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

Inversion Report

1/27/2018

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In December 2017, the 10yr less 2yr Canada Government bond spread narrowed to just 32 beeps away from inversion.

In April 2006 it was 33bps away and narrowing until it was fully inverted in May, June and July of 2007, and then central banks panicked and goosed the spread to widening again and by November 2007 it was 31bps again.

A year and half later the wide reached 230 beeps in May 2009, 2 months after the pit of gloom crash bottom.

We should start watching for further narrowing now especially with equity markets at their historical tops.

The Macro Model" chart below is from Crescat Capital with a few of my notations about Canadian debt levels which are at historical highs. NILS JENSON from Crescat Capital on January 27, 2018 made the observation that:

Market history is littered with downturns that followed new Republican presidents: Hoover (1929), Eisenhower (1953), Nixon (1969), Reagan (1981), and Bush (2001). The Trump bubble will likely prove to be the mother of all Republican presidential ebullience bubbles. Trade wars are not positive at all for the markets. They are what exacerbated the Great Depression and they should be one of the key triggers of the bursting of the China bubble.

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Here's Who Could Lose the Most in a U.S.-China Trade War
Bloomberg, January 23, 2017

Job Tenure

12/19/2017

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"While there is a lot of talk about how employment is becoming more temporary, this graph from joint work with Alex Thomson and Arthur Sweetman shows that the average time that the currently employed has been with the same employer has been almost constant at just over 100 months since 1976." Hat Tip to Macleans.ca

And for those of you who are under 40 years of age, you might end up changing employers 6 more times before you reach 70 years old.

That’s why, when you finance a real estate purchase, you should double check both your debt AND income amortization to see if they support each other.

If you have to move to a new city to get that better job, make sure your real estate asset can produce a net revenue stream.

Computer technology is already eating jobs and has been since 1990. To survive, get non-routine skill training. Thanks to Futurism.com for the chart below.

The Precarious Generation

Debt Leader

11/23/2017

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Canada is leading the way among OECD members in household debt measures. Also of note is that labour costs in Canada were negative at -0.4% Y/Y

Debt has been fueling lifestyle especially in cities like Vancouver and Toronto where extreme speculation, serial flipping and inert local and federal officials stand by with failed policies and ineffective regulations. There is no cop on the beat; it's do unto others what you want.

In less than 2 decades we have gone from a country where the ability to easily change employment or one's residence has evaporated. Now we are pinned to our job and our postal code because leaving either results in lineups to fill our departure.

I suggest that both the opening of access to information via the internet and the collapse of bond yields sponsored and promoted by governments mirroring each other have left us with a country of over-consuming and under-producing populace.

My regularly updated Household Debt Chart includes the FDI-FDO plot which illustrates the point; we are a country of consumers highly prized by offshore producers, a situation that is now entrenched in our behaviour, modified by our regulations. Currently, for every $1.00 of Foreign Direct Investment into Canada, there is $1.27 of Canadian savings being invested offshore where the yield is greater.

The Paradise Papers underscores the problem; greater access to stealth information along with domiciled yield suppression has led to increasing capital flight by Canadians and Canadian corporations unwilling to invest in Canada. This and the vacuum created from interest rate suppression has turned a lot of us into serial house and condo flippers and the ease and return on investment has attracted a flood of offshore money wanting in on the fun.

Those of us who could not or did not participate in the mania have been left with the sorry reality that for the last 10 years, housing costs in the runaway markets have increased by 10-12% per year or more depending on location and product. Wages have not increased to the same degree but balance sheet debt to equity ratios have.

CBC News November 23, 2017 - Canadian households lead the world in terms of debt.
Toronto Sun July 2, 2017 - Canada's middle class shrinks.
Market Watch November 3, 2017 - Blame the Internet for your stingy paychecks.
Stats Can November 11, 2017 - Housing prices, social ties and transfer payments may inhibit mobility.
Stats Can March 24, 2017 - Canadian waste management revenues increased 11% in two years to 2014.
CHPC.biz Ongoing Chart - Foreign Direct Investment OUT higher than IN over the last 20 years means Canadian companies are investing outside of Canada to get a better return on Capital and Labour.
CBC News November 6, 2017 - More than 3,000 Canadian names in the Paradise Papers.
Globe and Mail October 15, 2017 - The CRA is unable to identify the assignors who sell (flip) their contracts.

