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

Beveridge Curve

11/27/2013

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Are You Qualified?

Here is a continuation of the theme that North American Labour needs to retrain that I posted about last month from the point of view of who is benefiting from wealth creation.

Now, this chart mashup shows the Beveridge Curve which is the inverse relationship between the unemployment rate and the vacancy rate. It demonstrates that since the Pit of Gloom in 2009, the unemployment rate has been falling while job vacancies have been rising, BUT the counter-clockwise outward shift indicates a higher unemployment rate along the job openings curve. Employers cannot fill job vacancies either because labour is unwilling or untrained. The longer the unemployed remain so, the less likely they will fit the demands of the employer; hence the question "Are you qualified?". Can you retrain while you are idle? Can you move to where the demand for labour is?

Employers are increasingly free to locate near or attract high skill low cost labour from a giant "free trade" low barrier pool.

2011: McDonalds Hires 62,000, Turns Away Over 938,000 Global Applicants For Minimum Wage, Part-Time Jobs (16:1)
2012: Delta Air Gets 22,000 Applications for 300 Attendant Jobs (73:1)
2013: In China 1.2 Million Candidates Apply For 19,000 Government Jobs (63:1)
2013: Why did 1,701 people apply for just eight Nottingham U.K. barista jobs? (213:1)

It's another realization that the compounding effects of multilateral "trade" agreements since post WWII (GATT 1947, WTO 1995) have been changing the value of labour. Since 1994, NAFTA has been the arbiter of disputes via the dispute settlement system known as "Chapter 19" and members have agreed to ignore conventional national judicial review in favour of NAFTA's panel review. The removal of dispute resolution from judicial systems is a hallmark of Capital's ability to not just lobby government but to become government. The latest but not yet manifest "trade" agreement is TPP (Trans Pacific Partnership 2010) which aims to "liberalise the economies of the Asia-Pacific".

TPP meetings and negotiations are kept secret except for what WikiLeaks has managed to publish and ...

... anti-globalization advocates accuse the TPP of going far beyond the realm of tariff reduction and trade promotion, granting unprecedented power to corporations and infringing upon consumer, labour, and environmental interests. One widely republished article claims the TPP is "a wish list of the 1%" and that "of the 26 chapters under negotiation, only a few have to do directly with trade. The other chapters enshrine new rights and privileges for major corporations while weakening the power of nation states to oppose them." (Wikipedia)

Condo 101

11/22/2013

CBC DOC ZONE VIDEO "The Condo Game"

"Downtown condos are "more a commodities play than a housing market". Charles "King Cobra" Hanes, Toronto condo broker.

CLICK IMAGE TO VIEW CBC DOC ZONE VIDEO "The Condo Game"

The Condo Game was produced by Helen Slinger and directed by Lionel Goddard and Helen Slinger.

Are you thinking of buying a condo? If you do, you should set aside money for special strata assessments that are additional to any regular monthly "contingency" strata fees. AND read this CONDO USER'S GUIDE prepared by Ted Kesik, University of Toronto building science professor.

Here is an excerpt from the BC Housing Home Owner Protection Office website "Managing Strata Repairs FAQ"

Can the strata corporation use the Contingency Reserve to fund repairs? What options are available to fund the repairs?

According to the BC Strata Property Act, monies in the Contingency Reserve Fund can be used for emergency repairs without approval from the owners. Beyond emergencies, owners must give their approval at a general meeting to use these funds.

The strata corporation has two options for raising money:

1) The strata corporation can borrow money and collect additional amounts from owners each month to repay the loan

2) Special assessments can be levied against each strata unit

Either course of action requires approval by the owners at a general meeting of the strata corporation.

What happens if not all owners are able or willing to contribute their share of the repair costs?

Once the strata corporation has approved a resolution to levy special assessments, the Strata Property Act provides remedies for those who do not pay on time. Ultimately, the strata corporation can place a lien against the strata lot requiring it to be sold and monies owing to the strata corporation are collected from the sale proceeds.

Inflation Forecast

11/22/2013

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NOPE to NIRP

Sal Guatieri, Senior Economist at BMO Capital Markets Economic Research released their North American Outlook (Nov 13, 2013) which included a forecast for an inflation pickup and an interest rate move up on 10 year Treasury Bonds.

My chart on the Canadian 10 Year "Real" Treasury Bond Yield indeed looks like it is in an up trend but a lot of that is from deflation, a dropping CPI. This real rate has climbed 226 bps December 2011 through October 2013.

If a major bank research group is getting ready for the beginning of the end of ZIRP, then forget about NIRP (Negative Interest Rate Policy) which has been trial ballooned on both sides of the Atlantic lately.

