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Teranet-National Bank Canadian Housing Futures

The Maclean's article: ... yawn ... nothing new here. I am not without sympathy for the man who can't close on his condo purchase, but they are talking about Vancouver, where the market went absolutely nuts, and a property in a price range which is the most vulnerable to fluctuation (in any city). Many people said, two or three years ago, that Vancouver was a huge bubble waiting to burst. Also Calgary, to a lesser extent.

Teranet / National Bank index: Not a bad idea. It gets away from the "nation-wide" figures which mean essentially nothing, and focuses down on local markets. It needs further work (only seems to draw data from six cities, not of much use outside those cities), but this is a useful source within its limits.
 
Yet again, we seem to forget that real estate is regional and compare a ridiculously overheated market 5000km away to a national level. There is absolutely no correlation between the Vancouver market collapsing (after being the 3rd bubbliest city in the world according to the article) and Toronto collapsing. Housing prices increased at more that 200% the rate in Vancouver than they did in Toronto and it's affordability index was massively out of whack, while Toronto's affordability index is actually several points below what is considered affordable (meaning it costs less to own than would be possible for the average Torontonian). It's apples and oranges people. I do think prices will go down, but a correction on the level Vancouver and Calgary will see will be double to triple the whammy Toronto takes.
 
simuls said:
Yet again, we seem to forget that real estate is regional and compare a ridiculously overheated market 5000km away to a national level. There is absolutely no correlation between the Vancouver market collapsing (after being the 3rd bubbliest city in the world according to the article) and Toronto collapsing. Housing prices increased at more that 200% the rate in Vancouver than they did in Toronto and it's affordability index was massively out of whack, while Toronto's affordability index is actually several points below what is considered affordable (meaning it costs less to own than would be possible for the average Torontonian). It's apples and oranges people. I do think prices will go down, but a correction on the level Vancouver and Calgary will see will be double to triple the whammy Toronto takes.
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Uh. Did you manage to read to the second page of the Maclean's article? Where it talks about the Teranet-National Bank futures index?

I saw on BNN that the futures are 126 at present, 116 for Dec 09, and 104-106 for Dec 10/11/12/13. These futures derive from people who have put their money where their mouth is, (vs the various paid shills)

The impact of Vancouver & Calgary to this National index is muted via the weighting employed.

Finally, I don't think anyone here disputes that Calgary and Vancouver will see greater price corrections than Toronto.
 
If the investors are using a "national" real estate logic, then the futures will be incorrect as well. But then again, as we all know, investors or "people who put their money where their mouth is" are NEVER wrong. :) (TSX at 2003 levels yesterday, for eg.)
 
simuls said:
If the investors are using a "national" real estate logic, then the futures will be incorrect as well. But then again, as we all know, investors or "people who put their money where their mouth is" are NEVER wrong. :) (TSX at 2003 levels yesterday, for eg.)
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My thoughts exactly. Just because this "index" is based on investors who "put their money where their mouth is" does not necessarily make it an accurate predictor of where the market is going. Investors move as a herd as we have seen time and time again (e.g. the dot.com bust - the recent collaspe of commodity prices, etc. etc. ) Simply put investors quite often get it WRONG. The irony is that the "Teranet-National Bank House Price Index" is nothing more than a derivative and derivatives are the root cause of the economic collaspe that has taken realestate prices along with it.
 
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Peepers said:
My thoughts exactly. Just because this "index" is based on investors who "put their money where their mouth is" does not necessarily make it an accurate predictor of where the market is going. Investors move as a herd as we have seen time and time again (e.g. the dot.com bust - the recent collaspe of commodity prices, etc. etc. ) Simply put investors quite often get it WRONG. The irony is that the "Teranet-National Bank House Price Index" is nothing more than a derivative and derivatives are the root cause of the economic collaspe that has taken realestate prices along with it.
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Two questions...
Frist, which do you think has more credibility? A futures market, or economists hired by the industry.

and second, you think that "derivatives are the root cause of the economic collaspe that has taken realestate prices along with it."?

