral ground and say that this is inconsiderate and would have bad consequences? I doubt it….mind you, I don’t blame realtors (they just have their own incentives) I blame central banks for this short-term fix.
Helen, thank you for American forecast.
Could you, please give the link?
This just in:
Region’s housing starts sag
By Jeff Nagel, Surrey Leader
Sep 19 2007
Housing starts in Metro Vancouver are down five per cent so far this year compared to 2006, according to the Canada Mortgage and Housing Corporation (CMHC).
Construction of multi-family units, however, were up about five per cent in the seven months to the end of August, offsetting a 30 per cent drop so far in starts of single detached houses.
Total new units started in the region was 12,723 in the first eight months of the year, compared to 13,437 in the same 2006 period.
Multi-family units made up more than three-quarters of the new starts.
Vancouver starts are down by one third so far this year to 2,051, and Surrey’s are down 22 per cent to 2,466. Multifamily units made up more than 80 per cent of Vancouver units and more than 60 per cent of Surrey’s.
Mortgage rates are going up. Fed lowered overnight rate, but the bond market response was to drop prices and increase yields of long term bonds, 10y, 30y. Mortgages are linked to long term bonds, not overnight Fed rate.
“I like your confidence, though, especially when you say that the Canadian dollar is now weakening. That takes some cojones.”
Dollar hit 99.18, but fell off to 98.51 because inflation came in lower than expected. Cojones….I’m a she. lol.
Ooops, the anonymous comment was me.
Popeye,
One day blip is hardly anything to get excited about yet. If it carries on for two weeks solid, come back and toot your horn.
John,
I posted a link to what the CPI consists of quite awhile ago. You can check the old threads for a link. It was not the easiest thing to find, but if I come across it again, I will repost.
I also think other bloggers posted links too. So, if anyone has it handy?
http://www40.statcan.ca/l01/cst01/cpis02a.htm
And this one shows the basket of goods that comprise the cpi:
http://www40.statcan.ca/l01/cst01/cpis01a.htm
Northern Ally,
There is a more detailed one that breaks all those catagories down further.
yeah, it’s all on the statscan site there.
Who will win the interest rate war: the commodity rich west or the manufacturing poor east. Only time will tell.
Here is a link to what the CPI is comprised of in each of the different catagories. A so called basket (list) is established every few years and this what weights the CPI.
http://tinyurl.com/35hwhk
Subprime borrowers to lose homes at record pace (even with Fed interest rate cuts)
http://tinyurl.com/2ycbw4
Domus:
Inflation is not totally negative. In other words, there are lots of negatives (and they’ve all been pointed out) but in many respects its a manageable, ongoing problem. Its like juggling on rollerskates on a staircase. You may not want to try it, but if I describe a recession as falling down a mineshaft, you might pick the lesser of two evils. I think that’s what the CBs are doing now.
I understand that you may think recession is preferrable, and you might be right. You don’t need to sell me on that. I’m just saying that inflation is more manageable than recession, and that I think CBs see it the same way.
When you say that Realtors want more liquidity because it will increase demand for homes, I think you’re ignoring something and simplifying something else. What you’re ignoring is that many Realtors are like me: they’d prefer a stable, consistent economy rather than a volatile one, and they recognize many of the same inflationary dangers that you point to (which is why I say I’m not hoping or recommending that the CBs increase liquidity, but I suspect that they will). What you’re simplifying is the idea that increased liquidity equals increased demand equals better circumstances for Realtors. I think we can all agree its nowhere near that simple.
coco:
When it comes to being gutsy, even girls can have cojones 🙂 Point is, (my opinion only) the dollar is still going to go up, (and that’s deflationary itself), and lower inflation numbers won’t stop it. Nothing succeeds like success. Increased value of the dollar is good and bad, but it helps and hurts different people. We’ll see who wins based on what Dodge does.
“I’m just saying that inflation is more manageable than recession, and that I think CBs see it the same way.”
In which way? Are you talking short term? History shows over and over that a recession now could save much bigger troubles later.
Domus:
What I’m saying is pretty straightforward. We’ve managed inflation during a good economy for several years in a row. All players in the economy plan on it occurring, and hope tht CBs keep it within a target range.
You can’t really manage a recession. It happens, people get thrown out of work, wealth is lost in a big way and the pain is real and immediate.
So, you’re faced with a choice: maintain something that is less than optimal, and may have long term negative consequences, or suck it up and take the immediate hit. The benefit of taking the bad medicine is that we aren’t living on credit anymore, and credit isn’t supporting our strong economy. The downside is that we don’t have a strong economy. You’re not buying on credit because you’re not buying. Long term the economy may become healthier, but for many people the cure will be much worse than the disease. And since its not a theoretical issue, but rather a real, everyday thing that will cost lots of jobs, wealth etc., some people will want to avoid a recession.
When you say that history shows that a recesssion now could save bigger problems later, let me ask you this: are you willing to lose your job and a great chunk of your wealth so that my investments stay valuable? Because, obviously, the pain of a recession isn’t spread equally. The poor will suffer much more. The rich will suffer much less. Recognizing that makes it a little harder to choose the bad tasting medicine, even if that medicine holds some real benefits.
Do you really think inflation isn’t manageable? Over the past few years its been common for economists to say things like “We now have inflation under control and can maintain it withing set boundaries”; we’d have never heard that in the 70s, and I’m not certain that its completely true, but again, I think its clearly the lesser of two evils to the extent that it does respond to economic stimuli better than a recession does.
Rob, Gotta pay your due’s.
You want to get into RE at all time highs then it’s your own balls that you can lose. Be responsible with your testicles.
“The poor will suffer much more. The rich will suffer much less. ”
Nto quite correct, Rob. People on fixed income, salaries, benefits are the ones who lose most with inflation. They don’t sell appreciating goods.
