New listing activity in the Saskatoon real estate market continued on a seasonal decline for the fifth consecutive week falling to the lowest levels we’ve seen since the week of January 14-18. Just 76 residential properties were offered for sale, down 16 units from the previous week when sellers offered 92 new listings for sale on the Saskatoon MLS. A total of 32 properties were cancelled or withdrawn, and 19 of those homes found their way back to the system as “new listings.” The total inventory of Saskatoon homes for sale fell again, dropping fairly sharply to 1,567 units including 948 single-family homes and 520 condos. This is a trend that I expect will continue through the balance of the year as frustrated sellers give up and allow their listing to expire.
Residential unit sales took a harder punch falling from 48 units last week to just 31 sales this week and reaching their lowest level since the week of December 31-January 4. Saskatoon real estate agents have been reporting an uptick in activity (inquiries, showings), but that hasn’t resulted in firm sales, at least not yet. I’ll step out on a limb here and guess that unit sales in the coming week will trump the previous 7 weeks (52 units being the number to beat) as active home buyers who are eager to settle before Christmas get the job done.
Click the image for a larger version of the graph.
Following a week which produced the lowest average and median selling prices that we’ve seen in some time, this week’s average spiked higher and broke the $310,000 mark for the first time in eight weeks as four sales exceeding $500,000 hit the books and drove the average up. Four sales hardly sounds like enough to seriously skew the numbers, but when we’re talking about total units at just 31, those heavy sale price numbers represent more than 10 percent of total sales. The spike in the average was enough to cause the six-week rolling average to take a step higher for the first time in five weeks. The four-week median selling price of a Saskatoon home remained remarkably stable for a tenth consecutive week, about $30,000 lower than its peak in June, and hovering at late March levels.
Click the image for a larger version of the graph.
Net sale prices may have taken a big bounce but those sellers who managed to firm up a sale demonstrated some flexibility as the average underbid rocketed to $17,214, a number that has only been topped once this year, the week of September 22-26. There was a noticeable shift in the underbid chart as buyers successfully negotiated larger discounts. Just last week, 52 percent of recorded sales came in within $10K of the asking price. This week, 58 percent of buyers managed to do better, obtaining discounts higher than $10K. The $10-15K category swelled from 19 to 26 percent, and discounts of $25K or higher ballooned from just 8 percent of sales last week to a remarkable 19 percent this week.
Averages and medians don’t always paint the clearest picture. When we’re dealing with small numbers of units sales results can swing wildly based on the price ranges that are most active. I thought it might be interesting to take a look back at some specific types of properties to get a better idea of what changes have occurred. The following chart examines the average selling price of standard detached bungalows located across all five real estate areas in Saskatoon, plus apartment style condominiums located on Saskatoon’s east side.
Click the image for a larger version of the graph.
Interestingly, there are some pretty substantial differences in how the price of each property type has been affected over the past year.
Bungalows up to 1,000 square feet have dropped less than the other properties examined. Prices remain 18% higher than they were at the same time last year ($179,569), but they’re down 12% to $212,012 from their peak of $236,673 in April.
Bungalows between 1,001 and 1,200 square feet seem to have gotten a head start on price declines. Having peaked at $322,151 in March of this year, they’ve fallen 13% to $284,763 since that time and are just 3% higher than they were in November of 2007 when they reached an average selling price of $275,910.
Bungalows between 1,201 and 1,400 square feet are 15% higher than they were last year ($295,186) at $339,376 but show the largest decline (15%) from their peak of $401,111 in April. It appears that this category moved ahead of smaller bungalows taking greater gains early in the year and was slower in experiencing declines. As Crikey once said, “Mr. Market always smells a rat,” and consequently, a larger correction has occurred.
East side apartment style condominiums bring us the most interesting statistics. This category of home shows a 16% decline from the peak of $232,037 in April to settle at $199,304 by October 2008. The average selling price is 10% lower than it was in November 2007 when it reached $223,692.
See a Google map displaying the boundaries of Saskatoon real estate “areas” here
Data collection and calculation for our statistical reports
I’m always happy to answer your Saskatoon real estate questions. All of my contact info is here. Please feel free to call or email.
Follow our daily updates on Twitter @SaskatoonHomes.
Norm Fisher
Royal LePage Saskatoon Real Estate
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{ 86 comments… read them below or add one }
Sorry to keep you waiting folks. This week’s review was a bit of a tough slug for me.
Great job, as usual. I think we are getting spoiled with your work on the weekly reviews
Your analysis this week gives a better indication of what is happening compared to median or average price.
I am surprised with only 4 sales in the 500k+ range.
Just looking at realtor.ca and there are 145 properties for sale 499k +. I thought there would be more upper end homes selling keeping the average up. Heading forward we will see the biggest dollar drop with these properties.
Not surprised by the bigger discounts. Buyers are more informed and I think some sellers are getting itchy trigger fingers.
I agree that sales will bounce back a bit next week. This past week had Rememberance Day and weeks with holidays do not due well.
Global price to rent ratio
http://www.greaterfool.ca/2008/11/16/global-price-to-rent-ratio/
The data is normalized with 100 being the long term average. Here are some quick take aways:
Japan’s real estate continues to slide into an abyss
US housing market doesn’t seem so bad now, does it?
not surprised to see Spain at the top but am surprised at Canada being second
data hides a lot of regional disparities – for example, within the US, Florida and California would trump Spain
Ireland is ahead of other markets in correcting – but it also started earlier
Mr. Greenspan, what happened around 2000? seems to have been an inflection point there
This data is fabulous, Norm. I particularly like the bungalow/condo information: I’ve been noticing that the asking prices for bungalows are getting less insane on the MLS. They’re still high but they’re not batshit crazy anymore (especially in Haultain, Buena Vista and Exhibition).
It’s also nice to see that condo conversions are down year over year. That won’t surprise anyone on this blog, I’m sure. They’ve got a ways to go: there’s a bunch of conversions still going on to add to the supply that’s sitting there. I’m sure lots of the buyers are renting them out — but of course as more of them come on the rental market the rents will come down a bit, and eventually it’ll make more sense to sell than be a landlord.
“This is a trend that I expect will continue through the balance of the year as frustrated sellers give up and allow their listing to expire”
Wait for the CMHC to paint this as “strength” in the industry because of declining inventory …
Will at least be better for renters, lots of now renovated “speculation” condos and “conversions” are likely to find their way back to the rental market, alleviating the artificial speculation led “shortage”
Fantastic job!
It’s interesting to see how the breakdown of the underbids is evolving, and the breakdown of price trends by property types is fabulous as well.
I’m sorry to hear this week’s review was a bit of a tough slug, but it was certainly worth it on this end.
