“There is no art which government sooner learns of another than that of draining money from the pockets of the people.” –Adam Smith
IMPORTANT THOUGHTS FOR THE REAL ESTATE INVESTOR
WHAT IS THE OUTCOME FOR INFLATION, RATES, BoE
THE (CRASHING) NUMBERS, THE NUMBERS – A VERY DETAILED LOOK AT THE ONGOING CRASH IN SOME AREAS
BANK OF ENGLAND, A PIVOT, INTEREST RATES, CRASHES
Q: YOU KEEP TALKING ABOUT A PIVOT. WHAT IS A PIVOT? INTEREST RATES UP OR DOWN?
A: Crucial point, total change of direction. In our situation:
The US Federal Reserve prints money like crazy with the result that inflation runs away. It then pivots and stops printing and even draws funds out of the market, creating inflation by cutting rate to zero, has been the modus operandi for all Central banks for years and years. This year however they got scared and furiously raised rates. Oops, too high? So, it could PIVOT again, lower rates, lead to inflation, etc. So, will we have a continuous raise in rates, leading to a recession – or a PIVOT to more inflation?
We as investors get bounced around looking for these pivot points.
October 26 – Bank of Canada (likely up .75%!)
November – US FED. We think the FED may raise .75% or even 1% – noting the British debacle. We also think their stated objective of 4.6% will end up being higher…can you say 5.5%? Annoyingly they may feel that they must stay the course. So:
We think it 70% likely that tightening will continue. There is however now a (England) chance (30%?) of a capitulation and pivot back to lower rates – or stay even. Arrrgh!
MAJOR POINT: Either way…we called it ‘four ugly months ahead’ (ugly – as in uncertainty). If the US keeps raising rates in November and December, stay out. This will affect real estate values and sales dramatically further. If they do not raise – wait. If they lower rates, go BUY, BUY.
Q: WHAT EXACTLY HAPPENED IN ENGLAND ON SEPTEMBER 4? WHY IMPORTANT?
A: See – pivot piece above. A classic PIVOT! But worse: A Black Swan! Totally unexpected and a preview of things to come?
The Bank of England (was forced to) pivot on its obligation to fight inflation. Promising to lower taxes and not increase corporate taxes – they did a PIVOT. This followed a sell-off of long-dated government bonds that led the Bank of England to intervene in order to save Pension funds from collapse. Result? A spike in mortgage rates for prospective homeowners. A huge crisis resulted and is still going on.
Super investor Stanley Druckenmiller believes that the Bank of England is making a terrible mistake by pivoting during a time of inflation.
MAJOR POINT 1: It is clear the BOE wanted to take a hawkish stance and engage in quantitative tightening to curb inflation. However, the totally unexpected Black Swan of a possible Pension fund crisis forced the BOE to shift unbelievably back to quantitative easing to salvage UK’s monetary crisis. They went impossibly back to QE while having inflation around 10%! The UK remains in turmoil. Today Finance Minister and Treasurer were fired.
MAJOR POINT 2: Our lesson? Our Pension funds could be in trouble too. Or any of the myriad of financial derivative instruments could create a ‘rush out’ of investors. Which one? No one knows. A Black Swan can happen at any time… Stay vigilant and mostly in cash.
Q: FOR 20 YEARS I HAVE LISTEND TO OUR GOVERNMENTS TELLING US THAT WE HAVE TOO MUCH DEBT. THEN WE NOTE THAT GOVERNMENTS CREATE MUCH MORE DEBT. LOTS OF HANDWRINGING. NOTHING EVER HAPPENED. WHY SHOULD IT HAPPEN NOW?
A: Not sure I understand the question. We solved one year’s problem by creating more debt to pay for the printed money and then (mostly now) borrowed money. High levels of debt at the sovereign level turned into extreme high debt. We need (and had it for while) extreme consistent economic growth in excess of interest rate on that debt. But no more. With 8% reported inflation and a 4% interest rate – we are negative 4%! Thus, we create inflationary expectations. That leads to hyper inflation. Maybe not Argentina at 100% or Turkey at 90% but clear double-digit inflation.
Plus, you need an affordable price of cheap energy when you have high levels of debts. In this world of greening, we have ever higher costs of energy, we have slowing growth and interest on our own debt keeps rising.
MAJOR POINT 3: You cannot have high levels of inflation, and then print more money or we will have hyper inflation. That is what makes the British situation so astounding (bad, bad, bad). The dilemma? Raise rates – slow economy – recession. Lower rates – get high hyperinflation. We are in trouble in Canada. The US not as much, Europe is in big trouble and BLACK SWANS ARE FLYING.
Q: INFLATION – HOW HIGH WILL IT GO?
A: As we forecast: The US clocked in at 6.6% core, 8.2% cpi (highest level since 1982) and 11.2% on food. (September).