Really?? Really??? I'm not even going to respond. I'm just going to ask you to reread that, and think about it for a few minutes.
 
daveto said:
Two questions...
Frist, which do you think has more credibility? A futures market, or economists hired by the industry.

and second, you think that "derivatives are the root cause of the economic collaspe that has taken realestate prices along with it."?

Really?? Really??? I'm not even going to respond. I'm just going to ask you to reread that, and think about it for a few minutes.
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In answer to your first question "which has more credibility" I would answer neither. I don't put much stock in either economists hired by an industry or investors moving herd-like.

As for your second question I think that it is generally recognised that the current economic crisis is the result of the massive default of HIGHLY LEVERAGED investments such as derivatives and credit default swaps that has lead to the downfall of almost all the major investment banks on Wall Street. The slump in realestate prices was the trigger that set off this house of cards.
 
Peepers said:
The slump in realestate prices was the trigger that set off this house of cards.
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Perhaps you mean the correction of OVER-INFLATED real estate prices was the trigger that set off this house of cards ... [pun intended]

The RE values were inflated; and the derivatives and CDS associated with those mortgages were OVER-leveraged (some think it could be as bad as 300:1).

It was a recipe for disaster ... a vicious circle.
 
There is a common misconception that the US Subprime housing market is somehow responsible for the present crisis. However, this is entirely false.

The US Subprime housing market is only one small piece of the problem, albeit the straw that broke the camel's back. However there are equal or greater housing and asset bubbles bursting all over the world.

Over the past 10 years we've seen a huge growth in the availability of credit throughout the world and this has required unsustainable levels of leveraging which were indeed made possible only through the use of the many and varied financial derivatives. With a debt to asset ratio of 30-to-1 (or more) it doesn't take much to bankrupt an investment bank. (as we have seen!)

The growth in real estate prices was substantially fueled by the securitization of mortgages. It allowed "fee based underwriting" whereby those who place the mortgages (brokers/banks) can make money from the sale, and then simply pass off all responsibilty for the eventual and inevitible default to an unwitting blue chip investor who has bought a piece of what they thought was a AAA rated security.

So it is a little unfair to blame the derivatives for the bursting of the real estate (and economic) bubble, when one considers that the bubbles could not have inflated in the first place without the derivatives.

Unfortunetly we now have a situation where most people feel that they are fully entitled to all of the benefits of the past 10+ years, and feel that somehow someone else is responsible shouldering the financial responsiblity of fixing this mess.

Admittedly the true responsibility rests with a systemic failure of the various regulatory bodies. However it will have to be left up to the economic history books to apportion blame. There's not much point in us pointing fingers at the train conductor as the train plows into the mountain side.
 
cdr108 said:
Perhaps you mean the correction of OVER-INFLATED real estate prices was the trigger that set off this house of cards ... [pun intended]

The RE values were inflated; and the derivatives and CDS associated with those mortgages were OVER-leveraged (some think it could be as bad as 300:1).

It was a recipe for disaster ... a vicious circle.
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CDR I agree that this is more than just a "housing slump" (as I incorrectly stated) but rather - as you state - a correction of OVER-inflated prices (the bubble has burst). On its own a major correction in RE values would not bring about the near (imminent??) collaspe of the Worlds Financial system however I believe that the major correction in RE values - which occurred first in the US - was the trigger that caused the unraveling of the OVER leveraged and unregulated investments in derivates and CDS associated with these mortgages. It was - as you state - a recipe for disaster AND a vicious cycle since these crippled financial institutions are not in a position to lend to even credit-worthy individuals making a RE recovery even more difficult.
 
daveto said:
So it is a little unfair to blame the derivatives for the bursting of the real estate (and economic) bubble, when one considers that the bubbles could not have inflated in the first place without the derivatives.
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I do not believe that derivatives caused the real estate bubble to burst - the RE bubble burst on its own (housing prices went way past the point of affordability). When the housing bubble burst the highly OVER leveraged bets (e.g. Credit Default Swaps) placed by financial institutions went with it leading to the current worldwide financial mess. I agree with everything else in your post.
 
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