Thanks again for all your hard work, Norm.
jrochest,
Condos: A lot of what’s available for purchase is still pushing the upper limits (or beyond) but there are some that are selling at more reasonable prices lately. For instance, a recent sale at McKercher and 8th. 872 square feet with 2 bedrooms and a very nice renovation including a new bathroom, maple kitchen with the fancy granite counter tops, new flooring, paint, window coverings. $160,000. Considering that some have been saying one-bedroom apartments are now fetching $1,000 a month, these units are starting to look a bit better.
Nick,
Don’t you worry. CMHC can say whatever they want. Things will be right again when an average property is within reach of an average family with an average income and no amount of spin is going to change that.
Crikey,
Thank you.
Yeah, Norm, but I don’t think most one-bedroom apartments will be fetching 1,000 a month, or if some are, I doubt that they’ll continue to do so.
I’m paying that for an all-inclusive 2 bedroom, about 1,000 square feet, in Nutana. The place I left was a 2 level two bedroom, and I moved out when it went to 1200.
I thought I’d pass this along. I’m assuming this is the same Genworth Financial Inc that operates an arm in Canada (please correct me if I’m mistaken):
http://tinyurl.com/5d8×6b
“NEW YORK (Reuters) – Life and mortgage insurer Genworth Financial Inc (GNW.N: Quote, Profile, Research, Stock Buzz) said on Sunday it applied for capital under a U.S. government program, after reaching a deal to buy a bank, bringing it under federal regulation.”
They now join the rush with American Express and GMAC to be a bank holding company.
With the move, Genworth joins Hartford Financial Services Group Inc (HIG.N: Quote, Profile, Research, Stock Buzz), a large property and life insurer, in seeking to change its regulatory status in order to participate in the Treasury Department’s $700 billion Troubled Asset Relief Program (TARP).
Genworth declined to say what amount of capital it was seeking.”
Everyone wants a piece of the TARP, it seems.
I am sure all style property’price will drop in the next four months as saskatoon house in the last went to crazy.It should correct it,otherwise noboby will buy them.I think the average price for single house price should be about $200,000.over that it is unreasonable.what do you think?
I concur with the rest, amazing work on the stats these past couple of weeks, Norm. Thank you!
(I guess the slowdown in business leaves you more time to twiddle with the numbers…
Crikey,
If I could, I would become an American bank and apply for some of those TARP funds. After all, everyone is doing it.
Dave,
Curious why you think $200,000 is the number.
Bookrat,
Lol. I wish I could find time to do it during business hours. This is what I was doing this morning while you were sleeping ’til noon.
Believe it or not, I’m feeling about as busy as I like to be at work with plenty to do. Obviously, listings require a lot more work nowadays and I’m managing to sell some of them.
LOL, sign me up too!
Wowza Norm, you’re totally spoiling us now, “oh pie chart, reveal to me your slices!”
Seriously, though, thanks for taking the time to do all that figuring…as for me, I believe things are going to level out at about 220K in a years time, just a guess of course! Is someone still keeping track?
I’m sort of kicking myself for not taking advantage of the real estate market when things were bonkers…I’ve got a little place that I’d love to get rid of without a home inspection!
Hindsight is always 20/20.
Keep up the awesome work!
ps I finally get the “captchas” what took me so long!
Miss K
geez Norm this blog is getting real “purdy”
Miss K,
Thank you. Nice to see you again.
“Is someone still keeping track?”
I think I had said I would create a separate post for predictions, but I’ve never actually done it. Deep down, I must have some fear of seeing all of these scary guesses collected in one place.
Larry,
Makin pitchas is fun!
Hey… now you’re thinking! If we all pooled our funds we could become a “bank holding company” and borrow billions at 1%. With fractional reserve lending being what it is, what could possibly go wrong?!
Worst case scenario, we get bailed out, right? Seriously, I don’t see how we could screw it up any worse than the “professionals”.
Got any ideas for names?
Bush Said to Tell Aides He Won’t Seek Bailout Funds (Update1)
http://tinyurl.com/67ppwc
“Nov. 17 (Bloomberg) — The Bush administration told congressional aides it won’t ask lawmakers to release $350 billion remaining as part of the $700 billion U.S. financial- rescue package, people familiar with the matter said.”
Dang- there goes the plan to incorporate into a bank…
“I’m sort of kicking myself for not taking advantage of the real estate market when things were bonkers…I’ve got a little place that I’d love to get rid of without a home inspection!”
Don’t we all, sigh
With people like Miss K and Seller, there is a good chance we have a lot more available inventory just sitting in the wings.
Personally, I think by selling at 5 or 10% below the average now, they could guarantee a sale in the “slow” market and really, waiting is only going to make it worse.
Other than CMHC, not sure if anyone is expecting prices to increase in Saskatoon within the next few years – 2010 seems to be the optimistic forecast.
I guess as long as they’re renting them out, might be good to sign tenants to a long lease, before increased rental supply drops rents as well.
Norm,
Great work, appreciated as always.
Anyone surprised with the current prices? Seems like the consensus is that they will go down more yet. I think they have been resilient given the number of listings and everything that happened the last month in the stock market.
Don’t know if I would say resilient….maybe stubborn. I have been watching a bunch over the last 8 months and while their prices have recently droped I am suprised at how slowly and how little they came down. In other cities I have lived the waiting period to drop your price is about 50 days give or take…..here it seems litle it is 6 months or so.
G, we keep telling Saskatoonites how any moment now their properties will realize their true huge value and since we’re in a constant BOOM people don’t need to ever reduce their prices!!!!!!!!!!!!!!!!!!!!!!!
Of course they are too stubborn to realize that all the persistent for sale signs down their street suggests the BUST has replaced the boom.
(Global News, providing biased coverage to satisfy advertisers since some time in the mid 1980’s)
Nick,
For sure there are sellers now waiting until spring hoping to get a better price for their property. I suspect there will be some moderate flooding come April. :’)
Norm,
Good job as usual. Nice touch on the charts.
Global News,
Your right we are in a bust my income has risen by $14000 just this year and there is a new TFSA coming out along with new tax cuts. Dangit we are all doomed!!!111!1
This is interesting. Federal Deposit Insurance Corp. chairwoman Sheila Bair proposes that the U.S. government could prevent 1.5 million foreclosures through the end of next year at a projected cost of $24 billion.
http://www.inman.com/news/2008/11/17/loan-mods-could-restore-confidence
Norm,
I think the most interesting thing about that article is the comments section, particularly the first two comments. They’re bang on about the limits of this program.
If you take a good look at the proposed loan modifications, you can see how this may benefit the banks far more than the mortgage holders. If the interest rate is lowered or limited, you’re given 40 years to pay it off, and the principal is not reduced, are you not just a hamster spending more time on the debt wheel? Like much of what is worsening the economy right now, can burdensome debt problems be improved by “modifying” or adding more debt? I don’t think so.