Again: Read previous Ozbuzz issues. Go to shadowstats.com and see what the real ‘Volker’ rate is.
QUESTION BLITZ (SOMEWHAT)
Q: SEE YOU IN PHOENIX IN LATE OCTOBER.
A: Sorry, unavoidably detained. Ralph Case will be there. As will the Western Wealth Gang.
Q: YOU DON’T SAY MUCH ABOUT ALBERTA. WHY?
A: Good point. I believe strongly in Alberta! My wife and I own condos in Edmonton, near new with outstanding cashflow. I guess, we try to cater to where we think we have the largest audience: BC, Ontario, and the US. We did report a massive inflow of Toronto and BC buyers into Alberta. Re/Max adds: Condo sales are up 65 per cent year-over-year in Calgary, while sales in Edmonton are up 23 per cent over 2021 levels. It issued a report that credits buyers from out-of-province investing in the Alberta housing stock.
Q: OZZIE, JUST DISREGARD THE SELF-RIGHTEOUS. IT WAS A JOKE FOR GOD’S SAKE!
A: All comments remain welcome – if they are civil.
Q: I PREFER THE JOKES TO THE QUESTIONS. I TRY TO COME UP WITH AN ANSWER AND FAIL!
A: OK, since there was only one of you, we will continue to alternate. Can always call me for the latest of my 50-year-old jokes.
Q: IS THERE A BIOGRAPHY ABOUT YOUR LIFE HISTORY?
A: No. My daughter keeps bugging me. Currently, I am thinking of a series of podcasts/ vignettes.
In our annual self assessment (with your help) we will add a questionnaire on what you would like Ozzie to do: a) continue Ozbuzz b) a series of life vignettes c) series of RE advice?
Q: YOU SEEM TO ENJOY THE GOOD LIFE. WHAT IS THE GOAL, A PARTY EVERY NIGHT? MY GOD, SLOW DOWN! I WISH I HAD YOUR MONEY.
A: Not sure how to take this. 4 of 7 events I attend in the last 9 days were fund raisers. One was a national celebration of my birth country, one was a condo launch, one was a paid RE speech (on a Sunday). I also attended a funeral and had a Thanksgiving Family dinner. BUT I DO ENJOY MY LIFE, yep!
Q: PRE-SALE QUESTIONS GALORE!
A: Look at the four most asked and answered questions in Ozbuzz 74. Posted on Ozbuzz.ca
AGAIN, AND AGAIN: GOING INTO A RECESSION?
Yes, Canada milder. England, China, and Germany severe.
YOU SAY THAT THE CANADIAN DOLLAR TRAVELS WITH OIL. STILL?
Yes, oil to go down further in October.
DO YOU STILL BELIEVE IN THE US DOLLAR?
Yes. It is the reserve currency of the world. That money that was cashed out of those British Pension Funds went straight into US 2-year Treasures at over 4%. So, the US pays higher interest, it is safer, it has a huge GDP. Money keeps flooding in. US $ higher.
CAN I STILL BUY THE LANDRUSH VIDEO?
Yes, and with ONGOING updates – see below.
HAS REAL ESTATE ALWAYS RECOVERED?
YES, ALWAYS! It took longer sometimes, but always! All urban real estate that has a purpose – and is producing income…will always have value and rise in direct line with inflation.
WHERE DO I GET THE STATS YOU QUOTE FOR BC?
Go to the excellent website of BCREA – British Columbia Real Estate Association https://www.bcrea.bc.ca
I CANNOT FIND THE STATS THAT YOU QUOTE FOR VANCOUVER. IS IT A SUBSCRIPTION?
The GVREB has a fine monthly report (check previous month). But the report the Benchmark price. Ozbuzz uses average prices. Nevertheless, a fine colourful report: Go to https://www.rebgv.org/market-watch/monthly-market-report.html
WHEN CENTRAL BANKS ARE FINISHED RAISING RATES, THEY WILL GO BACK DOWN?
SIMILAR QUESTIONS (6) AS LAST MONTH.
Absolutely not. They will go to what they think is the highest rate necessary and stay there for 1-3 years.
WHERE DID ALL THE WORKERS GO?
I have no answer for you…other than that they are ‘epiphany-quitting’ (Business Insider: Workers are ‘epiphany-quitting’ their jobs after the pandemic forced them to rethink everything about their lives.)
That is IT – A SMALL TAKE ON (TOO MANY) QUESTIONS
MUSIC THIS WEEK
TOILETS OF THE WORLD
For the couple, that absolutely shares everything:
THE WORLD IS A BIG BUBBLE AND TORONTO IS NO. 1 (OR WAS!)
BS real estate Bubble Index report for 2022 showing the price risk of housing markets in twenty-five cities around the globe.
Toronto’s elevated risk level has it ranked #1 this year, while Vancouver has held steady in the 6th spot. Toronto and Frankfurt, EH? UBS says: Both markets are exhibiting pronounced bubble characteristics. Risks are also elevated in Zurich, Munich, Hong Kong, Vancouver, and Amsterdam.