Millennials on Money: 'I am working two jobs right now’
CBC News - January 5, 2017

Leverage

4/21/2017

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The worsening of (housing) affordability in Q4 (2016) was the sixth quarterly deterioration in a row, the longest run in almost 20 years. National Bank of Canada FEB 8, 2017 Report

My long term chart study of housing starts vs population growth currently projects a 7% Y/Y decrease for full year 2017.

This suggests that indeed more starts could be consumed especially in this low interest rate environment.

Unfortunately the market place is skewed not to what is needed, eg: affordable family units close to appropriate services, but to what attracts non resident owners, flippers and FOMO driven investors who keep throwing greater amounts of leveraged capital at negative yielding and depreciating piles of steel, concrete and wood while governments at every level stand by in fear that they might lose this historic bonanza of property tax and transfer revenue.

My too-far-left radical idea of ending private fee simple land ownership is never going to happen in my lifetime as written. It is my expression of the frustration one feels at the polarity of choice:

Most people are at best only aware of two choices, two patterns, for land ownership – private ownership (which we associate with the industrial West) and state ownership (as in the Communist East).
The Idea of Owning Land by Robert Gilman 1984

But as Gilman points out in his piece, there are other examples of strategies between the two poles, ie: Landtrusts not only for conservation but for community purposes as well. Unfortunately:

"We don't have a national housing policy in this country and we should," "We're probably one of the few OECD [Organization for Economic Co-operation and Development] countries that don't have one."
TheTyee.ca June 2013

But now we have some Federal money being directed at that lack of policy:

Budget 2017 includes new national housing strategy. Canadian Finance Minister Bill Morneau handed down a budget Wednesday, March 22 that includes a new $11.2 billion national housing strategy
Business Vancouver March 22, 2017

Meanwhile the market grinds on. I suggest that individuals should consider investment in themselves rather than negative yielding real estate because there is no guarantee that the debt positions currently being created will be transformed into equity. What is more enduring is the ability to leverage one's skill set into cash flow as the OECD studies show:

The evidence on how well countries are prepared for the digital economy is rather disturbing. The OECD’s Survey of Adult Skills (PIAAC) suggests that more than 50% of the adult population on average in 28 OECD countries can only carry out the simplest set of computer tasks, such as writing an email and browsing the web, or have no ICT (Information and communication technologies) skills at all. Only around a third of workers have more advanced cognitive skills that enable them to evaluate problems and find solutions (OECD, 2013). As a result, many workers use ICTs regularly without adequate ICT skills: on average, over 40% of those using software at work every day do not have the skills required to use digital technologies effectively (OECD, 2016a). Skills for a Digital World OECD December 2016

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50 Shades

1/27/2017

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50 Shades of Real Estate
Canada Edition

Facing staggering debt loads, hundreds of Alberta post-secondary students are logging on to seekingarrangement.com connecting them to "sugar daddies" who can provide them a monthly allowance and gifts in exchange for negotiated relationships. Calgary Sun January 14, 2017

The chart above shows the number of students pimping themselves out to pay for education, room and board in some selected Universities.

The red notations show the latest Demographia unaffordability rank of each University location. It's not surprising to see Toronto, the biggest metro in Canada as a destination for pussy grabbers. If we had the data, I would imagine Vancouver, the most unaffordable city in Canada and the 3rd most unaffordable out of 404 global cities, would also incent young men and women into prostitution. In 2011, the Vancouver city council estimated there were +/- 10,000 sex workers in the city. (Vancouver Sun, Sept 30, 2016). Note that Victoria BC is listed on the chart above; you know, that nice little tourist town and retirement village that promotes itself as "a little bit of Britain". The study chart claims 361 Victorians use SeekingArrangement.com which amounts to 0.5% of Victoria's 2006 census. Tea, crumpet, hair pie anyone?

