HISTORY & READINGS at Brian Ripley's Canadian Housing Price Charts & Plunge-O-Meter

USD

4/30/2014

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Demand is Local
Supply is Global

As the USD strengthens, the U.S. consumer inflation rate continues to drift down as it takes fewer greenbacks to buy imported goods. I guess it's too soon to yell deflation or pull out the Japan chart, but down is down.

Meanwhile in Canada and Australia where they dig the earth, the strengthening USD is producing the opposite effect, the CAD and AUD are weakening which is good for exporting the stuff coming out of the ground but with it comes more imported goods price inflation (buyers require more CAD & AUD dollars to buy the same amount of stuff) and that has egged on the real estate inflationistas who continue to drive the price of their local real estate up the left side of the Eiffel Tower. Sure, those imported countertops, appliance suites and appurtenances are going up in price; but that stuff is a wildly depreciating asset.

What about China? The bottom panel of the chart mashup above shows us that the CNY is also being depressed (via FX markets and the Princeling cliques) against the USD and that drives up their import costs on global resources and reduces the value of their already imported commodity stockpiles used to bankroll the shadowy (unregistered? - unregulated?) secondary financing market.

The weakening CNY is pushing imported Chinese consumer costs up and producer prices down. (March 2014: Chinese consumer prices were up 2.4% Y/Y and producer prices were down 2.3% Y/Y and down for the 25th straight month)

The Chinese housing index has rolled over on a steep dive (bottom panel of chart above and below is a China chart mashup from Bloomberg's Tom Orlik showing the ongoing Chinese deceleration).

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Slippery Slope

4/25/2014

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Oil Can Economics

Canadian Oil Production
UP 12% Y/Y at Dec 2013
3,822,000 Barrels per day
U.S. Production (2x Canada)
UP 13% Y/Y at Jan 2014
7,939,000 Barrels per day

The image of enthusiasm for tangible asset speculation rippled through the twitter-sphere this week with the chart above showing the well known disparity between Canadian and U.S. housing prices. One can compare Canada's housing premium to almost anywhere and be impressed with the northern naiveté that passes for Johnny-come-lately investment. Less impressive are the non-arm's length analyses that come attached to these charts that tout the long term safety of real estate by citing the current pickup in the hot metro prices and seasonal upswing in sales now that the polar vortex has stopped blowing. I won't pick on any particular high profile media economist that has been interviewed about the chart except to say that YOU FORGOT ONE VERY GLARING DATA SET... total residential Canadian national MLS sales are down 16% from the 2007 peak over 6 years ago. That's a big momentum drop over a chronic period of time. See my 6 Metro Canadian Housing Chart.

As noted in the Oil Production chart above, there is more than just housing cost disparity between the U.S. and Canada. Sunshine and employment opportunities are still a very large part of the Canadian emigration drive south.

of the 2-3% of Total Residential Sales made to Foreigners:

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in 2010-2012, Canadians constituted the biggest segment of the market, followed by Europeans, Asians, Central-South Americans, Chinese, and Mexicans.

of the Canadians who bought U.S, Residential Real Estate:

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+/- 98% of sales were median priced residential properties at $183,000
+/- 86% of sales were on an all-cash basis.
+/- 71% were in Florida, Arizona, and California in a suburban or resort area, eg: Las Vegas, Fort Lauderdale, Orlando, Detroit, or Naples. Source: March 2013 Survey by www.realtor.com

Diane Francis "Merger of The Century"
on The McLaughlin Group April 18, 2014

Diane Francis Quotes

250,000 Canadians work in Hollywood.
250,000 Canadians work in Silicon Valley.
400,000 Canadians live in Manhattan.
7,000,000 Canadians moved to the U.S in the 20th Century for jobs and opportunity. (That's 20% of the current Canadian population.)

POLITICO: Why the U.S. should merge with Canada by Diane Francis

"Exodus" Bob Marley Live in Santa Barbara 1979

Toil and Trouble

4/23/2014

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Double Double

This chart shows the bulls in charge prior to the 2007-2008 plunge that took the average Vancouver SFD price down $122,900, or 15.9% in 8 months (2%/mo drop). The crash derailed the exponential doubling trend (yellow dashed line) and the new trend from the April 2008 high to today (white dashed line) projects that another doubling will not occur until the summer of 2026. This chart is updated monthly here.

Youtube (2.24min) MacBeth's Toil and Trouble
from Roman Polanski's "The Tragedy of MacBeth" 1971

The Tragedy of Macbeth (1971)
Directed by Roman Polanski
Based on the play by William Shakespeare (1564–1616)
Interpreted by Jon Finch, Francesca Annis, Martin Shaw, Terence Bayler.

XXXIII.
A dark, gloomy and sinister place in a plain.
It's night. Macbeth arrives on horseback.
The weird sisters are singing. He approaches their refuge.
One of the three, the yougest, is naked and waits for him.
She shows him into their refuge.
He enters and sees lots of naked women
and in the middle there's a boiling cauldron.

Eldest witch:
By the pricking of my thumbs,
something wicked this way comes.

All the witches are laughing.

Macbeth:
How now, you secret, black and midnight hags? What is it you do?

Witch 1:
A deed without a name.