MAJOR POINT: Toronto as measured against February has already crashed. For the full report go see UBS. See below.
IMPORTANT THOUGHTS FOR INVESTORS
Study the numbers! I have seen headlines last week showing that Toronto is up in price either up 1% or 10% (benchmark, median, average, or down 4.5%). And the reports are all true. September over September.
As a homeowner who cares? You have to live somewhere, and your home has always been and will always be the best investment you can make since inflation, long term is a given.
However, as an investor you simply must forget the headline numbers and drill into YOUR area stats – the difference is astounding. While the Toronto average price is down 4.7 percent as reported by the board (true y-o-y), the SF price has actually crashed by 31% in the 416-area code and 32 in the 905-area code! February to September 2022!
THE NUMBERS, THE NUMBERS
The TO Board also reports sales declines of 8%. Also, true – when measured September over August this year. However, sales in TO are down 44% when measured y-o-y and down 51% when measured over the previous 2022 high. Nobody lies. But it is bewildering.
It is just statistics, or as Mark Twain postulated in his autobiography:
“Lies, damned lies, and statistics“.
Fact: While some average price stats show prices are up a tad, they actually crashed Feb – September 2022 time frame … in most major cities in Canada and 26% in most in the US.
Study Feb and Sept stats as reported by the fine TO RE Board:
Ditto for BC
The (very good) BC Real Estate association reports slowing price increases in the province – average price is up 1.8% year over year…
BUT Ozbuzz deep look reveals:
LOWER MAINLAND INVESTORS Note:
- The high in sales was reached almost everywhere in March 2021 (2021!).
The high in the average price came mostly in Feb (Ma/Apr) 2022 (2022!)’.
- Prices are quoted in the media as being UP and that is correct if you measure prices of today against prices of SEPTEMBER 2021.
But the decline started THIS February as we told you in our February: ‘THE HIGH IS IN PLACE’ headline.
- The price increases over last SEPTEMBER in Vancouver are 8% in SF and 1% in condominiums. But a drop of 9% since April when the average clocked in at $2,311,300!
Major Point: While year over year prices are up (and that is all you see in the media); the price declines THIS year are continuing in all sub-areas every month and that for 6 months! Although NOTE: The average SF home price dropped in August to $1,991,000 but recovered to $2,104,000 in September.
We are showing absolute monthly high in sales (March 2021) against SEPTEMBER 2022 for a real eye opener. We are trying to rock your (complacency) boat! Down 70-73%!
For clarity – as usual – we report the SEPTEMBER over SEPTEMBER results for 4 years further below.
VANCOUVER (4 years)
- Here we are looking at a 4-year SEPTEMBER over SEPTEMBER comparison.
- Remember to take the 2020 comparisons with a grain of COVID salt!
SF: REBGV reported SF sales declined a further 44% over SEPTEMBER 2021. The average price achieved in April of $2,312,000 is down by $209,000 – or 9%!
CONDO: REBGV reports condominium sales are down 45% over SEPTEMBER 2021 sales. The condominium average price is down by 12% from April.
- Major Point: Study the above at the opening comparison of the ‘high in sales’ (usually March 2021) and the high in Vancouver prices (usually February 2022) and note the sharp declines in all sales and continued declines in all prices.
- Then note the 4-year comparisons – high in everything for 4 years was 2021.
SF home sales continued their sharp downturn (-57%). Prices are much lower. Active SF listings and condominium listings CONTINUE much HIGHER in the last 2 months. (38% and 29%). Condominium sales cracked as well, down 50%.
The numbers tell the story. Look at intro to the numbers and the comparison of February 2022 to SEPTEMBER 2022, a 25% decline in single family home prices.
MAJOR, MAJOR POINT: Again, as we said on February 9: THE HIGH IS IN PLACE. For the last 5 months we pointed to a changing market … before the interest rate changes really clocked in and the stock market and crypto crashes. Now, the very (too?) fast increase in rates really starts to bite. We expect that to continue and even accelerate as we go further into the Fall.
With the dramatic sixty-five billion pivot by the Bank of England in one day (!) this week, a ‘FED and BOC pivot’ is back on the table. In our view it has gone back to a 70/30 chance.
For us RE investors…I say…before you jump back in…wait! These are unprecedented times.
Note these dates:
- Oct 26 BOC rate decision
- Nov 2/3 FED Interest rate decision
- Nov 4 Ozzie updates video site and analyzes the FED and BOC decisions
For video subscribers I DID A zoom update October 4 (on your website since Oct 4), and will add one on November 4 and give you the ‘Ozbuzz take’ on 2023.
So far, our forecasts have been nothing short of spectacular.
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The Landrush videos
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OZZIE’S YOUTUBE CHANNEL
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