Friday, December 28, 2007
Monday, December 24, 2007
I am blessed this year with a charmed life of sorts. My workplace is an enjoyable place to be, I have food on my table every night, I have close friends whom I trust, and I have close family who is healthy and loved. I am thankful for all of the blessings God has provided.
This Christmas will be different for us as my wife and I have a young son with whom we enjoy spending time. We like playing, making wierd sounds together, eating (mmmm . . . baby food) and reading books! My wife and I are taking time this Christmas to visit with family and friends. In other words we are going to enjoy the finer things in life and I hope everyone else has the same opportunity and is able to sieze it.
I may post this week but I won't post with the usual regularity. Cheers and be safe.
Sunday, December 23, 2007
Mortgage rates have come up a lot recently with the onset and continuation of the global credit crunch. This chart actually doesn't tell the entire story as the pre-August discount rate off posted rate was around the 1.5% area and now it is around the 1.2-1.3% area so you could even add 20-30 basis points to the renewal gap to reflect this new business reality at the big banks. I am not sure how smaller lenders are dealing with this now but I know all the big banks are discounting less off of the posted rate and being a little more stringent on their lending criteria.
Friday, December 21, 2007
Wednesday, December 19, 2007
Monday, December 17, 2007
Among the highlights:
• Just over half of respondents (54%) both bought and sold a property in 2006. 44% only bought and 2% only sold a property.
• Approximately one-third of buyers are first-time home owners.
• First-time home buyers are more inclined to be young (under 45 years of age), with children, and from Asian countries in comparison to repeat buyers.
• Approximately six-in-ten of buyers and sellers are female.
• The majority (over seven-in-ten) of buyers and sellers are married or living common-law.
• Buyers tend to be younger than sellers with just over half of buyers being less than 45 years of age whereas just over half of sellers are 35 to 54 years of age.
• The average household size of both groups is 2.7.
• Approximately one-in-ten work from home and an equal size group do so at least part of the time.
• A total of 7% of home buyers bought a new home. Among these, approximately six-in-ten purchased the home pre-completion.
• Just over one-quarter of homes were bought or sold in the City of Vancouver.
• The Tri-Cities, Richmond and Burnaby each accounted for approximately 10-16% of transactions.
• Approximately 20% of buyers and sellers, most between 45 to 64 years of age, own more than one home.
• An average of just over 50% of the purchase price was financed, this proportion being relatively consistent across the Greater Vancouver region.
• Proximity to such amenities as shops, grocery stores and medical facilities is the most common factor considered in selecting neighbourhoods, particularly among condo, townhouse or duplex buyers.
• Furthermore, approximately one-third of buyers report to have paid more for their home to be closer or within walking distance to such amenities as public transit, shops and schools.
• In terms of factors considered in the selection of their home, apart from price, the style of home, followed by the size (with the majority desiring a larger home) are the most common considerations. The location and condition of the home are other important considerations.
• A total of 94% of both buyers and sellers used a Realtor.
• MLS listings on the Internet were most commonly used to market homes for sale, followed at some distance by Realtor client lists, open-houses and print ads.
• The Internet, followed by a Realtor are the most useful sources of information about homes for sale. In fact, almost nine-in-ten rate the Internet as ‘very’ or ‘somewhat’ useful.
• Email at 61% is the most commonly preferred method of receiving information by buyers who used a Realtor. Telephone calls and in person are the next most preferred ways.
Friday, December 14, 2007
Wednesday, December 12, 2007
OTTAWA — The world's major central banks, including the Bank of Canada, are launching a rare coordinated action to calm global credit markets and smooth out transactions over the end of the year.
The Bank of Canada, the U.S. Federal Reserve, the European Central Bank, the Bank of England and Switzerland's central bank made a joint announcement Wednesday, saying they were taking coordinated measures “designed to address elevated pressures in short-term funding markets.”
Investors applauded what was yet another step to deal with a severe credit crunch stemming from the tightening of bank lending standards. The Dow Jones industrial average was up by more than 100 points in midday trading, after rising more than 270 points in early trading, while the S&P/TSX composite index gained more than 120 points.
“At the very least these measures should tide the markets over the potentially awkward New Year period, and hopefully well into 2008 as well,” Capital Economics said in a research note. “They do not address the underlying imbalances threatening the world economy – notably the impact the U.S. housing slump will still have via conventional economic channels – but they should at least reduce the risk that the credit crunch tips economies into recession.”
For its part, the Bank of Canada will inject liquidity into short-term money markets, something it has resisted doing over the past few months despite widening spreads in short-term debt markets.
To date, the Canadian central bank has only concentrated on injecting liquidity into the overnight market to defend its target interest rate, which stands at 4.25 per cent. But spreads on credit for terms longer than overnight have been high and widening recently.
