Real Talk!

Bubble, Bubble, Toil & Trouble...

I had two phone calls, today, in which the callers mentioned a burst in the real estate bubble...

Okay... so today's headlines in Canadian Real Estate are filled with gloomy stuff like....”Report Warns of Housing Bubble Threat”.... “HOUSING PRICES in the hottest Canadian markets a concern”.... “All the hallmarks of an accident waiting to happen” .... “Threat of housing bubble has resurfaced” and most of the articles refer to a "new report"....

Yes... “the report” say that prices in six of the country's largest housing market have hit 30 year highs... okay... and? & the report warns: bubbles occur when housing prices increase more rapidly than inflation, household incomes and economic growth.

let's not get too uppity... if one actually reads the articles... the accident that is “waiting to happen” has a big IF... and that IF, is if mortgage rates rise too sharply... said report also states that there have been 3 burst bubbles in Canadian history- one in Vancouver in 1981, another in Vancouver in 1994 and one in Toronto in 1989.

and further... that the concern exists in 6 residential markets. Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal...

and, in some articles, the author of “the report” is quoted saying these markets COULD be in for a correction in those markets (at best) and a bubble burst (at worst)... using the '06 U.S. housing collapse as a model, the publishers of “the report” cite Edmonton and Montreal as markets that MIGHT see a 34%-38% reduction in the value of their property in less than 3 years.... although Vancouver is supposed to be the worst hit- well, supposedly, in terms of dollar value.

Now, let’s examine the source of these headlines....

According to their website: www.policyalternatives.ca (an Ottawa based group) : The Canadian Centre for Policy Alternatives is an independent, non-partisan research institute concerned with issues of social, economic environmental justice. Founded in 1980, the CCPA is one of Canada’s leading progressive voices in public policy debates.

We have a National Office in Ottawa, and provincial offices in British Columbia, Saskatchewan, Manitoba, Ontario, and Nova Scotia.

The CCPA is a registered non-profit charity that depends on membership fees and donations. Their website says they have more than 12,000 members across Canada.

One website I visited describes the CCPA as left-leaning & often gloomy (at least when they're speaking about government policies)

On the other hand, another group “the C.D. Howe Institute” says that national housing policies should help mitigate the risk of future defaults and that that Canada will not experience the kind of dramatic housing bust that occurred in the U.S.

The C.D. Howe institute was noted as “right-leaning, market-oriented” in that article that labelled the CCPA as left-leaning and gloomy.

Meantime, recent CMHC report suggests "Existing home market conditions will remain balanced over the next two years as (multiple listings service) sales ease and inventory levels remain elevated."

An August 26, 2010 article written by L. Ian Macdonald, Postmedia News for The Vancouver Sun entitled “Economic storm clouds threaten to rain on Harper” - in which the author clearly states “We're not in bubble territory...”

David Larock (an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages)who regularly writes for (movesmartly.com) and on his own blog (integratedmortgageplanners.com/blog) recently wrote “ [in the] Spring Mortgage Market Update, we tried to talk people off the ledge, predicting that interest rates would not go to the moon despite the ominous forecasts of most bank economists. Since that time, these same economists have revised their predictions of interest-rate increases downwards, citing the same factors that we used to refute their original predictions. Being wrong didn’t hurt the banks at all mind you. Far from it in fact, since the customers that heeded the bank’s dire warnings converted to their much more profitable fixed-rate mortgages (I guess having the bully pulpit has its advantages). What a shame for customers who locked in at 4.4% when five-year fixed-rate mortgages have come down to 3.9% since that time.”

And Larock also says “I Think Fixed-Rates…Will go lower before they go higher.”

I have to admit, I really liked the image of talking people off the ledge! 'Cuz, these kinds of headlines can cause panic!

Okay... let's cut to the chase. Generally, the idea of a bursting housing bubble suggests certain potential for mass foreclosure and other forms of property seizure.... AND, we can't avoid seeing and hearing news from our neighbours south of the border, where these images are more of a reality... so... it's downright scary!