"Students from 20 British universities are joining dating Web sites matching young women with older men, in an attempt to raise money to pay off student loans and other debts." IBTimes.co.uk 2012.

Housing unaffordability and income disparity is a result of a patchwork policy by government that has failed to get capital investment into productive employment. Instead we have metro land valuations promoted as if in a casino in a country that has an excess of land and resources. We encourage our citizens to flip real estate to satisfy state revenue needs with the collection of gross consumption taxes on every trade.

Meanwhile new generations of young inheritors of our social contract enter the culture as a rank commodity to be exploited by daddy.

Canada could use an overhaul of its collective aspirations.

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Vancouver Named Sugar Daddy Capital of Canada 2013

Here’s a look at the top 10 Sugar Daddy destinations:

Paris, France
Puerto Vallarta, Mexico
Palm Springs, California
San Juan, Puerto Rico
Chicago, Illinois
Seattle, Washington
Punta Cana, Dominican Republic
*Vancouver, Canada
Las Vegas, Nevada
Barcelona, Spain

*Vancouver Sugar Daddies spent $4,307 monthly on their younger counterparts on average, more than anywhere else in the country.
Vancouver Sugar Daddies are 40 years old and make $292,506 annually, on average. CTV NEWS 2014

In or Out

1/13/2015

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PRICED OUT OR PRICED IN?

Are you worried about being PRICED OUT of real estate because interest rates are going to zoom?

Or are you anxious about being PRICED IN because the commodity bust is widening?

A solution to these stressful thoughts is to move more to cash.

If rates do zoom you will be able to move cash into higher rates of return or if the asset value bust continues, you will be able to buy more value.

The charts above show the ongoing DEFLATION in consumption prices and wage earnings. The top panel is the MIT Billion Prices Project which tracks online in real time the high-frequency price data, as well as the US inflation index (CPI). The lower panel is the U.S. FRED chart of Y/Y total private average hourly earnings of all employees with the data plotted year over year to gauge the momentum. Both series are clearly down since the 2009 Pit of Gloom.

Without wage inflation, price inflation evaporates with every actor's change in sentiment from bull to bear.

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Gallup Poll January 12, 2015
45% (U.S.) say it's a good time to find a quality job (the highest since 2007 prior to the bust and the Pit of Gloom)

The Low point on this measure was 8% in 2009 (after the pit of Gloom) and in 2011 (after the top in Commodities)

Ukulele Orchestra - Should I Stay Or Should I Go

Ides of March

3/16/2014

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What are you doing?

"GDP growth continues to be low in the U.S. and real total household wealth has stagnated and real median household income has actually been declining." Jeff Gundlach (DoubleLine Funds).

And yet the NYSE Investor Margin Debt is at historic highs. Is this really a good time to be getting levered up? Or is it a better time to unload a burden of debt?

On his way to the Theatre of Pompey, where he would be assassinated, Caesar passed the seer and joked, "The ides of March have come," meaning to say that the prophecy had not been fulfilled, to which the seer replied "Aye, Caesar; but not gone." (Wikipedia)

Dollar War

2/25/2014

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The 2 Sided Loonie

The chart mashup shows the difference in labour unit cost between Canada and the U.S. in the top panel and the steady drop in the CAD relative to the USD since 2011 (middle panel) and the Canadian balance of trade in the bottom panel.

Only about 30% of Canada's GDP is derived from exporting and most Canadian exporters will enjoy the CAD falling against the USD because most of their export trade (75%) is to the U.S.

But the Loonie remained relatively high against the USD for 5 years (2002-05) and that led to purchasers of Canadian exports to look for alternative sources and that led to more layoffs in Canadian production plants (Bombardier cut 1700 jobs, Kellogg cut 500, Heinz cut 740, Blackberry cut 4500 - Bloomberg).