Which brings up another point. “Experts” were spouting that we couldn’t have a country-wide housing downturn, because to have a downturn, you have to have significant job losses first. Well, the economy is proving them wrong. The problem is, we now are starting to have significant job losses (far worse in the US so far, admittedly). Think what that will do to the housing market. How do you modify a loan so that someone who is out of work can still “afford” it? And would that person want to still be saddled with payments when they are out of work?
This program sounds nice, but has huge limitations.
A third of Canadians see lower house prices: survey
http://www.reportonbusiness.com/servlet/story/RTGAM.20081118.whousing1118/BNStory/Business/home
Global economic crunch ends oilsands boom
http://www.canada.com/edmontonjournal/news/business/story.html?id=8a246ec2-b07f-4dbb-805e-7557c96109e3&p=1
Many thought the boom would never end. But booms always end. That’s why they’re called booms.
Employers outside the oilpatch had to pay big bucks to attract workers, even though they didn’t generate the same fat profits as energy firms.
High school kids dropped out of school to earn big bucks in the ‘patch. Real estate speculators flipped condos like hamburgers.
None of this was sustainable, or healthy. Melcor CEO Ralph Young has seen many real estate cycles come and go, and this one had all the earmarks of a classic bubble, he says.
“Looking back, 2006 and especially 2007 were years where very, very foolish decisions were being made. We saw it in the real estate market, and we probably got caught up in it as well,” he says.
“Prices — particularly in the residential markets, for raw land and housing, were just rising at too rapid a rate. There was rampant speculation. It became cocktail circuit talk, how much your house price was rising, and how people were (flipping) condos. That was a pretty clear sign that we’d hit an unsustainable level.”
http://static.bakersfield.com/smedia/2008/11/03/18/960-Bakersfield_single_family_home_price_trend__courtesy_of_the_Preliminary_Crabtree_Report.standalone.prod_affiliate.25.png
2004 average price 165k
2006 average price 300k
2008 average price 165k
http://www.bakersfield.com/137/story/599135.html
Many of the sales are foreclosures. Average price per square foot was $107.68.
http://flippersintrouble.blogspot.com/
It truly got crazy in the States. Some great deals for people who can afford them.
Got to agree a bit with George, I always thought housing being within spitting distance of Alberta was crazy, especially with all the vacant “speculation” houses and slowing sales – but conceeded our economy was pretty good.
House prices started drifting lower BEFORE oil prices came crashing down (<$55 / barrel) and BEFORE the Potash Corp stock faced a huge 30% one day loss, and now faces falling potash prices.
If house prices in Saskatoon were falling before,
surely a MAJOR drop in oil AND potash prices, and Potash Corp stock, has to mean the “booming” economy is not as strong as initially thought, and the justification by potential for housing prices is gone.
Therefore, even IF inventory gets back to normal within a year or two, an on going drop in commodity prices SHOULD cause house prices to go down further, independent of construction/supply related factors, which already favour price reductions.
George,
Nice little article about 1/3 of Canadians being negative on housing. I would like to know which third.
A 130% increase in those who believe housing will fall might have a disproportionate effect on home values, depending on where they sit in the home ownership universe. Based on the adage “people believe what the want to believe,” one might expect that many of the new bears are prospective buyers balking at what, by any measure, look like extremely silly price tags. If expectations of declines among new home shoppers have doubled, look out. Prices could fall much more quickly here than they have in the U.S. Additionally, when values started falling south of the border and even in the UK/Eur/Aus/NZ, regional recessions were not news. Now, there is a potential global recession, with even China potentially participating. Money is going to heaven, and credit for buyers becoming scarce as a result. Combined with the fact that the median house price/median income ratio in Canada at the peak was almost 10% higher than the US, there is some very heavy downward pressure on the value attached to shelter. Prices after all are set on the margin.
The same thinking applies to homeowners, especially new homeowners. Many of the 20% who still believe that houses will appreciate next year, will have purchased homes in the last few years. Because so much self worth is based on net worth, anyone who makes a bad investment feels like a loser. The exact same psychology enters into stock purchases. The wishful thinking theory of house asking prices, is supported by polls suggesting that most “homeowners” in the US still believe that their property actually appreciated last year. “Homeowners” must be qualified, because in the US, many people who thought they were Homeowners, were actually just “homeowners.” Just look at the repossessions data. Seller’s unrealistically high expectations of what their home is worth results in higher inventories as overpriced houses sit longer on the market. What seemed like huge inventories in Saskatoon this year could look small in ‘09.
Only time will tell.
More rate cuts expected
http://finance.sympatico.msn.ca/investing/news/businessnews/article.aspx?cp-documentid=13368927
“The wishful thinking theory of house asking prices, is supported by polls suggesting that most “homeowners” in the US still believe that their property actually appreciated last year.”
Too true, s.
A recent US Homeowner Confidence Survey (Zillow)shows “62% of homeowners think their home value increased or stayed the same in the past year; 75% expect their home value to increase or stay the same in the next six months.” Based on the Q2 Real Estate Market Reports, 77% of homes actually declined in value over the past year.
Just a bit of cognitive dissonance going on there.
This was in yesterday’s news:
Home Prices Tumble in 80 Percent of U.S. Cities
http://tinyurl.com/593ycd
“Nov. 18 (Bloomberg) — Home prices fell in four out of every five U.S. cities in the third quarter, a record spurred by distressed foreclosure sales across the country.
The median price of a U.S. home declined 9 percent from a year earlier and sales of properties with mortgages in default accounted for at least a third of all transactions, the Chicago- based National Association of Realtors said today. Prices fell in 120 U.S. metropolitan areas, rose in 28 and were unchanged in four, the biggest share of declines in data going back to 1979.”
And in news that is far from pleasant for homebuilders, but may eventually help cut into the excess inventory in the US:
U.S. Housing Starts, Permits Drop to Record Low Pace
http://tinyurl.com/6qoscb
“Nov. 19 (Bloomberg) — U.S. housing starts and permits for future construction both dropped to record lows in October, signs the housing downturn may extend into a fourth year.
Construction starts on housing fell 4.5 percent in October, less than economists forecast, to an annual rate of 791,000 that was the lowest since records began in 1959, the Commerce Department said in Washington. Building permits, a sign of future residential projects, dropped 12 percent to a 708,000 pace, the lowest since at least 1960.”
Crikey,
next bailout,home builders?
In todays SP
Searching for shelter
http://www.canada.com/saskatoonstarphoenix/news/business/story.html?id=ee52de6c-0dd2-4974-8eef-5acb905f3560&p=1
Mah noted house prices in many cases are high for middle-income people. For example, if a household earns $75,000, it can generally afford a $235,000 house — well below the average Saskatoon resale price.
