I’d like to thank you for your post. It was well thought out and very enlightening. It confirms what I feel is happening in real estate in Canmore, but I didn’t have the evidence for.

Also, thanks for the links. I’m always looking to improve my knowledge of the local market and information for a small community such as Canmore seems hard to come by.

Canmore has no real industry except tourism; most of what’s there is owned by those rich oil cunts from Cowtown as investment properties (read: sell when troubled; you cannot take real estate to the supermarket and buy dinner with it); most renters have limited stake in the community, and will have very little incentive to stay as the work dries up. All of those peripheral people doing useless jobs (like climbing guides, yoga teachers, masseuses, DJs and what not ) will soon be gone.

it will be really interesting to see what happens in Calgary…the 200,000 folks who moved there over the alst 5 years, what’s gonna happen when they sell their places and go back to Newfoundland?

Scott– a MINIMUM of two years, probably much more, before anything like a rebound. Conventional energy (oil) and NG which is still approaching its peak will be where it’s at.

Owners can look to renters to fill the gap, but renters have to be willing to pay more. I don’t think that’s going to happen given the number of trades leaving town as work dries up, the increased rental inventory (the Outlook seems to have more ads every week) and so on.

I think you have the relationship between how much real estate sells for and how much it rents for reversed. Rents (or returns) ultimately set prices, not the other way around. Rent is a true measure of what someone will pay to live somewhere; prices are what people will pay to “own” something either to live in it or speculate on appreciation as in the current bubble and every other bubble.

If I buy a property for a million I can’t raise the rent on it unless someone will pay what I’m asking. Over time and except in rare cases such as the current bubble, rents determine real estate prices, not the other way around. This is why you can currently rent a million dollar property in Canmore for $2500, which won’t come close to covering the mortgage (or is a very poor investment if the owner were to pay cash–less than 2 percent return at best, never mind that the property has now depreciated enough to be firmly negative). In bubbles prices go to huge multiples (very low return as in the dot.bomb crash, tulip crash, any other bubble in history) in relation to rents/return vs. prices (stocks or houses).

In Calgary, California, Florida, and many other places around the world there are lots of “investors” just figuring this out now, and it’s not pretty. There is a huge glut of unsold inventory in Canmore right now, and the quantity of rental listings in the paper continues to rise. For some fun graphs check out:

http://calgaryrealestatemarketblog.files.wordpress.com/2008/01/calgary_real_estate_valuation_large.png

Kind of a confusing chart–ignore the word boxes and look a the color coded lines. The red and the blue will come back together eventually, and I’m not seeing that coming from increased rent.

http://www.canadian-housing-price-charts.235.ca/index.htm

Calgary is already off enough to put many if not most home owners who bought in the last year upside down (they have lost more than their ten percent or less down–leverage is a bitch).

http://img85.imageshack.us/img85/4922/calgaryinflationadjustede7.png

So those who have bought in the last year aren’t likely to be able to cover their mortgages with rent, even if interest rates don’t rise… That’s OK when the bubble is inflating, but generally not acceptable when it’s deflating like now. Look out below. Maybe some of our friends who have moved to Revy, Quebec, Golden or elsewhere might be back…

And I’m still pro-PAH in general, it is the least-bubbled housing in Canmore. The marketing is just really wrong, let’s not throw the baby out with the bath on the concept of PAH.

I think rental prices are more a function of owner cash flow and the cost of borrowing. I suspect that rents won’t change much until interest rates start to climb. New mortgages at higher rates will need to be serviced with greater cash on a monthly basis, and any ARMs (Adjustable Rate Mortgages) still floating around will inch up accordingly, even if they are sub-prime. At that point, I think owners will start looking to their rentals to fill the gap.

Two points:

Right now people are buying the payment, not the true cost of owning housing. It’s a bit like buying a car at Slick Eddie’s dealership where all he wants to do is sell you the payment. Right now, almost anywhere in Canada, it costs way more to “own” than to rent. Historically, prices follow rents very closely. When I first bought in Canmore prices were about 125 times monthly rent. I bought another place at 200 times rent and thought it was a bit high. Now prices are commonly 300 to 400 times rent (PAH excepted). That’s madness, and either rents will have to triple or real estate prices will have to come down in real terms by a lot. Looking at the very high inventory in Canmore and the growing number of “for rent” ads in the paper, well, I’m betting real prices end up a LOT lower. It’s already happening here and in Calgary and Edmonton. Prices across Canada are even down… Affordability as measured by income, even in Alberta, is also completely out of whack. The only thing that isn’t out of insanely out of whack is affordability as measured by monthly payment, but even that is very high by historical measures (it used to be you couldn’t do a morgage for more than 30 percent of your income–not any more!). All of this stuff takes a short Google to figure out, no big secret.