But, to be honest... back in the mid-90s, I did have to tell some people that the cottage they'd bought the previous year had lost a significant amount of value... it is true... but the most recent boom was nothing compared to the late 80s and I have spent a great deal of time, since then, explaining to prospective cottage buyers that cottages aren't usually a good short-term investment. USUALLY. Of course, there are exceptions.

A cottage, or secondary property, is something that should be purchased with great care and consideration. It is both a luxury and an investment. To be sure, a cottage builds sentimental equity... but as a commodity, when placed on the market, a cottage has to be seen quite differently...

which is why a real estate professional provides a prospective seller with information about current market conditions before they establish a listing price... and why they provide a prospective buyer with information about current market conditions before they make an offer. Well-informed buyers and sellers can come to a fair and reasonable meeting of the minds... and so far, I haven't had anyone purchase something that they are in danger of losing... nor have I heard of anyone who has...

& as for all this talk about bubbles... I haven't seen any real indication (at least not in these here parts) of any bubble... BUY and SELL smart, people!

I'm Forever Blowing Bubbles
written 1918 by James Kendis, James Brockman and Nat Vincent

I'm dreaming dreams,
I'm scheming schemes,
I'm building castles high.
They're born anew,
Their days are few,
Just like a sweet butterfly.
And as the daylight is dawning,
They come again in the morning.

Chorus
I'm forever blowing bubbles,
Pretty bubbles in the air.
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.

Verse 2
When cattle creep,
When I'm asleep,
To lands of hope I stray.
Then at daybreak,
When I awake,
My bluebird flutters away.
Happiness new seemed so near me,
Happiness come forth and heal me.

Chorus
I'm forever blowing bubbles,
Pretty bubbles in the air.
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.

Economist Adrienne Warne expects Canadian housing prices to flatten for the rest of 2010. New housing prices in June rose 0.1 per cent according to Statistics Canada, following a 0.3 per cent increase in May.

But July's housing starts slipped to 189,200, led mostly by a decline in new single-unit homes, according to numbers released Tuesday by Canada Mortgage and Housing Corp. The Canadian Real Estate Association said Monday a total of 31,536 homes were sold in July, compared with 33,836 in June. The average price of homes sold in July was $330,351, edging up one per cent from the same month last year. But that was down considerably from the average of $342,662 in June.

Year-to-date transactions are up 5.6 per cent, compared with the first seven months of last year. However, activity rose sharply over the second half of last year and experts aren’t convinced that is going to happen this year.

New supply continued to adjust to lower demand. The seasonally adjusted number of new residential listings declined by 7.2 per cent in July 2010, compared with June.

“While the average home sale price was higher in July than one year ago, prices will inevitably fall in response to a large oversupply of homes on the market," says Queen’s University professor John Andrew.

“It looks like anyone who wanted to buy a house this year in Canada got their shopping done early," said Doug Porter at BMO Capital Markets.

The Canadian Real Estate Association predicts a fall in the supply of homes in Canada coming onto the market is expected to spearhead a rise in Canadian property prices, but also lead to a decline in sales transactions. However, Phil Soper, president and CEO of Royal LePage Real Estate Services, says "An expected increase in the supply of homes on the market will now bring stabilization in prices and in some cities, we will see both prices and unit sales decline towards the end of the year. This should not be interpreted as a severe correction, but rather a natural reaction to the market having peaked quite early this year."

Georges Pahud, CREA president, said: “The Bank of Canada recognizes that inflation remains well contained and that economic growth will soften, so interest rates will rise slowly and at a measured pace, which will keep home financing within reach for many homebuyers.

Queen’s University real-estate expert John Andrew thinks the typical seasonal slowdown in late October and November will be even sharper this year. He says those months could prove the best time for a buyer to strike a deal.

Opportunists who were looking to take advantage of fire-sale prices and desperation sales in the spring have given up and generally, once Labour Day is out of the way, serious buyers who put their plans on hold during the summer will begin to move forward. Still, with fewer buyers around, the market tends to be more balanced and fair. Fall has always been a busy time in this area.

Statistics from the Canadian Real Estate Association (CREA) say the average house price has climbed 110% over the past 10 years. During the same period, the S&P/TSX composite index had a total return of about 40% AND there are now 100,000 realtors in Canada compared with 63,950 a decade ago.