The central bank will enter into purchase and resale agreements with banks Thursday to the tune of $2 billion, followed by a minimum of $1 billion next Tuesday.
The Bank of Canada will also expand its list of collateral, something financial institutions have been begging the central bank to do for months.
Acceptable collateral for the term liquidity includes Government of Canada bonds and bonds guaranteed by the government, such as Canada Mortgage Bonds and securities backed by provincial governments, and bankers' acceptances and bearer deposit notes.
The Bank of Canada also said it would begin in March to accept some kinds of asset-backed commercial paper, or ABCP, as collateral for borrowing from its standing liquidity function, a pool from which banks can borrow at the bank rate, on an overnight basis, to help deal with temporary liquidity problems in their settlements.
To be accepted as collateral, the ABCP can not be the type that froze Canadian markets in August. Rather, it must be backstopped under global rules, not looser Canadian rules, the central bank said.
The fact that the Canadian central bank is taking measures it has resisted to date — making plans to accept ABCP as collateral, getting involved in term lending, and being more lenient in the collateral it accepts – suggests grave and urgent concern on the part of the central bank.
And the fact that it is coordinating credit-oriented action with other central banks suggests problems are deep and widespread, heading to a climax as the year draws to a close and demand for liquid cash spikes.
The liquidity measures are aimed at flooding money markets with extra readily-available cash at a price lower than the market is demanding now. The measures are meant to drag spreads back to more normal levels, and instill confidence in the markets.
While each central bank's measures may seem modest taken on their own, they are impressive if taken together and should be effective, said Mark Chandler, fixed income strategist at RBC Capital Markets.
“It's coordinated with monetary policy and it's coordinated with central banks, and it shows that they're listening,” he said.
Markets balked yesterday when the U.S. Federal Reserve cut its key rate by just a quarter of a percentage point, feeling the Fed was not sufficiently recognizing the pain felt from the credit crunch.
The Fed's response makes more sense now, with the news that it is coordinating with central banks to inject liquidity, Mr. Chandler said.
The action comes alongside interest rate cuts by the Fed, the Bank of Canada and the Bank of England, he pointed out, and as a package should ease problems in debt markets.
Mr. Chandler said it is wise for central banks to work together, since the problem of widening spreads in credit markets is globalized – more expensive borrowing conditions in one country has sent borrowers scurrying to other countries in search of better rates. But the pressure of their demand made for more expensive borrowing in other countries too.
So a problem in England quickly became a problem in Canada and the United States.
“We've all been fighting for the same thing, which is a pool of liquidity,” Mr. Chandler said.
That pool is now larger and easier to access.
In a statement timed to occur before the start of trading, the Fed said it planned to offer $40 billion (U.S.) in emergency funds to banks next week through an auction process.
The Fed said that it was creating a temporary auction facility to make funds available to banks and was also setting up lines of credit with the European Central Bank and the Swiss Central Bank that could be used for additional resources.
The first two auctions of $20 billion each will be next week on Dec. 17 and Dec. 20.
Analysts said the use of auctions to try to get more money into the banking system was an acknowledgment that efforts to spur direct loans from the Fed to banks through the Fed's discount window had not worked as well as hoped because of banks' fears that investors could become worried if they started utilizing the Fed's discount window to any large extent.
The Fed said it was also setting up lines of credit with the European Central Bank and Swiss Central Bank that could be used for additional resources.
The Fed said the new auction process should “help promote the efficient dissemination of liquidity” when other lines of credit were “under stress.”
It said that the temporary swap arrangements being set up would provide up to $20 billion in reserves for the European Central Bank and up to $4 billion for the Swiss National Bank. The reserves would be available for up to six months.
Since the global credit crunch hit with force in August, central banks have been injecting massive amounts of money into the banking system in an effort to keep credit flowing.
However, those efforts have only been partially successful. Many businesses and consumers report rising trouble in obtaining loans as banks become more fearful about extending credit in the wake of a surge in bad loans stemming from the U.S. housing crisis.
But I thougth these problems were contained to the United States and only affected a few deadbeat borrowers called subprime!?!?!
Check out Calculated Risk on this topic.
Or Floyd Norris' comments at the NY Times.
Monday, December 10, 2007
For comparison purposes I have selected two typical 'first time buyer' residences in the Lower Mainland to determine what I consider to be a “fair market value” for these homes.
I am comparing the monthly cash outflow for buying versus renting, with renting representing the fair market value of the monthly cost of the housing in question. Sources for data are the Multiple Listing Service for local asking prices and Craigslist for local asking rents. I have tried my best to find units that are as similar as possible.
