Real estate prices have been falling in the US so the same must be true in Canada, right? That such must be the case seems to be the compulsion of mainstream media these days. Witness stories like CTV's headline Average Home Price Drops 5.1% and last week's CBC Urban Real Estate Values Set to Plunge.
Fortunately, the Internet allows one to dig a bit, go back to the original source and check the tone and slant as well as the facts. In neither case does the negativity of the story match the source.
The CTV article comes from a Canadian Real Estate Association press release with the, shall we say, slightly less dire title Fewer new MLS® residential listings in August. The press release is mainly about a drop in activity, not prices, and that drop is from record levels. As for the headline price decline, it is an average that was influenced by retreats after large run-ups in a handful of major markets like Vancouver, Victoria, Calgary and Edmonton. CREA's economist puts out a more balanced view, "Sales activity is down in a number of resale housing markets in Western Canada that earlier posted hefty price increases. Prices continue rising in other markets where price gains have been more modest." As the press release says "average prices recorded year-over-year gains in 20 of 25 major markets". In direct contradiction to the atmosphere and and context of the US situation, CREA says "there is no real estate bubble that will burst and send prices to new lows". Now CREA may be wrong about certain markets (like Vancouver, which seems to me the most over-priced by far) but why is CTV not reporting the way CREA presents the data?
CBC's effort is based on an academic study from UBC called Are Canadian Housing Markets Over-Priced? The paper does answer yes, certain ones are over-priced by up to 25% (I very much doubt the conclusions in the paper as I will explain in another post), but it does not specify how the price re-adjustment will occur. The paper says "House prices can correct through sharp rapid declines, through longer and slower declines, or by staying essentially flat for a long period." The study authors go through the usual prevarication that they do NOT know which of the possibilities will happen. So please, CBC editors, don't put words in their mouths and pick the most sensational option. Or does CBC want to be known as tabloid press?
Tuesday 16 September 2008
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11 comments:
Honestly, I don´t know if the media are so desperate to get readers/viewers, but many of them put these "eye catchers" on. Although some still stay realistic. But of late some serious blogs too have become "tabloid". I guess people will just have to make sense of it them selves and make research on every single text they read so they have access to realistic news.
Jill
One thing I would like to mention is that the problem south of the border was also said to be contained and will have little effect on the economy overall . . . until the bloodbath started overflowing.
These days are starting to become difficult to put the correct interpretation on events - to be neither head-in-the-sand optimistic nor too pessimistic. But the pendulum seems to be swinging towards the pessimism and the media risks creating a certain mob mentality that will lead to self-fulfilling prophecy of decline and loss.
Jill, just looked up your link and website ... you might be in a better position to comment on real estate prices in T.O. That's one of the markets looking a bit pricey in absolute numbers but is it really so?
Forgot to mention little story of an old friend, an anglophone at that, who bought a million dollar West Island Montreal Lakeshore property at the height of the PQ pessimism years for about 60% off compared to prices a few years before. He is laughing today.
And yes, traciatim, being realistic is necessary too. Wherein lies the right assessment of end results and actual events? That is the challenge. Problem is that psychology now seems to be playing a major role and that's harder to predict.
Sir,
At no point do you say how the late-to-the-story MSM are wrong in their interpretations of the CREA's belated admission that the Canadian RE market is at the cusp of a free fall.
Canadian prices are going down in every major market, with the possible exception of Regina, where even now, since late summer, my correspondents there report that inventory is piling up.
Supply and demand is what is leading to a price drop -- too much supply not enough demand, ergo prices slide. You may also be familiar with the affordability concept and a relationship between prices and rent?!?
The CREA is a self-interested propaganda and lobby outfit. They have been lying to the public all the way to this precarious juncture. JUST like the NREA in the US that, every step of the way, denied and lied about the RE slide there -- and the CREA, like the Canadian market itself, is reliably and faithfully about 18 - 24 months behind that of the US.
I gather you have a lot of (perceived) wealth in real estate of various kinds, and retirement is staring you in the face?
Anon, "cusp of a free fall" and "prices going down in every major market except Regina"? That would be interesting and noteworthy - do you have data and a reliable source for that data?
For the sake of an example, I checked my neighbourhood in Ottawa on the Ottawa Real Estate Board website. Without being too scientific, there seem to be fewer than the usual number of listings for resales but prices are not down; in fact there is a new highest ever price in the neighbourhood. Anecdotally, prices falling doesn't seem to be the case.
On the affordability issue, CanadaMortgage.com has a convenient affordability calculator at http://www.canadamortgage.com/calculators/affordability.cgi. I plugged in their best rate of 5.44% and it says a family with income of $60,000 gross can afford a house from $247,000 to $324,000. That's a nice house in Ottawa. (median family income in Canada varies but is over $50,000 in all but two major cities where I suspect house prices are much lower on average - cf http://www12.statcan.ca/english/census01/products/analytic/companion/inc/subprovs.cfm; in Ottawa the median income is $69,000, highest in Canada)
And yes, I do own a house, which I need to live in with my family, before and after retirement. It's investment role is more of a tax-free legacy than anything else.
Ahhh, I take it your not too much a fan of Garth Turner are you?
BTW have you received you ballot to vote yet?
For sure the housing boom is over. Best case is that house prices stay flat for several years as wages catch up and then slowly begin to climb again.
Worse case will depend on what happens south of the border next year. If the US goes into a severe recession as many are predicting than it will have a serious negative effect on Souhern Ontario. Prices are already starting to decline as the effects of manufacting job losses are starting to be felt.
Along the same lines I don't see how Cananda can avoid a recession is things turn for the worse in the States, which they will.
hi Rob, just looked up Garth Turner's website and get the impression he believes blanket pessimism is the order of the day, which I don't agree with. Some specific markets will no doubt have or are already having major downs. But will all real estate equity disappear and people end up living on the street? No, I don't think so. I believe you need to take it market by market, analyze local conditions and then draw conclusions. For instance, this summer I was in Victoria and there seemed to be an awful lot of new condos downtown just nearing completion. That might be an opportunity brewing to buy a place cheap. On the other hand, I recall that during the tech industry crash, in Ottawa real estate prices suffered not even a blip despite the huge expansion and subsequent contraction of the tech sector. There is some truth to what Mr. Turner says but maybe there is a little too much truth.
And no, I have not yet received my ballot. Got yours?
Found the website of the Canadian Association of Mortgage Professionals, which has some stats, though the latest figures published in August only report sales up to the end of Q2 - see http://www.caamp.org/stats/stats_aug08.htm. Though things may have softened more since then, the stats show some pretty hefty price RISES in almost all major markets and declines only in Calgary and Edmonton. If I had to bet, though I don't need to since my house is a lifetime investment not a quick-flip opportunistic speculation, I'd say the financial market mess will spill over into the economy and put the brakes on the housing market along with every sector. That's not a housing bubble, it's an impact of recession.
I usually use the page over at the CREA for most large cities across the country:
http://www.crea.ca/public/news_stats/statistics.htm
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