Asked if he thought the market was overbuilt or could become so, Mah said the market will correct itself for too much supply. If builders can’t make a profit, by necessity they have to stop building.
“Buyers have become resistant to the recent run-up in prices,” said Caton. “Speculators have left, or wish they had.
“Price gains are losing momentum,” added Caton. “(However) we don’t expect strong declines.”
The CMHC is predicting a “modest 1.5 per cent rise” in Saskatoon new home prices in 2009. The current average price of a new home is $350,000.
Resale home prices will increase 1.9 per cent in 2009, as higher listings and buyer resistance to prices kick in.
In the rental market, CMHC forecasts the Saskatoon vacancy rate to rise to two per cent. The rate fell to 0.6 per cent in 2007.
Rents will increase modestly in 2009, bringing the average rent for a two bedroom suite to $875 by October.
Oil hits below 54/barrel, great news for gas prices.
Gas prices hit 22-month low
http://www.canada.com/saskatoonstarphoenix/news/business/story.html?id=45db40b7-f717-4230-b2ec-341651b6e00c
I wish Saskatchewan had oil like Ontario, then maybe we could have 78 cent gasoline instead of 90 cents
Thanks, George.
I think the direct comparison of two quotes in that same article is highly illuminating:
“Mah noted house prices in many cases are high for middle-income people. For example, if a household earns $75,000, it can generally afford a $235,000 house — well below the average Saskatoon resale price.”
versus
“The CMHC is predicting a “modest 1.5 per cent rise” in Saskatoon new home prices in 2009. The current average price of a new home is $350,000.”
Hmmmm…
Anyone have the link to the Star Phoenix story where the city is doubling the amount of time landlords must give notice to raise rents? I caught the headline, but didn’t have time to read it. About time!
Jedi,
http://tinyurl.com/5wwyne
Crikey,
A good gauge on where house prices should be. The skinny houses in the new areas should be affordable for first time buyers with an average income. These houses were 165,000 in Hampton Village in the fall of 2005. I looked at a couple before buying. At the time I thought they were too expensive for such a small lot. I also did not like the idea of finishing the place with appliances, landscaping, garage, fence, basement etc. But that is just me, others may enjoy spending another 40,000 to finish a new house.
Why is there a meeting of the real estate industry, builders etc, if there is just going to be a minor correction in prices here?
“The CMHC is predicting a modest 1.5 per cent rise in Saskatoon new home prices in 2009″
I have just rambled back to this frozen tundra from some work at my old digs in Staffordshire. What greets me upon my disembarkation but this preposterous parsimonious prattle from our putrid local paper? They must surely think that the only form of corroborative media available is the town crier.
George,
I don’t think it was a “meeting.” It was an affordable housing forum.
Thanks Norm,it probably was. But I can’t help to think that house prices, inventory, credit crunch, possible housing bubble where a bigger part of the meeting than mentioned.
chart on stock crashes since 1973
http://4.bp.blogspot.com/_pMscxxELHEg/SSRmPLU149I/AAAAAAAADy8/KGv9lbvuyEM/s1600-h/StockCrashesNov192008.jpg
BoC governor admits recession is ‘a possibility’
http://news.sympatico.msn.ctv.ca/abc/home/contentposting.aspx?isfa=1&feedname=CTV-TOPSTORIES_V3&showbyline=True&newsitemid=CTVNews%2f20081119%2fcarney_cuts_081119
Job cuts expected from Canadian banks next week
http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/11/19/job-cuts-expected-from-canadian-banks-next-week.aspx
Good thing banks in Canada are in good financial shape.
Dow drops below 8,000 points
http://www.reportonbusiness.com/servlet/story/RTGAM.20081119.wmarkets1119/BNStory/Business/home
Some good news for first time investors if they think this is the bottom.
Sorry, sometimes I do post too much doom and gloom. I looked and looked and I finally found a ray of sunshine in the Report on Business website.
Canadians carrying less lead
http://www.theglobeandmail.com/servlet/story/RTGAM.20081119.wblead1119/BNStory/specialScienceandHealth/home
Housing Slump Hits Canada as Seller Offers $100,000 Deal Bonus
http://www.bloomberg.com/apps/news?pid=20601213&sid=aUaxzBW8q_OU&refer=home
who has cut his asking price to C$3.99 million ($3.26 million) and is now offering a C$100,000 bonus, on top of regular fees, to the agent who delivers a buyer.
The speed and magnitude of the price declines in parts of metropolitan Vancouver and across the country are startling some Canadians, who haven’t seen a recession since 1992, said Ken Peacock, director of economic research at the Business Council of British Columbia.
Many homeowners felt Canada, the world’s eighth-largest economy, would escape the U.S. credit crisis, aided by surging commodity prices and a scarcity of loans made to people with limited or bad credit records, Peacock said.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Norm, if you find a buyer for that house, you would get 100k extra on top of the regular fees, could I get 10% of that for finding this link?
“Norm, if you find a buyer for that house, you would get 100k extra on top of the regular fees, could I get 10% of that for finding this link?
”
Lol. This is a practice I don’t care for. Given that it’s the buyer agent’s job to represent the buyer’s interest I cannot understand how an agent could take any kind of a “bonus,” at least without full disclosure. George, if you buy it I’ll pass you back the entire 100K.
Norm,
Its ok hand it over to me so I can buy more stock =o)
George,
Just as boom times have taken it too far so has the pessimistic view that has taken over the world stage. I only hope it lasts awhile longer for when I get my hefty tax refund then ill plug the entire thing into stocks.
I found this gem from 2 years ago
Unmaking the myths in housing
http://money.cnn.com/2006/05/03/news/economy/realestateguide_2_fortune/index.htm
The first is that a scarcity of buildable land on the coasts keeps a cap on supply and prevents prices from falling.
A second myth is that today’s big homebuilders learned their lesson in past downturns and now launch projects only when they have firm buyers lined up.
A third tenet holds that home values never drop in areas where employment is rising
The current boom has spawned one new myth of its own: Hot markets will glide to a soft landing. The National Association of Realtors and the National Association of Home Builders argue that housing is simply returning to “balance” and that prices across the country will resume “normal” increases of 4 percent to 6 percent this year and next.
s “Combined with the fact that the median house price/median income ratio in Canada at the peak was almost 10% higher than the US, there is some very heavy downward pressure on the value attached to shelter. Prices after all are set on the margin”
Not too surprising, but still an important number,
Significant that Canada is more over valued than US
Reminds me of a personal debt graph I saw on this site a few months back, where Canada and the US were in a pretty similar situation
So, as one of the more expensive locals in Canada, with incomes that trail Alberta and Ontario (and Regina) significantly, I would guess that Saskatoon is one of the offenders for being more over priced than the USA. Kind of fits with that Merrill Lynch study that had us as the most “over valued” market in Canada.