Mohican's fair market value is based on the fundamental price of the housing (rent) minus any extra owner incurred costs plus any principal paydown
- 100% financing
- 6% fixed five year mortgage rate with 40 year amortization
- Inclusion of maintenance fees and property taxes
1) Our first candidate is MLS # V673124 in the Central Park area of Burnaby. It is a two bedroom, 1 bath condominium. Maintenance fees and property taxes are approximately $400 / month. I assume the purchase price to be the asking price at $309,000. In this scenario a buyer would have monthly cash expenses of $2,084 = ($1,684 + $400with only $158 of principal pay-down for a total net cost of $1,926 / month. For comparison I found a comparable unit for rent in the same neighborhood, with the same features for $1200 / month for a net savings to the renter of $726 / month. Based on these numbers the mohican fair market value of this condominium is $183,456. This represents a 41% decrease from the current day asking price.
2) Our next candidate is MLS# F2730243 is a 3 bedroom, 3 bathroom townhouse in the quickly growing Clayton area of Surrey. This townhouse has an asking price of $334,900 and maintenance fees and property taxes are approximately $350 per month. In this scenario a buyer would have monthly expenses of $2,175 = ($1,825 + $350) of which only $172 is principal paydown. This gives us a total net cost of $2,003 per month. I found a comparible unit for rent in the same complex for $1600 / month. This gives the renter a monthly net savings of $403. Based on these numbers the mohican fair market value of this townhouse is $266,012. This represents a 21% decrease from the current day asking price.
This study examines the investment timing performance of equity mutual fund investors and its relationship to the distribution arrangement of the fund. We find that investors who transact through investment professionals using conventional distribution arrangements experience substantially poorer timing performance than investors who purchase pure no-load funds.
Investors in all three principal load-carrying retail share classes (A – Front End Load, B – Deferred Sales Charge, and C – Trailer Fees) significantly under-perform a buy-and-hold strategy. Among all load funds, Class B investors suffer from the poorest cash flow timing, underperforming a buy-and-hold strategy by 2.28% annually, compared with annual underperformance of 0.78% for investors in pure no-load funds. No-load index funds are the only funds found to show no evidence of poor investor timing. Although investors are ultimately responsible for their own investment choices, these findings question the value being added by investment professionals who sell mutual fund shares through conventional / commissioned distribution arrangements.
We examine the relationship between fund distribution arrangements and investor timing performance. Our study expands on the finding that the timing of shareholders’ trades causes their actual performance to lag behind the performance of the funds in which they invest. Given that the majority of fund shares are purchased through investment professionals, we explore whether shareholders who rely on the advice of such professionals benefit by avoiding the perils of market timing.
We find that investors who use investment professionals to purchase load or legal no-load funds experience greater losses due to poor timing than investors who buy pure no-load funds. This finding persists whether the fund is actively or passively managed. Load fund Class B shares have the lowest alpha, reflecting relatively high annual expenses, and existing evidence suggests that B shares are generally a poor choice for investors. The finding that investors in Class B shares also experience the worst average timing performance casts these shares in a further bad light. However, it is worth highlighting the fact that investors in all of the retail share classes, except no-load index funds, experience significant underperformance due to poor cash flow timing.
These results sound a warning to fund investors who are considering whether to attempt market timing, either on their own initiative or through their broker’s advice. Rather than outperforming a given fund, the average active investor is more likely to under-perform a passive dollar invested in the fund, and the use of an investment professional to trade shares is correlated with even worse investment timing performance.
Maybe I'm putting myself out of work here but this study draws interesting conclusions to be sure. In addition to fixed income products, I also sell 'no-load' mutual funds so I am not as bad as most of my colleagues in the business. Watching the fee level on funds is important to me and most of my clients as it directly impacts performance. Investing in funds with good defensive characteristics and long-term outperformance is where value can be added in most of my client relationships.
In Canada, most no-load mutual funds have trailer fees which typically are paid by the mutual fund company to the firm selling the funds and subsequently to the advisor. If you do not have an advisory relationship, there are mutual funds available that do not have trailer fees, which typically saves the investor money. Of course you need to do a little bit of work yourself.
The question I have about this study is what would most of these investors do if they did not have an advisory relationship? Would they invest at all? Would they do as well on their own versus an advisor who sold them no-load funds?
Wednesday, December 05, 2007
Townhouses sold for an average of $325,409 in November, an increase of 6.2 per cent from 2006 when the average price was $306,509. The average apartment price went up 7.5 per cent in one year, from November 2006’s average of $200,032, to $215,118 for 2007.
Vancouver, B.C. December 4, 2007 –
The Real Estate Board of Greater Vancouver (REBGV) reports that total residential sales reached 2,883 units in November 2007, an increase of 22.2 per cent compared to 2,358 sales in November 2006, and a 1.9 per cent decrease compared to the 2,938 units sold in November 2005.