All together:
Double, double, toil and trouble.
Fire burn, cauldron bubble.

Macbeth advances.

Witch 2:
Toad that under cold stone,
days and nights has 31.

She puts a frog into the cauldron.

Witch 3:
Swelted venom sleeping got,
boil thou first in the charmed pot.

She throws into the pot some liquid.

Witch 4:
Eye of newt and toe of frog,
wool of bat and tongue of dog.

She throws into the pot all these things.

Witch 5:
Adder's fork and blindworm's sting,
lizard's leg and howlet's wing.

Witch 6:
Nose of Turk and Tartar's lips,
slivered in the moon's eclipse.

Macbeth looks at them, disgusted.

Witch 7:
Fillet of a fenny snake,
in the cauldron boil and bake.

Witch 8:
Liver of blaspheming Jew,
gall of goat and slips of yew.

Macbeth:
I conjure you, by that which you profess,
howe'er you come to know it.
Answer me to what I ask you.

Eldest witch:
Speak!

Witch 2:
Demand!

Eldest witch:
We'll answer. Say if thou'dst hear it from our mouths,
or from our masters.

Macbeth:
Call them let me see them.

A witch takes out a cup from a bag. She pours into it some of the liquid they are boiling into the cauldron.

Eldest witch:
Cool it with a baboon's blood,
then the charm is firm and good.

She pours the blood into the cup. They all bring the cup to Macbeth.
He takes it in his hands and drinks it. He is about to faint.
The witches take him and bring him in front of the cauldron.
He looks into it and sees his face reflected.

Dialogue Source
Script transcription by Eleonora Capra (December 2007)

When the tree falls the monkeys scatter

4/18/2014

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shù dǎo hú sūn

The chart mashup shows China's national real estate development and sales decisively rolling over in 2013 which has in part led to Chinese import data plunging into April 2014. (Charts via Soberlook.com and NBS China)

Gordon G. Chang, a Forbes contributor has been cataloging the drama throughout March and April 2014 (selected quotes):

Walmart will be closing marginal locations, about 9% of total in China.

Hangzhou’s Grade A office buildings at the end of 2013 had average occupancy rate of 30%.

Hangzhou (fourth-largest metropolitan area of 2.5+ million people) faces “burgeoning swaths of empty apartment units.”

“It seems that the 30% price cut in Hangzhou (residential prices) has really changed the way Chinese people (nationally) think about real estate".

The real estate market in Hangzhou looks like it has just passed an inflection point... people’s mentality has changed.

Now, the problem of no buyers is spreading across the country... China’s residential markets are becoming inelastic. People aren’t buying because they believe prices will decline further.

Rich Chinese, now interested in foreign holdings, are also shunning their home market. Middle class Chinese are also largely out of the market.

Many private developers had gambled that property prices would rise faster than interest rates, but that now looks like a losing bet.

China is at the point where problems are feeding on themselves. Pessimism about property, which accounts for about 15% of China’s gross domestic product, is beginning to affect the broader economy. “Without question, everyone thinks there is a bubble.”

“The banking system and the shadow banking system are becoming concerned about exposure... and refuse to provide credit to developers... forcing them to cut prices. If this persists, it will turn into a vicious loop.”

When the tree falls, the monkeys scatter.
And now a selected Chinese environmental report:

The extent of China's soil pollution, long guarded as a state secret, was laid out in an official report that confirmed deep-seated fears about contaminated farmland and the viability of the country's food supply. Nearly one-fifth of the country's arable land is polluted, officials said in the report, shedding unexpected light on the scale of the problem—a legacy of China's three decades of breakneck economic growth and industrial expansion.

In April 2013, the discovery of unusually high quantities of cadmium in batches of rice grown in Hunan—the country's top rice-producing region, as well as a top-five producer of nonferrous metals like copper and lead—set off worries about farmland and sent prices for Hunan rice tumbling by as much as 14%. Continue Reading at the Wall Street Journal.

VICE: The Devastating Effects of Pollution in China (Part 1/2)

VICE: The Devastating Effects of Pollution in China (Part 2/2)

Foreign Exchange

4/11/2014

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U.S. Dollar Strength

From the early 1990's to the early 2000's, the USD/CAD was trending up and increasing Canadian import costs on a weak CAD relative to the USD (top panel of chart). After 10 years the trend reversed and for the next decade to 2013 the CAD unit was strong against the USD allowing Canadians to buy more stuff at cheaper prices.

Now the trend appears to be reversing once again with the USD on the ascendant. For the Canadian exporters who took advantage of a strong CAD and who used the FX advantage to invest in machine independence technology (IT & Robotics) as well as reducing middle management; they will probably transition well if the global slowdown is still in an early phase of a trend change (Bloomberg March 24/14 "China’s manufacturing industry weakened for a fifth straight month").

But for exporters who rely on import materials and for all Canadians who shop for imported goods, CAD depreciation is going to depress consumption, lower aggregate demand, reduce wage growth and deflate unproductive asset values at the margins as participants liquidate in order to reduce debt, repair balance sheets and try to maintain lifestyle in a rising import price environment.

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As I noted this month in the updated TSX chart (March data), the Canadian commodities index is attempting a breakout to the upside.

The first 2 weekly April data points are up as well CCI).