Which article said Canadian houses were 10% higher by median income?
S and George, you should compile ideas into a letter to the editor, I can’t believe how many people at work still say “well at least our houses are still going up”. Tough to debunk 2 years of Global “News” hype!
“Alberta offers royalty-rate discount to stimulate new oil drilling”
http://www.cbc.ca/canada/edmonton/story/2008/11/19/edm-transition-royalties.html
Pretty big sign that oil is in trouble and not too optimistic for the near future, and that Saskatchewan’s brief oil boom is about to burst.
Sam Johnson said:
“The CMHC is predicting a modest 1.5 per cent rise in Saskatoon new home prices in 2009″
I have just rambled back to this frozen tundra from some work at my old digs in Staffordshire. What greets me upon my disembarkation but this preposterous parsimonious prattle from our putrid local paper? They must surely think that the only form of corroborative media available is the town crier.
Sam,
The CMHC made the prediction, not the Star Phoenix. I agree that the Star Phoenix is a rag, but it’s not because they pass along info from what should be a relatively impartial source (not that I agree with the CMHC’s predictions.)
Also, pompous British TV stereotypes called, and they’d like their manner of speaking back.
Oil has fallen below the $50 range. Gas prices keep coming down.
http://www.bloomberg.com/?b=0&Intro=intro3
Nick,
I don’t think oil is in trouble. Big oil has made billions and will pick up small oil pennies on the dollar. The province will still make money on oil. I believe oil sands could be in trouble though if it keeps declining.
“I can’t believe how many people at work still say “well at least our houses are still going up”.”
This is the same mentality the Americans have if you read Crikey’s post from the other day.
Another prediction of fairly soft landing for Canadian Real Estate.
http://www.reportonbusiness.com/servlet/story/RTGAM.20081120.whousing1120/BNStory/Business/home
Hey Norm,
Are you still experiencing an uptick in business, phone calls etc? I talked to a realtor here yesterday who said the same thing is happening in Regina. He said November is shaping up to be busiest month since May, for his office anyway. I guess we’ll see for sure when the numbers actually come out. If true, wonder what is prompting buyers to come out of the woodwork now? Perhaps some held off July through October. Pretty hard to buy when faced with nothing but ‘houses overvalued’ reports and headlines, followed by the financial crisis. Maybe there is more of a sense out there now that prices have softened quite a bit and no matter what, you aren’t buying at the peak anymore.
Due to the rapidly changing stock market, the following terms have been revised for investors in order to more clearly reflect today’s economic conditions:
SRO – Self Righteous Organization
CEO — Chief Embezzlement Officer.
CFO — Corporate Fraud Officer.
BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET — A 6- to 18-month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING — The art of buying low and selling lower.
P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.
BROKER — What my broker has made me.
STANDARD & POOR — Your life in a nutshell.
STOCK ANALYST – The idiot who just downgraded your stock.
STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.
FINANCIAL PLANNER — A guy whose phone has been disconnected.
MARKET CORRECTION — The day after you buy stocks.
CASH FLOW — The movement your money makes as it disappears down the toilet.
PROFIT — An archaic word no longer in use
Mark,
Well, I’ve certainly been busy and November is shaping up to be a good month. I did speak with another agent this morning who said he hasn’t had a call in week. November of last year was quite strong with over 300 units traded. I think we’ll end the month well under that.
“November of last year was quite strong with over 300 units traded. I think we’ll end the month well under that.”
Geeze, that’s a pretty bold prediction to make there, Norm. After all, there have already been SEVENTY NINE reported sales in the first half November. You’re seriously going to step up and say that sales aren’t going to triple for the last two weeks of the month? That takes some cojones, man.
In all seriousness, another 79 sales in the last two weeks of the month would rate things at ‘abysmal’. Even if the last two weeks picked up 50% over the first two, that would still be ‘poor’ … sales have to almost double (150 in 2 weeks) just to get up to ‘average’.
November sales since 2004:
2004, 187 : 2005, 233 : 2006, 230 : 2007, 316
I’m sure that people are choosing to make offers now: with snow on the ground, after a summer with no nibbles, the seller is much more likely to think about accepting an offer.
I just walked past the first “SOLD” sign I’ve seen all fall.
Selling now is probably smart: the prices are likely to fall further in the spring, since there’s a record amount of inventory even now and a whole wackload of people ‘waiting to list in the Spring when prices will be higher’.
Bookrat,
I wasn’t really trying to make a prediction so much as to make the same point that you’re making. Even if inquiries are up it will be a poor month compared to November ‘07. I will go out on a limb here though and guess that we’ll end the month ahead of the 2004 number. In fairness, the five year average is 227 units. If we get anywhere near 200 it’s a performance that is well short of “abysmal.” Not great, but not bad either, all things considered.
Oil as an industry may continue to do fine, but not as well as before, and with Alberta courting development, investment will go back to Alberta, save for Bakken, which is closer to Regina/Estevan than Saskatoon.
With oil < $50 a barrel, and some predictions of $30 a barrel, the north Sask Oil Sands don’t make a lot of sense
Falling oil prices, and Alberta decreasing royalties, are both bad news for Saskatchewan
Mark, with s’s quote, I am quite surprised by this “soft landing” talk
“Combined with the fact that the median house price/median income ratio in Canada at the peak was almost 10% higher than the US, there is some very heavy downward pressure on the value attached to shelter. Prices after all are set on the margin”
I think Stonebridge and speculation condos in Saskatoon are “pooched” (to quote some one from here a few months back)
I think what should be remembered is that… there is no shortage of opportunity in Saskatchewan or Alberta. There are plenty of companies whose past earnings and present balance wsheets are very strong. The problem for them seems to be the shortage of interim financing for lmedium to large projects. That could clear up sooner or later than any one know( I’m guessing sooner) in which case both provinces should see economic strength among the rubble every where else.
Wow.
It’s only been a couple of hours since I’ve checked to see what the markets are doing, and do my eyes deceive me?:
TSX -740 @ 7750
Oil futures @ 48.70 pbl
News of the “Automaker Rescue Plan” being dealyed in the US was the final straw, I suppose? Added to the jobless claim #’s in the US, Mr. Market does not see much in the way of fuel for growth in the short-term, I see.
Nov. 20 (Bloomberg) — The number of Americans filing for unemployment benefits approached a 26-year high, and a gauge of the economy’s future performance dropped, sending yields on benchmark Treasuries to record lows.
Poor Citi. Completely foreseeable outcome for this company, but sad to see, nonetheless.
“Nov. 20 (Bloomberg) — Citigroup Inc., which fell as much as 25 percent in New York trading today, is urging the Securities and Exchange Commission to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter.”
