2008 Crystal Ball

Well, my crystal ball is broken but maybe yours isn't. I'm interested in hearing what everyone out there thinks about 2008.

Will the Vancouver area real estate market continue to defy fundamentals and continue on its heavenward ascent?

Will the Canadian and BC economy thrive through a US economic slowdown?

Will the stocks, bonds, cash, gold, real estate, or other commodities be a good investment in 2008? Which one will be the best?

I don't really think anyone can "predict" the future but we can make some educated guesses. Here are mine.

1) 2008 will be the year of turning for the local real estate market. I think we will see year over year declines by summertime - at least in the Fraser Valley.

2) The Canadian and BC economy will slow down dramatically in 2008. Labour shortages will be a thing of the past by the end of the year in BC.

3) I have no idea about the stock market but I think it will be another good year for growth stocks. I like value stocks always but will they go up in value this year? I don't know or care since I am just looking for bargains with good earnings and dividends. I think agricultural commodities will be a good investment among other commodiites. Financial stocks will probably not fair that well but could be good buys this year as they will be continually battered in the news.

Please DO NOT take this as financial advice as I always recommend having a diversified portfoli0 and a proper financial plan.

Taking a Break

Merry Christmas everyone. I am taking a break over the holidays until the New Year so enjoy yourselves.

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.

Mortgage Rate Renewal Gap

An updated renewal gap chart was requested and for your Christmas Eve Eve viewing pleasure here it is.


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.

November Vancouver CMA CMHC Data

CMHC released the starts and completions data for the November period this morning and here is what the data says.

One month starts were at an all time record high for the Vancouver CMA in November at 2768 units. The previous all time high was April 2004 at 2479. Clearly developers are building like crazy as they must feel that they can sell these units once they complete or perhaps it's a rush to the exits.

Completions ticked up a bit to a modest 1466 units. I think we can expect the completions number to trend upwards during 2008 as many projects that were started two years ago come online. The completions and starts numbers can be extremely volatile as one project can represent several hundred units.

Completed and unabsorbed inventory continues to relentlessly rise as newly completed unts are unable to be sold and this inventory is building. Completed and unabsorbed units in the Vancouver area at the end of November were 1337. Contrast that with Toronto, with double the population at 980. I have been watching this number as a barometer of demand in our local market. It seems demand at current price levels is lacklustre.

Now it is time to look like an idiot but have a little fun making predictions! Whenever the starts outpace completions it is a bull market for real estate and when starts drop below completions it is a bear market in real estate (see the red and green arrows).

I expect three things in 2008 in the Vancouver new home market:

1) Record levels of starts as developers see the writing on the wall and it becomes a rush to the exits much like has been seen in US bubble markets.

2) Record levels of completions as Olympic projects finish and labour becomes available to go full steam completing residential units and many condo towers complete. Unabsorbed units will rise throughout the year and we will witness big discounts by developers first in the suburbs then in the city.

3) Near record levels of units under construction as we are at all time highs right now and construction will fall as the number of units being completed outpaces new starts.

I suppose that I won't look like an idiot if all of the above turns out to be accurate but I more interested in the discussion about my predictions than in being right.

What I Like About Scrooge

In praise of misers.

By Steven E. Landsburg

Here's what I like about Ebenezer Scrooge: His meager lodgings were dark because darkness is cheap, and barely heated because coal is not free. His dinner was gruel, which he prepared himself. Scrooge paid no man to wait on him.

Scrooge has been called ungenerous. I say that's a bum rap. What could be more generous than keeping your lamps unlit and your plate unfilled, leaving more fuel for others to burn and more food for others to eat? Who is a more benevolent neighbor than the man who employs no servants, freeing them to wait on someone else?

Oh, it might be slightly more complicated than that. Maybe when Scrooge demands less coal for his fire, less coal ends up being mined. But that's fine, too. Instead of digging coal for Scrooge, some would-be miner is now free to perform some other service for himself or someone else.

Dickens tells us that the Lord Mayor, in the stronghold of the mighty Mansion House, gave orders to his 50 cooks and butlers to keep Christmas as a Lord Mayor's household should—presumably for a houseful of guests who lavishly praised his generosity. The bricks, mortar, and labor that built the Mansion House might otherwise have built housing for hundreds; Scrooge, by living in three sparse rooms, deprived no man of a home. By employing no cooks or butlers, he ensured that cooks and butlers were available to some other household where guests reveled in ignorance of their debt to Ebenezer Scrooge.

In this whole world, there is nobody more generous than the miser—the man who could deplete the world's resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide.

If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer—because you produced a dollar's worth of goods and didn't consume them.

Who exactly gets those goods? That depends on how you save. Put a dollar in the bank and you'll bid down the interest rate by just enough so someone somewhere can afford an extra dollar's worth of vacation or home improvement. Put a dollar in your mattress and (by effectively reducing the money supply) you'll drive down prices by just enough so someone somewhere can have an extra dollar's worth of coffee with his dinner. Scrooge, no doubt a canny investor, lent his money at interest. His less conventional namesake Scrooge McDuck filled a vault with dollar bills to roll around in. No matter. Ebenezer Scrooge lowered interest rates. Scrooge McDuck lowered prices. Each Scrooge enriched his neighbors as much as any Lord Mayor who invited the town in for a Christmas meal.

Saving is philanthropy, and—because this is both the Christmas season and the season of tax reform—it's worth mentioning that the tax system should recognize as much. If there's a tax deduction for charitable giving, there should be a tax deduction for saving. What you earn and don't spend is your contribution to the world, and it's equally a contribution whether you give it away or squirrel it away.

Of course, there's always the threat that some meddling ghosts will come along and convince you to deplete your savings, at which point it makes sense (insofar as the taxation of income ever makes sense) to start taxing you. Which is exactly what individual retirement accounts are all about: They shield your earnings from taxation for as long as you save (that is, for as long as you let others enjoy the fruits of your labor), but no longer.

Great artists are sometimes unaware of the deepest meanings in their own creations. Though Dickens might not have recognized it, the primary moral of A Christmas Carol is that there should be no limit on IRA contributions. This is quite independent of all the other reasons why the tax system should encourage saving (e.g., the salutary effects on economic growth).

If Christmas is the season of selflessness, then surely one of the great symbols of Christmas should be Ebenezer Scrooge—the old Scrooge, not the reformed one. It's taxes, not misers, that need reforming.

Another Scrooge Analysis.