Layoffs are not easily reversed, and as the top panel of the mashup shows, the Canadian unit labour cost is 14-15% above the U.S. making it that much harder to sell into the U.S. or anywhere else (IMF via Reuters).

As a consumer society, disposable income is also shrinking in Canada as the price of everything we import goes up against the falling CAD and a falling safe haven status compounded by the end of the Canadian Immigrant Investor Program this month which only attracted 130,000 people since the 1986 inception (Globe & Mail).

The foreign investor class has good reasons to look at their Canadian asset portfolios and high on the list will be negative yielding real estate bought in the last 10 years. We could see some drama on the MAR-MOI charts this year if real estate inventory for sale surprises to the upside.

Redundancies

1/31/2014

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Divergence Update
2014 U.K. Edition
New Opportunities

Just kidding; not you dear reader unless you work in app building, robotics or machine language; or as Tom Friedman says, "as long as you are not average". Oh and he also said "Think Like an Immigrant: "We are all new immigrants to the hyper connected world, and new immigrants are paranoid optimists. I better understand what world I’m living in, what the biggest trends are and pursue them with more energy, vigor and persistence than anybody else.”

It should be obvious to everyone that the trend is a new machine software revolution that is capable of replacing not only the middle but the top as well; and Mark Carney, new immigrant that he is, knows the trend.

The Bank of England will cut up to 100 jobs following a 'Value for Money' review, as part of £18m of savings to be made by 2016. The jobs will be cut from the bank's support division, known as Central Services, and equates to roughly 10pc of the workforce in that area. In total the Bank has roughly 3,600 staff. The review, launched last autumn shortly after the arrival of Mark Carney, the Bank Governor, looked at staff deployment and spending and identified savings of £18m to be made by 2016, roughly 10pc of the spending that was under review. Central Services will now be reorganised following the review, providing "new opportunities" for some staff, while other jobs "will not be filled as staff retire or move on". "It is envisaged that there will be between 80 100 redundancies, subject to staff consultation," the Bank said. "The Bank is working closely with the Bank’s union to ensure that affected staff will receive support to find alternative employment." The Telegraph Jan 31, 2014

How long do you think the divergent spread between earnings and housing unaffordability will last?
(see Demographia update for a 3rd party view of value)

VANCOUVER & TORONTO

EARNINGS

CALGARY

The 3 charts above are EOY 2013. Current Charts are here.

Unemployment Update

1/12/2014

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Average is Officially Over

“If you cannot justify your singular ability to add value every day, you will be in trouble; that’s the big difference between us and our kids. We got to find jobs, they will have to invent them.”
Tom Friedman

"Countries that Enable will Thrive" (3.04min)

Or watch the Keynote by New York Times columnist Thomas Friedman at the 2013 Maryland Competitiveness Coalition’s Economic Summit "How the merger of globalization and the IT revolution is impacting the economy and the future of work." (47.43min) QUOTES:

Think Like an Immigrant: "We are all new immigrants to the hyperconnected world, and new immigrants are paranoid optimists. I better understand what world I’m living in, what the biggest trends are and pursue them with more energy, vigor and persistence than anybody else.”
Think Like an Artisan: "Historically, artisans produced every item individually, and the best artisans provided so much value add, and took so much pride in their work, that they carved their initials into it. Do your job everyday as if at the end of the day you brought so much value add you wanted to carve your initials into it.”
Always be in Beta: "If you ever think you’re finished, you’re finished. Always see yourself as a work in progress, constantly engineering and reengineering yourself.”
PQ + CQ > IQ: "You give me a kid with a high passion quotient, a high persistence quotient and a high curiosity quotient, I’ll take them over the kid with the high intelligence quotient seven days a week.”
Think Entrepreneurially: "Regardless of your spot on the organizational chart, search for a way to provide extra – find your unique value add. “Be relentlessly entrepreneurial in whatever you do.”