Further manipulating the market will do nothing but delay the inevitable for them, methinks.
Crikey,
maybe they will bring back the uptick rule. If oil continues tanking, most oil stocks will continue to tumble. Many of the small players will be shorted, if they have not been already, bringing them to penny stocks when some where trading at 5 or 6 bucks a share just a few months ago.
TSX -740 @ 7750
Remember a few days ago, you were a little ansty obout getting back into the market?
When the good news outweighs the bad, the bottom has been reached.
This just in:
Press Release from Fannie Mae (no link yet): Fannie Mae to Suspend Foreclosures Until January
In order to support the streamlined modification program announced on November 11, 2008, Fannie Mae (NYSE: FNM) today issued a notice to its loan servicing organizations and retained foreclosure attorneys directing them to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.
The temporary suspension of foreclosures is designed to allow affected borrowers facing foreclosure to retain their homes while Fannie Mae works with mortgage servicers to implement the streamlined modification program scheduled to launch December 15.
Freddie Mac also announced they are suspending foreclosures.
Merry Christmas. Huge rally tomorrow? Meh.
CAAMP has released its annual mortgage report
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2008/11/canadas-mortgage-market—caamp-report.html
Some highlights
5,250,000: The number of Canadian home owners with mortgages.
29%: The percentage of Canadian homeowners who got a new mortgage in the last 12 months.
22%: The percentage of mortgagors who took equity out of their homes in the past 12 months. People are spending more because last year it was 17%.
50%: The ratio of new mortgages taken out in the last year with amortizations greater than 25 years.
Huge rally tomorrow?
I don’t know, sounds like Citigroup is in deep cocka
295 billion in distress and writedowns
http://bankimplode.com/blog/category/writedowns-and-distress/
http://finance.google.ca/finance?q=NYSE:C
Second worse day in the history of the TSX. The only day that saw a larger drop was Black Monday, in 1987.
“50%: The ratio of new mortgages taken out in the last year with amortizations greater than 25 years.”
Amazing!
Crikey,
“Big rally tomorrow?”
Yola Edwards, technical analyst wrote yesterday, “A close above 9,381 would suggest a possible rally to about 10,200 while a close below 8,537 would negate the bullish pattern, and decline to about 6,874. Market closed at 8,490 on 11/19.
George — that link is wonderful.
The snippet that made my head spin was this:
“22%: The percentage of mortgagors who took equity out of their homes in the past 12 months. People are spending more because last year it was 17%.
$41,000: The average equity that borrowers took out of their homes this year. That’s up 16% from last year. The most common reason for borrowing this equity? Debt consolidation.”
Putting the Line of Credit/Car Loan/Student loan onto the house debt? When housing values are falling?
This will NOT end well.
There are a number of larger 1800+ sqft houses in varsity view right now on MLS & Saskhouses. The prices are in the 350-400 k range which seem pretty good to me considering the location and size. However, these houses are all quite old, mostly from the 1910’s.
I was just curious if anyone knows the history of any of these properties and has anything to say about the level of upkeep generally required? Are they suitable for a family or are there health hazards due to the age of the house?
“TD scales back house price declines”…again?
http://preview.tinyurl.com/59u5k6
Matt,
Those old homes do require a fair bit of upkeep but as long as I’ve been in this business I can only recall one instance where a Saskatoon homeowner claimed that their home was causing health problems. Generally, if the property is free of asbestos, mold, or bad wiring there shouldn’t be much to worry about. Always consult a qualified inspector on those items.
I saw a house today which was advertised as having “energy efficient bulbs throughout.” I just wanted to let you know that if any of you are interested in one of my listings I am willing to install energy efficient bulbs as well. Please don’t let that sway you away from considering my listing.
George,
That is a cool link. A few more points that I thought were interesting.
$136,000: The average mortgagor’s equity. This equity equals 51.7% of their home value on average.
72.3%: the percentage of equity for all Canadian home owners.
7%: the percentage of Canadian mortgagor’s with less than 10% equity.
78%: the percentage of Canadian mortgagor’s who have greater than 25% equity in their home.
0.28%: The percentage of Canadians who are 90 days or more past due on their mortgage.
This report doesn’t strike me as scary at all. In fact, it appears that Canadians are in far better shape than I would have imagined. Nearly 80% of home owners with mortgages could absorb a 25% decline in property values without seeing negative equity.
Citigroup is apparently going to hold an unscheduled meeting tomorrow:
http://tinyurl.com/68adx6
“Executives at Citigroup Inc., faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter.”
By falling below $5, many mutual funds and institutional investors — in particular pension funds — must unload shares of Citigroup to comply with investment guidelines. Perhaps a merger? I’m not sure about that big rally tomorrow at all, now.
All those billions of TARP dollars that Uncle Hank handed them directly from the US taxpayer might not have been a very good investment… what a surprise.
I took out a mortgage this year, and asked for a 25 year amortizations. The deal ended up going through with a 40 year term. I was less than impressed with my broker for that. I found out after 2 payments so it isn’t too bad for me, but if it had taken me much longer I wouldn’t have been impressed.
am,
Hmmm. That sounds a little sneaky. So, you were able to get that fixed?
Sam said:
I took out a mortgage this year, and asked for a 25 year amortizations. The deal ended up going through with a 40 year term. I was less than impressed with my broker for that. I found out after 2 payments so it isn’t too bad for me, but if it had taken me much longer I wouldn’t have been impressed.
Yeah, I assume when you found out you got the amortization changed, and if you paid NHA insurance you got the difference back?
The difference in the insurance premium between a 25 year and 40 amortization is big. As I’ve discussed before, my spouses and I went with a 40-year, and we won’t be digging into the principal of our loan for the first 3 years of our term.
Matt said:
There are a number of larger 1800+ sqft houses in varsity view right now on MLS & Saskhouses… However, these houses are all quite old, mostly from the 1910’s.
I was just curious if anyone knows the history of any of these properties and has anything to say about the level of upkeep generally required? Are they suitable for a family or are there health hazards due to the age of the house?
I would echo the need for a home inspector, and say that you probably should be more comfortable with doing more handy-work around the house in an older home.
We bought a 1920s home in Caswell Hill that we knew had been well-cared for for 25 years (bought from my parents.) I think you have to have bit of a different mind-set when buying an older home- it’s a bit more of a labour of love than just a place to keep your stuff.
A year and a half in, I’m thrilled with our decision to buy a “character” home, and hopefully I will have fully discovered my inner Mike Holmes by the time any major projects become necessary. (In the next five years we’ll need to completely renovate a bathroom, replace a substantial amount of original hardwood flooring, and replace the furnace.)
lawtalkingguy,
one of the best resources I found for reno’s was Mike Holmes forums. A wealth of information. And if you DIY for your bathroom, you will save thousands. I gutted my bathroom a while back and on evenings and weekends I worked on it. The bathroom cost me just about 2500 including renting tools( tile saw). At least double that to get someone in to do it. Good luck.