Fake real estate agent gets 15 months in jail

BARRIE - An Alliston man will be spending the next 15 months in jail for trading in real estate without being registered and for defrauding potential investors of $90,000.

Terry Graham, previously of Oro-Medonte, pleaded guilty in April to eight counts of trading in real estate while unregistered and eight counts of failing to deposit trust money.

Graham was also wanted on a bench warrant after failing to appear on two similar charges in Mississauga last week.

He was sentenced in Barrie Tuesday for breaching the Real Estate and Business Brokers Act (REBA).
His case began in October 2008, when he was charged with six offences. The Real Estate Council of Ontario – which is responsible for administering the REBA – issued an advisory shortly after, and public response led to additional complaints and charges.

“I think it’s important that consumers were not able to recover their deposits, because Mr. Graham was not registered (to practice real estate),” said the real estate council’s lawyer Tim Snell.
All registered real estate professionals in Ontario must complete an educational program and take updated courses, as well as participate in RECO’s insurance program, which offers protection for consumers’ deposits in the event of fraud, insolvency or misappropriation.

Because Graham was not registered, he was not insured.

Consumers affected by him, therefore, could not claim losses, though the court has ordered he pay restitution.

The real estate council has a search feature on its website (www.reco.on.ca), so consumers can check whether or not a person is a registered real estate professional, meets educational criteria and is covered by insurance.

Snell asked the court to sentence Graham to 18 to 20 months in jail, which is almost the maximum allowed under the Real Estate and Business Brokers Act. Graham must also serve two years probation after his release.

Sentencing relating to the Mississauga charges is pending

This evening, just after sunset, Southern and central Ontario, weather permitting, should provide the most spectacular cosmic alignment of planets sprinkled with shooting stars. Yup, hundreds of shooting stars are expected to streak across the sky!

The best viewing time for the shooting stars is between midnight and dawn.... but the planetary alignment will begin right at sunset. If you look low in the westerly sky at sunset and you will begin to see Venus, Saturn, Mars and the waxing crescent Moon within 10 degrees of each other. This should remain visible until about 10 p.m.

Then, as the skies darken, starting around 10:30 p.m., the Perseid shower should kick into full flight and carry on until dawn.

If you wish to spend just one stretch of time meteor-watching, set your alarm for around 3 a.m.

Star-gazers are saying this should be one of the best displays of the Perseid meteor showers for some years because they coincide with an, essentially, moon-free night (the skies will be darker than usual) AND because we will be passing through a denser patch of Swift-Tuttle's dust stream than usual. The Swift-Tuttle comet is the largest object known to make repeated passes near Earth. Its nucleus is about 6 miles (9.7 kilometers) across, roughly equal to the object that wiped out the dinosaurs.

Comets are big snowballs of ice, dirt, pebbles and gravel, and they evaporate every time they go around the sun and leave behind all these little bits.As the debris hits the atmosphere it burns up in streaks of light. The Perseids appear to emanate from the constellation Perseus, which rises high in the sky around midnight and is nearly overhead by dawn.

Perseid meteoroids (which is what they're called while in space) are fast. They enter Earth's atmosphere (and are then called meteors) at roughly 133,200 mph (60 kilometers per second) relative to the planet. Most are the size of sand grains; a few are as big as peas or marbles. Almost none hit the ground, but if one does, it's called a meteorite.

“A very good shower will produce about one meteor per minute under a dark country sky,” observatory astronomers say. The annual August Perseid is among the strongest cascades of the year, and tonight it’s at its height. The best viewing locations will be in the Northern Hemisphere, away from the city lights and you can expect to see 75-100 meteors an hour!

Break out the reclining chair, or a rug or blanket outside.... according to the National Geographic, the best way to watch the show is by simply lying back on the ground or in a chair and watch with the naked eye. Doctors will warn you not to just look up, because you can get a crick in the back your neck if you watch for long!

Scan as much of the sky as possible. The meteors can appear anywhere, heading in any direction. If you trace their paths backward, they'll all point to the constellation Perseus.