Thursday, July 3, 2008

Price Hiccup

This article is using familiar talking points to make the case that it's different here in Canada.

For example, one widely followed U.S. measure, the Case-Shiller index of average prices in 20 large cities, is now down 15 per cent from a year ago. Some cities, like Miami and Las Vegas, are down as much as 27 per cent.

It's true that a few Canadian cities are showing much smaller price declines - Edmonton down by 4.9 per cent in the past year, Calgary down 2.4 per cent and Windsor down 5.5 per cent - but only in Windsor does this reflect economic distress. In Alberta, the price reversals look more like a hiccup after huge runups.

The author put the hiccup label after referring to an economist that noted Canada's price trends are similar to the US with a time lag. The author clearly did not look at price trends as 'hiccup' can only be identified after a recovery has occurred. There is a difference between wanting a recovery and seeing one in trends.

There was little if any such lending in Canada, where banks are much more conservative, and only minor signs of speculative buying.

I tend to agree that Canadian lending was 'less brutal' than that in the US. But 40-year and 5% or less down mortgages are very common in Canada. Consider the possibility that 'less brutal' may not be the same thing as good.
Alexander believes that the surge of sellers just reflects the fact that as homeowners saw prices reach higher levels than they'd ever expected, any who had been thinking of selling - perhaps because of impending retirement - decided to grab the money right away. And of course, as price gains weakened, more sellers had the same motivation.

But there are very few distress sales in Canada and voluntary sellers usually refuse to sell at much of a loss. And since banks aren't auctioning off large numbers of foreclosed homes, there's no reason to believe that any meltdown is coming.

This is totally using the same logic as the 'hiccup' interpretation earlier. A warm and fuzzy explanation for a national sales plunge which in the states was followed by a meltdown. While I expect that Canada is in better shape than the US (except Vancouver) there are a lot of shades between "US style meltdown" and the "soft landing" proposed in this article. Just because Canada may not experience the exact same catastrophe does not mean everything will be A-OK.

More on monthly numbers in a few days. For those following Bob Truman's comments, just look back on this blog and see how he cheered 'Days on Market' without mentioning seasonality and now is getting all hot and heavy with the June sales. These sales happened but look at the CREB charts to put it into perspective.

8 comments:

Anonymous said...

If you add the 2% inflation to the 5% drop in prices - you get a "real" drop of some 7% for Edmonton

squidly77 said...

edmonton june report
have at her bearclaw

chickens said...

Bearclaw said on Jan 24
"This post will explain why Days on Market (DOM) is not a great indicator of market trends."

So why are you hot n'bothered all of a sudden by days on the market? Expediency?

BearClaw said...

chickens,

If you look at Truman's blog the title is "stark reversal" then changed to reversal of trends. I see some stats that improved over last month and some that have gone more negative. Basically everything is down from last year. That's just objectivity. The 'days on market' was just to point out the inconsistent way of interpreting data.

Anyway all of my blog posts are here for you to scour through, Truman seems to have removed lots of commentary from before May 1st.

BearClaw said...

squid,

wow. Im gonna go outside and have a Kokenee. I'll write something up about the EREB report sometime. It just hurts to read. I mean you have all negative numbers and then to say unnessasarily put off a buying decision. Houses are expensive! How about saving for a downpayment!? Is that unnecessary? I'm still watching but ill post in couple days.

Toronto real estate agent said...

As a Toronto real estate agent I think that if the US will experience a 'meltdown' then Canada won't pretty much be A-OK. Not only Canada but many other countries are influenced by the trends in the US.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

*Expletive* you Ed Jensen and the Calgary Real Estate Board. All you liars are going down. God help you.

***edited comment -BearClaw***