Secondly, those invested in real estate in Canada or making their livings off selling it usually say, “It’s different here, no sub-prime, better qualification, etc. etc.” BS. What do you call zero-down 40-year mortgage? CMHC just pulled the plug on those, but a high percentage of loans written in Alberta were exactly that. Alberta is a non-recourse province, meaning that people can walk away from a mortgage and the bank can’t come after anything but the mortgage amount… Just like the US. When somebody is paying a 35 or 40-year mortgage on a property that cost far more than comparable properties are now selling for they are going to walk, especially if they are “investors…” If you bought years ago then it’s probably no big deal as eventually (and that’s a big eventually–Japan still hasn’t recovered!), but the only real estate I’d touch in Canmore is a property that’s selling for about 100 to maybe 200 times rent (PAH isn’t far off, and if you really want to own it is the best deal in town despite the, ah, “confused” marketing). It’s gonna get way uglier, there is just no logical reason for prices to be this high. I’ve followed this for a long time, and every body always thinks their location is “different.” It never is…

I don’t want an economic crash, but I would like my friends to be able to afford a place to live here without mortgaging their future for 35 years. Canmore without the people I like here would be a far poorer place, and enough have left over the years that I don’t have a lot of sympathy for the real estate hype and BS that’s plagued the globe over the last four years and Canmore in particular.

PS–this is the worst stock market crash since the great depression: http://www.greaterfool.ca/wp-content/uploads/2008/11/four-bears-large.gif The number of houses and condos with lights on around Canmore at night is stunningly low, those second-home specuvestors might be a bit concerned about now…

PPS–I’m long firewood, climbing gear, kids clothing and whiskey. The rest I’m short on, including free time, but fun to post up on this.

Lemme know and I’ll tag along…

This one is going to be very long, very ugly and very hard to fix.

One thing has been clear so far: government interventions are doing basically f**k all. When you look at the size of various bailouts (e.g. US $700 billion) compared to their economy ($13 trillion/year) you realise that the stimuli are basically drops in the bucket. In addition to this, bankers do note that you can’t print money indefinitely…

Every sector of the economy is now looking down– consumers indebted and wary of spending, business pessimistic about future consumption and also loaded with debt (esp. U.S. business and their real estate and credit-card problems) and governments facing falling tax revenues as a result of a slowing economy. In order to reverse this problem in the short term, you would basically have to give every American the value of all their debt, PLUS a guaranteed good job, PLUS some kind of guarantee that the economy will be looking up.

This won’t happen cos the U.S. is (a) broke and (b) it’s obvious by the bailout package where their priorities are– save the rich. $700 billion directed to ordinary Americans would do a lot of good; the bankers are just taking the money and running.

What would probably work best is some kind of New New Deal– and an international New Marshall PLan as well– foreign countries and firms get given U.S. loans with which they can buy reconstruction stuff, and U.S. workers + middle class go on a domestic rebuilding spree. But in the absence of any signs from the Obama admin that anything different is on the horizon, we can assume that it will be business as usual.

A minimum of two years of recession; consistent negative growth and some very ugly politics are all headed down the pipe. Canada, you will not be spared.

How long is it gonna take to rebound? What day is it gonna bottom?

Fair enough, unemployment is lower– right now– than it was in 1932. However, we also have 6x as many people, 90% less natural capital, no access to cheap energy, and a much more expensive infrastructure to maintain than we did back then. Also, every past recession (except for 73-76) was caused by raising interest rates too high. We now have the lowest real interest rates in Canadian and U.S. history, to no avail. Every silver lining has a cloud.

Now regarding the world economy…what basically happened is, the Yankees swindled the world into lending them enough money to build fucking billions too many houses. Now the bills are due and the Yankees have nothing to pay with. So– and I know this sounds crude– what has to happen is, the U.S. needs to be given about $2 trillion (this would take care of the housing bubble), plus all of the $$ for the upcoming credit-card crisis, the commercial real-estate hassles, and of course the government’s debt. $4 trillion should do it. Now that is basically two year’s worth of U.S. GDP that they need to be GIVEN to start spending again. If they don’t spend, dollar drops in value, and everybody loses.

I also remind folks about the reverse bubble. In a bubble, the longer you stay out of the market, the more you appear to lose out, so as the bubble increases, more and more people have an incentive to get in, prices ri9se faster– feedback.

When you have a reverse bubble (deflation), the longer you stay IN, the more you lose. Get out now, get 90 cents on the dollar; wait 3 months, get 60 cents. So, as the world economy deteriorates, we are seeing a steady decline in the U.S. dollar, in real estate, and in stocks. Lots of heretofore unlistened-to economists (e.g. Nouriel Roubini) speculate that a 6000 point Dow is about right. This is essentially going to annihilate the future plans of basically everybody in North America, Europe, etc, and cause a very long-term contraction, cos, well, why spend when the future is bleak? Thinking which characterises consumers as well as business right now.

Now I am going to buy an Ambler hat, in trendy argyle. I am going to need it when I come and visit you in your house in the clouds