I saw this graph on Garths site.
Where is the bottom? 4 bear markets
http://www.greaterfool.ca/wp-content/uploads/2008/11/four-bears-large.gif
Wow Norm,
Haven’t checked in for quite some time but things seem to be get’n a lot more civil! I suppose writing’s been on the wall for the past while and anyone would be a fool to argue against the obvious
Just wanted to say hello amigo.
Matt,
About the biggest health-hazard I’ve ever run into in my vintage homes are bumping my head on those low floor joists at the bottom of the basement stairs. Will I ever learn? Another problem can be that they often have a clay pipe for the sewage from the house to the street; tiny tree roots can get into these and cause clogs to build up, which the city presently augers out for free. The trick is to remember that it’s time for a cleaning (every year or two) before you get a clog. There are often extra jobs to do (like painting wood siding and trim, which I think looks nicer than vinyl, anyways), but on the other hand, you know that the house has stood the test of time (they can be very solidly built).
Despite these issues, I would never buy anything but an older home, and I hope you will discover how awesome they are. One thing you’ve got to love about the old homes is that they often have a great location that you just can’t get in a new one. The quality of the workmanship is generally top-notch, the framing lumber and woodwork can’t be matched today (today’s lumber just isn’t the same as the old-growth stuff, and you’d pay a fortune to have high baseboards and solid wood doors done today), plaster is a much better sound insulator than drywall, and you can update anything else you feel you need to. Your house will be one of a kind, and if it’s less expensive than buying new, you can spend the difference on getting some renovations done just as you like. Trees, big lots, and alleys are nice, too. I really love old houses!
Saskatoon’s economy keeps ticking: analyst
Joanne Paulson
The StarPhoenix
Thursday, November 20, 2008
Mario Lefebvre is almost afraid to predict Saskatoon’s economic growth. He’s been wrong — on the low side — so many times.
The economist and Conference Board of Canada’s director of municipal studies says Saskatoon is always surprising him with its buoyant economy, particularly in the last two years.
Still, in an interview Wednesday, he was willing to stick his neck out and predict 3.3 per cent growth for the city in 2009. That comes on top of 5.4 per cent growth this year.
“I’m afraid of making that call. You guys always seem to beat up what we predict,” Lefebvre joked.
“How long you can sustain this, I do not know. All I know is year in and year out, I go back to Saskatoon and offer my most sincere apologies.”
http://www.canada.com/saskatoonstarphoenix/news/story.html?id=b74c0d6a-63fc-456e-8877-59e3fc6077bf
George said:
“one of the best resources I found for reno’s was Mike Holmes forums. A wealth of information. And if you DIY for your bathroom, you will save thousands. I gutted my bathroom a while back and on evenings and weekends I worked on it. The bathroom cost me just about 2500 including renting tools( tile saw). At least double that to get someone in to do it. Good luck.”
Thanks for the tip- I have the forum bookmarked but haven’t checked it out as much as I should. The potential savings are pretty unreal given the cost of labour right now. It’s to the point where it might make sense for me to work a pretty decent-paying job part time next summer, and working on my renos for the rest of the time. I figure I’ll save more doing the labour myself than I lose in lost wages, even accounting for my competence level. Plus I learn skillz!
Inflation drops to 2.6 per cent
http://www.reportonbusiness.com/servlet/story/RTGAM.20081121.wcpi1121/BNStory/Business/home
On a month-over-month basis, prices actually fell outright, down 1 per cent from September on a non-seasonally adjusted basis. That’s the biggest monthly decline in prices since June 1959, and prompted much chatter about whether Canada could be on the verge of a dangerous deflationary spiral.
The central bank has already indicated that it intends to continue slashing its key interest rate in order to stimulate Canada’s flagging economy.
the widespread fear of rising inflation that dominated economic discourse in the spring and summer has quickly given way to expectations for disinflation and even warnings of outright deflation. Deflation, which is a broad and sustained decline in prices, is dangerous because consumers stop making purchases in the hopes of lower prices in the future – making recovery from a recession more difficult.
But with Friday’s soft inflation numbers, economists at the Bank ofNova Scotia warned that deflation could be a problem here too.
Deflation is good for people who have saved, bad for people who are in debt.
George,
We seem to keep having the same conversation.
While I agree with your basic premise that “Deflation is good for people who have saved, bad for people who are in debt.” The statement does not hold true in today’s world. In a true deflationary environment no one really benefits. With government, corporate, and public debt all over the world at extremely high levels a deflationary environment would ensure extremely high tax rates, governments trying to service the ever growing demands of there own debt. Massive unemployment, starvation, or thousands of other horrific outcomes +60% unemployment would cause. Because you see in deflation no one buys anything, the consumer begins to realize that future prices will be lower and will hoard there cash to wait for lower prices. These leads to massive unemployment. The demand for everything would drop. You get the point. The cycle would continue and even savers would end up having no savings because they would be unemployed.
Anyway my bone of contention is not whether deflation will happen or not the question is of when.
I believe that central banks around the world will first inflate and monetize like crazy. Inflation and deflation is nothing more than a monetary phenomenon. They will inflate as long as they are allowed by those that are not debtor nations. Once they have been allowed to or been able to they will then be able to deflate. At this point deflation is far more acceptable because the debt will not be oppressive as it currently is. This will of course destroy all fiat currencies but that is another issue.
The moral of the story is that they will inflate then deflate. All this talk of deflation is nothing more than talk giving Central banks and governments the ability to print and do whatever it takes to cause inflation.
Helicopter Ben to the rescue.
If I am correct in this assumption watch for a precipitous drop in the dollar and a rise in gold and other commodities. I believe gold will move fist followed by the other commodities.
If I am wrong watch for a continued drop in oil, further increases in the U.S. dollar and precipitous drop in gold.
For the sake of man kind I hope I am correct.
NIA, DYODD.
Nix
Thanks for the link, George. I don’t think many people have really thought about the effects of a deflationary period on what they may perceive as “wealth”. Inflation has been the case for most people’s lives, and we’re so used to prices for everything rising, it must seem anathema to them.
Yes, Statistics Canada has announced the seasonally adjusted CPI fell from September to October. And it wasn’t just gas prices. Core was down too (not seasonally adjusted). That’s deflation (on a monthly basis).
If you’re in debt during a deflationary period, your assets lose value while the amount of debt you have outstanding will remain the same, making that debt more difficult to pay off. Asset-backed nominal losses may take years, or in worst cases decades, to get back in nominal terms.
The idea behind holding cash or cash-equivalents during this period is obviously to reduce deflationary losses. Don’t forget, if the expected rate of deflation is x% YOY, you can “earn” x% real interest YOY just by holding cash.