Here are a few odd bullet point quotes from the BMO report that makes me wonder if BMO is actually going to sell Treasuries (price down, yield up) or if they are in the market to buy a dip:

U.S. sequestration held back government spending, and political uncertainty hurt confidence, slowing business and consumer spending, the latter to the lowest rate in two years.
Caught off guard by cooler demand, U.S. businesses produced far more than they sold.
U.S. GDP growth is expected to slip below 2% in Q4 as a result of the government shutdown.
An improving global economy will support U.S. exports (???).
Low U.S. inflation and distorted data imply just 30% odds of a December shift in QE (taper).
The U.S. Fed funds rate could stay put until late 2015, possibly longer if the Fed extends its forward guidance to tamp down long-term rates.
Canadian exports have gone nowhere in the past two years and factory output continues to contract in response to an overvalued currency and sluggish global demand.
Canadian federal and provincial governments are tightening the purse strings.
Canadian public sector layoffs have slowed job growth this year to a below normal pace.
Canada will quadruple its rail-loading oil terminals, possibly increasing its U.S. bound oil exports by 20%. (??? the U.S. shale energy boom continues to ... reduce oil imports)
In most Canadian regions, housing sales are higher now than when the mortgage rules where tightened in mid-2012. (??? Nope... sales are definitely down from mid-2012 see chart)
Bank of Canada has stopped warning about future rate hikes and opens the door for possible rate cuts if growth falters or inflation slips below the 1% (currently 1.1%)

I think the metrics to watch to determine whether interest rates rise or not in the next 12 months will be unemployment, labour participation and household earnings. If earnings rise so will aggregate demand and general price inflation; but in both Canada and the U.S. politicians argue that government deficit spending must be reduced. If the government is not spending (investing) into the economy, will the private sector pick up the slack?

Commodity Dependence Vulnerability

11/19/2013

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Eggs all in 2 Baskets

Government subsidizes the housing and banking industries by price fixing the cost of credit. Direct and indirect employment is disproportionately funneled into construction (see Labour Force Participation post).

The same story has been repeated globally and according to BMO chief economist Douglas Porter "Canada's rising dependence on commodities trade makes it vulnerable to price declines."

Canadians do not appear to be willing to add value to their resources by developing infrastructure and manufacturing capacity.

In the mashup above, the two top charts are from SoberLook.com and they observe:

With prices drifting steadily lower since the spring of 2011, it seems safe to conclude that commodities are not going to bail us out this time—the Super Cycle is over. While global growth will likely be just firm enough to put a floor under resource prices in 2014, Canada simply cannot rely on improving terms of trade to lift incomes further, or to turn around a weak trade performance. The dramatic rise in U.S. oil and gas production further complicates the picture by putting downward pressure on North American energy prices.

Here is what's driving this dependence on commodities exports.

Canada continues to struggle with lagging labor productivity. Anecdotal evidence suggests that businesses are avoiding opening labor-intensive operations in Canada due to high costs. As a result, manufacturing employment and output failed to grow over the past decade - and in fact have been declining. Without growth in manufacturing, Canada has been increasingly dependent on natural resources for growth... the non-energy component of Canada's trade has declined sharply over the past decade.

Canada vs Ireland

11/14/2013

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Timing is Everything

Now that we are on the seasonal down ramp into the 2014 spring bottom for sales and listings, it might be worthwhile for those Canadians who are heavily debt encumbered to look at what happens to a "C" class income generating country after their real estate bubble gets pricked by a swift change in buyer sentiment.

As for The Irish Miracle "The case is clear: an economically challenged government, perniciously influenced by the interests of the housing lobby, blew it. The entire Irish episode will be studied internationally in years to come as an example of how not to do things." (David McWilliams Irish economist writer, broadcaster and journalist)

News Item CNN November 14, 2013: Three years after turning to the EU and International Monetary Fund for €85 billion in aid, Ireland is poised to become the first bailed-out eurozone country to make a full return to financial markets.

Notice the polar opposites of the U.S. (B Class GDP) and Japan (D Class GDP) since 1Q 2000 when the DotCom bubble burst; they also experienced severe housing price deflation; Japan's slide began a decade earlier. Timing is everything.

You Don't Own It

11/13/2013

How to sell your Pre-construction Condo
by David Fleming

Hat tip to Ben Rabidoux for tweeting this excellent review of the perils of buying un-built real estate. Time is a huge risk if market prices do not rise; then the risk of negative yield takes over. Calculate your yield.

David's Sample Pre-Constructed "Condo" and the road to attempting to sell the assignment:

$500,000 Original Purchase Price on a 714sf Toronto Condo ($700/sf) and after 12 months, the assignment is offered for sale with the following costs included in the price:
$12,200 Ontario Land Transfer Tax
$18,000 Closing Costs (can be much higher; read fine print)
$25,000 Realtor Fees
$3,000 Legal Fees
$9600 Occupancy Fees
$567,800 New Asking Price a 13.6% increase based on hard costs (now $795/sf) and in direct competition with the developer who can offer incentives to a buyer for the same or better unit.