Record Number of Homes Under Construction

CMHC released data for the Vancouver Census Metropolitan Area today and part of the data released indicates that there were a record number of housing units under construction in September at 23,111. Previous highs were August at 22,421, November 2006 at 22,311, and 16,279 in March 1994 during the last building boom.

As units complete I expect it to put pressure on existing home sales and further new home sales and I believe the market to be currently saturated with supply. If my belief is true then it would hold that we would need significant population growth with people who have the ability to purchase homes in order for no price correction to happen.

A significant price correction in new and existing homes is likely to happen during the next 2-4 years as prices of new and existing homes are priced out of reach for all but a few buyers with existing home equity and the wealthy minority.

Nucking Futs

A word of wisdom "Never hold your farts in. They travel up your spine and into your brain . . . that's where the worst ideas come from." I am sure that is where this idea came from. Just when you think things couldn't get any nuttier, CMHC has gone to the dogs. Yes that is right, our national taxpayer funded subsidy to the banking and mortgage business is doing stuff that is . . . well . . . Nucking Futs.

Latest in their 'brilliant' financial innovations is a splendid no-down-payment-required 'investor' mortgage insurance so that lenders need not worry and extend credit in even the craziest of situations. CMHC gets a gigantic cut of the purchase price at 7.25% to shield them from the risk of default by the borrower.

Why would a borrower ever default you ask? After all our real estate market is bullet proof and prices only go up and we are hosting a two week long sporting event in a couple years and rich celebrities and asians and drug dealers will buy all the property in the province in a couple years with their endless wealth. Why not borrow all the money you can get your little speculative, gambling hands on and bet the (taxpayer funded) farm on some shoebox condos made by drug smoking, ill-qualified construction workers and marketed by a delusional multi-millionaire with a marketing budget so big it dwarfs the construction costs?

That's it . . . I give up . . . I am going to nominate the CMHC economics department, Bob Rennie and Cameron Muir for the Nobel Peace Prize in Economics for rigging an industry that is immune to rational thought and behaviour and is immune to the vagaries of the business cycle.

Hat tip to freako and CMHC for inciting this rant.

US Existing Home Sales

WASHINGTON, Oct 24 (Reuters) - U.S. sales of previously owned homes fell 8.0 percent in September to a record low 5.04 million unit pace amid troubles in the subprime mortgage and credit markets, the National Association of Realtors said on Wednesday.

It was the lowest sales pace since the group began tracking both single-family and condo sales jointly in 1999.

Total existing home sales, which include condominiums, fell in September from a downwardly revised pace of 5.48 million in August. Economists polled by Reuters were expecting home sales to fall to a 5.25 million-unit sales pace.

"Home sales fell in September, but it was certainly due to the August credit crunch," said NAR economist Lawrence Yun.

"The housing data ... tells us that we are not out of the woods yet. It increases the uncertainty regarding the U.S. economic outlook and reinforces the view the Fed may have to cut rates at its meeting next week," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

The slower pace of sales helped drive up the inventory of homes available for sale by 0.4 percent at the end of September to 4.40 million, which represents a 10.5-month supply at the current sales pace. That supply was the highest for both single-family and condos combined since 1999.

Single-family home sales fell 8.6 percent in September to a seasonally adjusted 4.38 million-unit pace from 4.79 million, which was the slowest pace in nearly 10 years.

The national median existing home price for both single-family and condos dropped 4.2 percent from a year ago to $211,700.

And in the Vancouver, BC housing market we grow trees in the sky and fundamentals do not apply. I just want the local market to CRASH ALREADY! We all know its coming but the waiting is getting to me!

A Picture of Modern Hyperinflation - Zimbabwe

Zimbabwe (1999 - present)

NY Times Article

The Rhodesian dollar (R$), adopted in 1970, following decimalization and the replacement of the pound as the currency, was set at a rate of 2 Rhodesian dollars = 1 pound (R$ 0.71 = USD $1.00). At the time of independence in 1980, one Zimbabwean dollar (of 100 cents) was worth US$1.50.

Since then, rampant inflation and the collapse of the economy have severely devalued the currency, with many organizations using the US dollar instead.

On 16 February 2006, the governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, announced that the government had printed ZWD 21 trillion in order to buy foreign currency to pay off IMF arrears.

In early May 2006, Zimbabwe's government began rolling the printing presses (once again) to produce about 60 trillion Zimbabwean dollars. The additional currency was required to finance the recent 300% increase in salaries for soldiers and policemen and 200% for other civil servants.

In August 2006, the Zimbabwean government issued new currency and asked citizens to turn in old notes; the new currency (issued by the central bank of Zimbabwe) had three zeroes slashed from it.

In February 2007, the central bank of Zimbabwe declared inflation "illegal" and outlawed any raise in prices on certain commodities between March 1 and June 30, 2007. Officials have arrested executives of some Zimbabwean companies for increasing prices on their products.

CMHC September Starts and Completions

CMHC released data on Vancouver CMA Starts and Completions today and not surprisingly, starts are staying at high levels. With building homes being such a remarkably profitable business right now in the Vancouver area even with land costs and labour shortages it is no surprise to see builders wanting to build as much supply as possible at these prices. Construction on 2157 new homes was started last month in the Vancouver CMA. Get those presale contracts signed - suckers.

Completions are a different story with skilled labour shortages, red tape and transportation issues burdening the region. Completions still aren't keeping up with starts and the level of units under construction is ballooning to new record levels.