Nix,
I know your post wasn’t directed at me, but I noticed it only after I had posted. You’re entirely right, in a worst-case scenario deflation is “good” for no-one. All one can do is attempt to mitigate their losses, I suppose. I’m not in a position to entirely contemplate worst-case scenarios right now. You certainly seem to have the “psychology” of deflation pegged.
“I believe that central banks around the world will first inflate and monetize like crazy”
I’m not sure if I’m interpreting what you’re getting at correctly. If you think that “printing” will avoid deflation in the short term, I’m not certain that I agree. I’m not sure I see how deflation would occur shortly after a hyper-inflationary period, either- perhaps you could elaborate. I apologize if I’m misunderstanding you.
Johny,
Capitulation!
Hello to you to. It’s nice to see you here.
Crikey,
A deflationary scare as I believe we are in now cannot occur without a true deflationary backdrop. Without the ability of central banks to print(add digits) we would already be in a deflationary death spiral. The true deflationary backdrop was made worse by the Federal Reserve as they had actually been reducing the money supply(balance sheet) in the months leading up to the Bear Sterns event. I am not a conspiracy theorist, but it seems to me that the Federal Reserve were presented with a timing and authority problem. A large investment bank was not supposed to fall until a later date, but it did. In doing so the fed used the opportunity along with treasury to get special powers that had never before been granted. Examples would be accepting anything they wanted on there balance sheet without any oversight and eventually this all led to the TARP program and special powers granted to FDIC. None of this would have been allowed without a deflationary scare made worse by the Federal Reserve reducing their balance sheet(money supply).
If you look at the Federal Reserve balance sheet over the last three months it looks like a flat line with massive upward spikes at the end. The balance sheet as they report it has increased by over 2 trillion dollars in 3 months.
See Bloomberg article for further information: http://www.bloomberg.com/apps/news?pid=20601103&sid=aR1kyQpuAH.o&refer=us
Now, two trillion dollars does not sound like that much but in a fractional banking system times that amount by 8=16 trillion dollars. That may not sound that big when you add up stock and real estate prices around the world but, almost every central bank in the world is doing the same thing. The money being injected into the banking system world wide is almost unimaginable.
Which brings me to your question.
If you think that “printing” will avoid deflation in the short term, I’m not certain that I agree. I’m not sure I see how deflation would occur shortly after a hyper-inflationary period.
Printing alone will not stem the tide of deflation, you are correct the main problem central banks will face is causing the velocity of money to increase the opposite of pushing on a string. Even if you print money(Digits) like mad and nobody spends it or pays of debt with it there is no velocity of money and therefore no inflation. The big problem of the Federal Reserve is how do you change the psychology of the market. I believe that will do several things in the not to distant future.
1. They will start forcing banks to lend. And government spending through another stimulus package would be a good start.
2. They will manage a precipitous drop in the U.S. dollar. It seems to me that the dollar is beginning to form a top at the 88 cent level on the U.S. dollar index. A lower currency would no longer mask the effects of the expanding balance sheet.
Another point to consider is that the CPI numbers for years (Since the Clinton administration) have been understated. Allowing the substitution of hamburger for steak and many other statistical manipulations.If the government showed the true inflation numbers it would lead to wage price spikes also adding to inflation.
A hyperinflation scenario would follow, wiping many of the debts off all balance sheets. The effect of this would be the destruction of all fiat currencies. People would simply would not trust paper money. A new monetary system would have to be set up to gain the confidence of the public. You would have to back the currency with something. I imagine that if the above scenario plays out Gold and Silver would do extremely well and the currencies of world would have to be once again backed by them.
A gold/silver backed currency along with all debt being wiped would lead to dramatically lower prices, but the effects of deflation would be far less when everyone was starting with a balance sheet of “0″.
There is so much more to be said, enough for now perhaps.
DYODD and NIA.
I appreciat any comments or questions you may have,
Nix
Re: deflation, inflation.
Agreed, deflation is bad, bad, bad for everyone. But printing money doesn’t solve it until people decide to spend that extra money. If they save it, or hoard it, deflation can continue even as money supply expands rapidly. The extra money helps eventually. When people do start to spend that extra money, there is suddenly too much money chasing too few things, and inflation quickly follows. But people have to spend, not hoard, first. I think governments are very aware of what they need to do to combat deflation these days. If it happens, I’m guessing it will be pretty short lived. Who knows though.
There’s quite a good article in the G&M today about Japan’s efforts to inflate themselves out of a debt bubble, for anyone who is interested:
http://tinyurl.com/6hvwmf
“Japan’s painful hangover from its own version of the global financial crisis is a grim lesson for those who hope for a quick recovery from the present one. Japan is the only major industrialized country since the Great Crash of 1929 to go through a crisis of a similar scale. Like the United States and other world economies today, it suffered a market meltdown, a collapse in consumer confidence and a crisis in its banking system.
It has never fully recovered. After being knocked flat on its back by the bursting of a stock-market and real-estate bubble in the early 1990s, it stayed there for the rest of what became known as its “lost decade.” It bounced back slightly after the turn of the century, only to head into trouble again as the global economy weakened. In all, the after-effects of its crisis have lasted nearly two decades.
Is it possible that North America and other parts of the world could suffer as long? Just a few months ago, the idea seemed far-fetched. But as the crisis widens and deepens, it no longer seems so implausible. Some argue that Japan was actually in better shape after its bubble burst than the United States and other hard-hit countries are today. Yet Japan suffered four recessions after the bubble burst in 1990 and has just entered a fifth.
If Japan is any guide, it will take much more time to rebound from the current global crisis than many of us expect. Much more money, too. Of all the lessons from Japan’s unhappy experience, the most profound may be: Expect the worst. This is going to be a long, rocky ride.”
Nix,
I think you have hit the nail on the head. I believe there is a new bubble right now and it is the US dollar. And I believe a crash with the US dollar is coming.
They borrow 2 billion a day to keep the lights in that country nevermind the bailouts.
10 trillion in debt, not including private debt, social security and medicare. I think that is over 50 trillion. I am seriously looking at Gold.
Good posts.
Nix,
“Deflation is good for people who have saved, bad for people who are in debt.”
When hardly nobody saves, deflation would be catastrophic for our economy. I can only think of one country in the whole world where deflation would be good and it is not Canada.
George “When hardly nobody saves”
Yeah, what I have been saying for the past year, spending should not be increasing my more than income, and when savings/the stock market/mutual funds are tanking, people should be spending less and paying off debt, even if their income goes up a whole 4%.
Saskatchewan is not immune from this financial crisis, and it is very tough to feel bad for anyone who loses their shirt while spending 20% more on eating out, cars and fancy shirts instead of paying down their debt