Crawl Across the Ocean

Friday, March 21, 2008

Garth Turner on the housing market

I'm somewhat indifferent to former Conservative, now Liberal, MP Garth Turner, but I have to admire his candour and bluntness in assessing the current state of the Canadian housing market in the Globe and Mail online chat.

Best quote:

"Sue W: We might never be able to sell, except to a greater fool? Never Sell? Please Mr. Turner, could you please provide a few examples of some properties which have NEVER sold.

Garth Turner: Did I say that? Think not. As with stocks and mutual funds, there's always a buyer for real estate, at a current market value. For example, a share of Bear Stearns was worth $170 last year and $30 last week. On Sunday it sold for $2. If you think real estate is different from every other asset, and that this boom is never-ending, you must be from Vancouver."

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  • Wow, indifference isn't an emotion Mr. Turner usually inspires!

    By Blogger Idealistic Pragmatist, at 12:53 PM  

  • Well, it's indifference on average.

    By Blogger Declan, at 12:53 PM  

  • As someone with a family member who might be buying in the Vancouver area soon, how long should I tell him to wait before taking *that* plunge? (it'd probably be in Richmond...)

    I still remember when Garth Turner did the local business report on CFTO news. He must have done that for 5-10 years, though of course I'm not sure what else ex-Campbell government revenue ministers have to do. Of note, he was generally wrong with most of his projections.

    By Blogger Josh Gould, at 8:42 PM  

  • Yeah, Garth's track record with projections isn't great. Not sure how good mine is either, so I don't know if I should be giving advice.

    My opinion is that within the next couple of years the Vancouver market will look like the U.S. market does now (drops of ~15% in house prices from the peak so far with more to come) so maybe it will be 5 years till prices bottom, but who really knows, if prices are going to go up forever the sooner you buy the better. Maybe it is different in Vancouver, unlike the U.S. and unlike Alberta and unlike the U.K. and Australia and Vancouver itself the last few times housing bubbles popped here.

    My feeling is that price/rent and price/income ratios will return to normal and that putting people in 0 down 40 year am mortgages (a truly terrible idea - I highly recommend against 40 year ams - do the math on the interest paid, its scary) is just prolonging and aggravating the eventual acknowledgment that people can't really afford to buy in Vancouver right now and the only reason to buy given the cheaper rental options is because of a belief in price appreciation (i.e. speculation).

    I'd guess that over time houses will hold up better than condos. You can't go anywhere in Vancouver without running into cranes putting up condo towers and sooner or later the laws of supply and demand seem likely to kick in. Plus part of the cost of a house is land which tends to rise over time in areas which are becoming denser, whereas with a condo it's pretty much a depreciating asset you have on your hands. Of course, you need a fair bit of coin to buy a house.

    Plus in Richmond you have to worry about floods and earthquakes wiping your investment off the map!

    By Blogger Declan, at 9:01 PM  

  • The thing is.....

    If the value of my little $650K bungalow (1700 sq ft, built in 1946 on a 33X120 foot lot) located in Vancouver's near Eastern Townships suddenly plunges in market value, I seriously doubt that the central bank will jump in to pump up its value.....

    And while I do not have a speculative bone in my body, it is extremely hard not to think about liquidity in times like these.....


    By Blogger Gazetteer, at 11:09 AM  

  • Bear Stearns is an asset. Real estate is an asset class. Garth's analogy is a little weak in that respect.

    Is housing at a relative high? Yes, many indicators demonstrate that. Will housing prices "crash" back to "normal" levels? Impossible to say.

    There are at least three possible alternate scenarios, house prices could level off for a decade ( like they did in the '90's ), a new set of "normal" ratios could be established, or the prices trend could continue until it finds the place where it can no longer continue.

    This is nerve wracking if your time frame is short. Not so bad if your time frame is longer.

    By Blogger Kevin, at 4:48 PM  

  • Mind you, if the only way you can afford to buy a home is 0 down and 40 years ... you can't afford to buy a home.

    By Blogger Kevin, at 4:50 PM  

  • Gaz - If the U.S. experience is anything to go by, what will happen if housing prices is a bailout for banks and government mailing checks for a few hundred bucks to everyone in the country. Of course, the bubble in Canada is not as widespread so if it is just Vancouver doing most of the suffering, a central bank located thousands of miles away is not likely to care too much.

    Kevin - To be fair to Garth, he was responding to a question which raised the prospect of not being able to sell individual properties, so I think his 'you can always sell a property/stock at *some* price' response was reasonable given the question.

    As for Vancouver prices in the 90's, I believe that from peak to trough it was a roughly 30% drop in real terms, so if that is the mild scenario, it's something to consider.

    The situation is not really too nerve wracking for me since I happily rent and have no real desire to buy a place at the moment. I encourage developers to build and build and build so that someday if I do want to buy there will be lots of supply and a buyers market as household formation rates drop and boomers downsize.

    I mainly talk about the topic here on the blog because the mainstream media has largely abdicated its responsibility to provide people with balanced information on this issue. The Globe article I mention and Garth are notable in being an exception.

    By Blogger Declan, at 5:57 PM  

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