Regarding your claim that inflation is being managed: I would say it was……even saudi Arabia is decoupling its currency from the dollar (end of a long time peg) because they don’t like their goods being priced in that currency.
Let me say that again: I don’t know the future, but recent monetary policy is not insconsistent with a doubling of the inflation rate within 18/24 months.
Everyone will take a hit later, especially the poor.
It was a question of letting many fewer take a hit now, but it seems those few fought their corners very well.
Well, in a recession many underemployed people go to school instead of skipping out of post secondary to take a well-paid but unskilled job in an overheated economy. In the short term, the recession may be painful. But longer term, it is good that these people have learned modern skills. Good both for the worker and Canada’s overall prosperity.
The problem with inflation that is bad for business.
Quite nicely explained here:
http://tinyurl.com/37ut8h
The poor also pay in an inflationary environment. For example, they may be subject to wage controls. Affluent people in the most high-demand areas somehow tend to figure a way around such restrictions. But the average staff member may not. Also, the inflation problem might be halted by engineering a recession, so the choice of inflation over recession may in the end lead to inflation plus (slightly delayed) recession.
Domus:
I think you’re missing the point. I’m not saying one choice is better than the other. Big inflation vs. minor recession? Pick the recession. Controllable inflation vs. huge recession? Pick the inflation. Either one can be worse than the other. Clearly, however, inflation appears to be more manageable. Central banks have actually published inflation targets. That means they think they can achieve the targets. That means they think inflation is manageable. I think that’s pretty obvious, really.
That said, don’t cherry pick and compare people on fixed incomes with people whose incomes increase with inflation. Just compare the prospects of the poor with the prospects of the rich in times of recession. Unemployment occurs when rich guys lay off poor guys. You can argue that the rich guy loses a lot of money when he shuts down the mill, but chances are he won’t have his house foreclosed on.
abc:
If the recession we’re in danger of experiencing is so severe that people decide to go back to school instead of taking a high paying construction job, then I’m with domus and coco. Bring on the hard times. My opinion is that an “engineeed” recession is pretty hard to actually pull off, while monetary policy lends itself to the idea of inflation management. My prediction that the CBs will choose inflation over recession naturally follows.
Can I be clearer? I’m not saying inflation good, recession bad. I’m saying CBs will say inflation tolerable, recession too scary to contemplate.
The number #1 mandate for the central bank is to control inflation.
They’ve screwed up! The economy is not their job.
The labour shortage is so acute right now that some businesses can barely function due to under-staffing. We have a small generation entering the labour force, lower immigration, and low migration.
I know its possible but its hard for me to imagine high unemployment in the near future.
I guess the lack of workers is another side effect of expensive housing.
Dude:
You’re making one of my points, really: if the mandate of a CB is to control inflation, then inflation must be manageable (at least in their eyes).
Priced out:
We now allow foreign workers to come here, with conditions. If demographically based worker shortages continue, do you see those regulations relaxing?
I can see regulations relaxing for foreign workers that can speak passable English. That is where things are getting really desperate, in low-skilled jobs that require some customer service abilities. But still, any workers have to live somewhere tolerable and affordable.
“Big inflation vs. minor recession? Pick the recession. Controllable inflation vs. huge recession? Pick the inflation. Either one can be worse than the other. Clearly, however, inflation appears to be more manageable.”
Agreed.
“Clearly, however, inflation appears to be more manageable.”
Absolutely not. Inflation targets are regularly missed, mostly on the upside. Inflation rates above 4% tend to be difficult to manage because affect individuals’ expectations. This is textbook.
“Just compare the prospects of the poor with the prospects of the rich in times of recession.”
Rob, you are making enormous confusion here. Rich guys will always be better off than poor guys, both during recessions and inflationary periods.
The only people who would hate a recession now are those who took up a lot of risk and debt. They are not rich, otherwise they would not leverage so much. And they are not poor because they would hardly get large leverage (apart from subprimers). Inflation would be great for them, eating into their nominal debt value.
Inflation rewards gamblers who take up debt and punishes savers. Redistribution pure and simple.
A U.S. consumer lead recession maybe unvoidable. People have become addicted to low interest rates and have taken on a lot of debt. Lowering interest rates to spur the consumer on, when people already have heavy debt loads, maybe the same as spinning your tires in the mud. Eventually you can only take on so much debt on top of debt, either you start to cut back your spending to save and pay down your debt or you end up in bankruptcy/foreclosure.
With the current inventory of homes for sale in the U.S. it would take ten months to sell off the existing inventory only. The biggest wave of teaser resets are starting next month and continuing to the end of 2008. This will add more homes to the inventory levels. It’s not looking too good.
* 10 months of inventory is the U.S. national average. Some areas like Florida have 20 months of inventory.
Domus:
I’m not confused. I’m betting that central banks will pick inflation over recession (and its a “for fun”bet – I’m not making any investments based on the guess).
I’m saying that CBs fear recessions more than inflation, and that they think inflation is manageable. They clearly think its manageable, because they set inflation targets and try to hit them. They are, to a certain extent, succesful. That’s a management exercise.
When I say the rich will be better off than the poor in a recession, I’m not looking for an argument. I’m pointing out that CBs will worry about the poor (or perhaps better worded, the non-poor). That will influence their decisions. That said, I originally said the poor will suffure more than the rich, you disagreed, and now you’re agreeing. Re-read my position – its not really controversial. To say that wage slaves won’t be hurt by a recession however, well, that is pretty controversial.
CBs think they can manage inflation, and are scared of recesssion, and will tend to pick inflation over recession, regardless of whether you or I think that’s smart.
Coco:
We’ve got about 2 3/4 months of inventory right now.