Friday, December 04, 2009

Why Didn’t Canada’s Housing Market Go Bust? :: James MacGee :: Economic Commentary :: 12.02.09 :: Federal Reserve Bank of Cleveland

Why Didn’t Canada’s Housing Market Go Bust? :: James MacGee :: Economic Commentary :: 12.02.09 :: Federal Reserve Bank of Cleveland

21 comments:

vreaa said...

It is pretty remarkable that the author (MacGee) seems to ignore the possibility that Canada is yet to burst.

Declan said...

Actually, if you read the paper, MacGee argues that Canada won't go bust because we don't have the same subprime lending that caused the U.S. to go bust.

The fact that his paper relied on the fact that the Canadian market hadn't gone bust to prove that subprime lending caused the U.S. bust and that therefore his reasoning was entirely circular, seems to have eluded him, or else he didn't care.

Aside from all that, I was struck by the complete absence of any reference to supply (starts) or demand (household formation) in the paper.

pricedoutfornow said...

Well, he does mention the possibility that Canada's bubble will still burst. Though he seems to dismiss it due to Merrill Lynch's report, which indicates the market will slowdown rather than burst.
He also suggests that Canada does not have a Fannie Mae/ Freddie Mac counterpart...hello...CMHC??
Personally, I don't see how we can be the only country in the Western world that experienced the same run-up, and did not crash. It simply defies logic. And common sense.
It will come.

ReductiMat said...

How can one invest time in writing that article without mentioning the CHMC once?

Fatal flaw. Epic fail. Etc. Etc.

JimTan said...

Seen the latest employment numbers?

ReductiMat said...

Good thing those numbers are never massaged nor revised.

jesse said...

My major complaints are the analysis ignores affordability and price to rent ratios, and naively groups the two large countries' sub-markets into one average. I expected better from the Cleveland Fed.

chadmpnp said...

Jesse, price to rent ratios really aren't at insanely lofty levels and I actually come to that conclusion from a chart posted by Mohican.

http://1.bp.blogspot.com/_rt16FZ_z1N8/STsd1GdXXjI/AAAAAAAABq8/uFfrOPkOhr0/s1600-h/Mortgage+Payment+vs+Monthly+Rent.jpg

JimTan said...

"Good thing those numbers are never massaged nor revised."

Yes! Employment can be revised up. In the States,

'Revisions added 159,000 jobs to payroll figures previously reported for October and September, a report from the Labor Department showed yesterday in Washington. The previous month’s report added 91,000 for September and August.'

jesse said...

chad you have to work on your vocabulary. "Payment" is not the same as "price". I looked them up in the OED just to be sure.

ReductiMat said...

Indeed they can be revised up.

That said, how often have they been revised downwards in the last three years?

Whatever the case, when, if ever, do you think a premium Yaletown condo which is listed for $1,000/sq.ft today will be selling for $2,000/sq.ft?

chadmpnp said...

Jesse, I don't need to work on my vocabulary, I know what the graph is and like Mohican says on his chart it would be IGNORANT to not include the cost of capital when comparing price vs. rent, so maybe stop being IGNORANT and you will stop being WRONG

jesse said...

chad I wasn't wrong. I just use more than a 5 year time horizon when capitalizing an asset with a multi decade amortization.

Don't try to confuse people by showing a payment to rent ratio when you said it was price.

chadmpnp said...

Jesse,

I was referring to you being wrong with your bearish stance, which you have been for a very long time. New highs...

jesse said...

Chad, being "bearish" is not wrong. There are plenty of other places I can put my money with what I expect to be better long term returns.

Anyways, no hard feelings. Your points about payments compared to prices have validity. Looking at payments for a relatively short period of time compared to an asset's useful life is dangerous IMO.

chadmpnp said...

Jesse,

Being bearish for a long time while the market your bearish on is making new highs is wrong, there's no way around that. If you thinking other market will return better than Vancouver, that's valid and you won't get much of an argument from me, but I'm pretty confident 9/10 posters on this board have been firmly bearish Vancouver real estate by itself, not relative to other investment.

jesse said...

chad, many bearish put no timeline on prices falling. That they haven't yet does not make the argument wrong. It is an academic argument. That many have made money in the face of my and others' stance may simply be blind luck and from what I'm seeing I know a game of cards when I see one.

chadmpnp said...

I'm sorry but that's absolutely ridiculous to basically say timing doesn't matter. You're basically saying if prices double from here then fall 10% you would have been right because prices eventually fell. I've said many times I agree with the premise that Vancouver real estate will eventually have a correction, my argument is that the correction is not anywhere close to happening and when it does occur a few years down the road, it will likely only take us back down to current levels. I'm not advocating any financial decisions for anyone, but to basically say that timing doesn't matter, that's absurd, when it comes to investing and many other things for that matter... timing...is... EVERYTHING

vibe said...

chad, getting the timing of the crash right is a matter of chance. All you can argue about logically right now is whether or not houses are priced correctly.

You're basically saying if prices double from here then fall 10% you would have been right because prices eventually fell

jesse is right if houses are currently overpriced. Nothing that happens in the future will change that.

Common Cents Bear said...

You know I have wanted to say this for as long as this Chad kid has been posting.

Chad, you are a moron!!

You keep talking about all this proof and evidence you have created showing you where the markets going to go. Put it up so I can rip it to shreds.

There is nothing, and I mean nothing besides the fact people are paying these prices that justify them. Not a fundamental to be seen. If you believe in the secret, maybe this can continue unabated forever. I for one, do not!

Common Cents Bear said...
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