Property listings increased 6.6 per cent compared to last year’s levels, with 3,377 active listings at November month-end, compared to 3,168 during the same period last year. “The housing market continues to be strong,” says REBGV president Brian Naphtali. “November figures show strong growth compared to last year, are basically on par with figures from 2005, and are 16 per cent higher than the same period in 2004.
“Affordability is a key question,” Naphtali says. “Our data indicates that about 60 per cent of residential homes purchased in November were multi-family, which includes condos and townhomes. The benchmark price for a condo in Greater Vancouver is about $375,000. However, there are units available for considerably less than this price. For example, the benchmark for condos in Port Coquitlam in November was $243,624; in Maple Ridge, $254,703; and in Coquitlam, $283,830.”
Certainly looking like a market top.According to Multiple Listings Service® (MLS®) data, sales of apartment properties increased by 21.5 per cent to 1,276 sales in November 2007 compared to 1,050 sales in November 2006. The benchmark price of an apartment property in Greater Vancouver, calculated by the MLSLink® Housing Price Index, is $374,393, up 13.6 per cent from one year ago.
Sales of attached properties increased by 33.7 per cent in November 2007 to 540 sales, compared to 404 sales in November 2006. The benchmark price of an attached unit is $455,332, up 11 per cent from a year ago.
Sales of detached properties increased by 18 per cent in November 2007 to 1,067 sales, compared to 904 sales in November 2006. The benchmark price of a detached unit is $729,011, up 12.6 per cent from last year.
Some data points that were not mentioned in the press release are that annual appreciation in the outer suburbs of Coquitlam, South Delta, Port Moody, Maple Ridge and New Westminster is decidedly lower (in the 7% range as opposed to the 12% range cited in the press release). This is in line with my postulation that market softness and subsequent price declines will show up in the suburbs first and move from the outside in. This is why I watch the FVREB release more closely than any other data. This outside-in movement has been typical in the bubbly US markets.
Monday, December 03, 2007
The video is an interesting history lesson with some controversial conclusions.
And here in Canada - - - all is (not) well.
OTTAWA (Reuters) - The Bank of Canada may have overstepped its legal powers during the summer credit crunch and legislative changes are needed to clarify its role in future financial market crises, an independent report said on Tuesday.
From August 15 to September 7, the central bank temporarily expanded its list of collateral used when conducting open-market operations to boost liquidity and reinforce its target for the overnight interest rate.
The bank stepped into "questionable legal territory" when it began accepting commercial paper, foreign bonds and corporate bonds in addition to the usual government securities, bills of exchange and promissory notes, argued John-Paul Koning of the C.D. Howe Institute, a think tank.
"The bank's actions may have exceeded its statutory authority and, if Parliament believes it necessary that the bank should have the scope to act as it did, legislative changes are needed," Koning wrote.
The law governing the Bank of Canada says that only government-issued and guaranteed securities may be used as collateral for central bank operations designed to influence the overnight lending rate. These include the Special Purchase and Resale Agreements, whereby it buys securities with the agreement to sell them back the next business day.
The list of collateral is less restrictive for lending through the Bank of Canada's Standard Liquidity Facility. It was this list that the bank adopted temporarily for its purchase and sale operations in the market.
The law gives the central bank extended buying and selling powers in times of financial emergency but only if the governor publicly states that an emergency exists, something Bank of Canada Governor David Dodge did not do in August.
Lawmakers should decide whether they want to give the Bank of Canada the power to use private sector debt as collateral when ensuring short-term financing in times of financial market difficulty, Koning said.
"The Bank of Canada should offer Canadians a comment on its actions of this past August. Policymakers should also revisit the thinking behind certain sections of the Bank of Canada Act," he said.
"Failure to do so could hamper the bank's response the next time the financial system runs into trouble."
Dodge signaled on October 21 that he was mulling possible changes to the bank's liquidity provisions. In a speech in Washington, he floated the idea of a new central bank facility that would provide liquidity to banks at terms longer than overnight, collateralized with a possibly wider range of securities.
Deputy Governor Pierre Duguay repeated the idea in a November 20 speech. "The types of market failure that such a facility would be designed to deal with would obviously need to be very carefully considered to avoid weakening the incentive for preventive risk and liquidity management by market participants," he said.
Dodge and Senior Deputy Governor Paul Jenkins will be answering questions from the Senate Banking Committee on Thursday and the incoming governor, Mark Carney, appears before the House of Commons finance committee on Wednesday afternoon.
(Reporting by Louise Egan; Editing by Peter Galloway)
With all the inclement weather over the weekend I had some time to watch TV and there was a CNBC special on Friday night featuring Warren Buffett and a recent brief trip to Asia. It was intriguing and I am sure they had trouble keeping it down to one hour. I encourage you to check it out over on CNBC's website.