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Author Robert Campbell writes: "I always figured the deflation of the housing bubble would resemble a slow train wreck, but there is new evidence that makes me think the correction may occur more rapidly. This is because there is compelling evidence that a recession is dead ahead. … Now that housing prices are going sideways to down -- and incomes and jobs are still sagging -- this 'debt-fueled' artificial-life-support system for continued consumer spending (and an expanding U.S. economy) is running out of gas.

"In the long run, housing prices cannot continue compounding faster than incomes. We are now facing this economic reality. People cannot continue buying homes with creative, voodoo mortgage-loan financing -- that, in the end -- they can't afford. I don't know who has been more irresponsible, real estate agents, mortgage lenders, borrowers, or banking regulators -- but I do know that the lending standards for mortgage borrowing have dropped to a zero setting for the past five years. If people weren't in prison or earned more than the minimum wage, money essentially was free to all -- whether they could ever hope to pay it back or not."

No happy ending for housing
Continuing on, he says: "The United States has experienced the greatest real estate boom in history, but the boom is now turning into a bust, and the aftermath is not going to be pretty. Present American folklore has it that a real estate decline does not have to affect the economy. That's like saying that it will rain, but you're not going to get wet.

"The coming recession is not only going to dispel that hope, but it's going to speed up the fall. … The sad fact is that we're living in a debt-fueled economy, as opposed to an income-fueled economy. Housing prices cannot continue to compound faster than incomes forever. This incredible rise in prices has been driven by artificial demand (ultra-low interest rates and ultra-loose credit), as opposed to real demand (rising incomes and rents)."

He concludes: "Loose mortgage loans that prolonged the boom will worsen the bust. Homebuyers are now going to pay the price for their 'buy now, worry later' spending spree. … With market manias, self-feeding greed on the way up turns into self-feeding fear on the way down. That time has come."

My comment: Yes, it has.

See Below

I did ask why he bought in Milton and from Mattamy when he always seems to put both the town council and the builder down.

Nic

Perhaps not from NKMAC but I also remember somebody posting that question also.

Hi

Yes I did make that post, I don't know what happened to it.

K

and to answer all your questions of why i bought, the canadian housing will not be affected like the U.S. BUT all the good and services will be, it will be a great time to buy furnishings, 52' plasma tv and all the trimmings...jmho....


From a bottoms-up standpoint, the data that I see continue to suggest that a recession is on its way (or already under way) -- and it's a view corroborated by the Liscio Report, which this morning provided supporting data, in the form of sales-tax receipts. The latter "took it on the chin in November," as only 27% of the respondents in Liscio's survey said that sales taxes received actually matched or exceeded expectations, down from 55% in October. In Liscio's view: "The weakening consumption trend is now established, and the majority of our tax contacts expressed real concern about a slowing in sales-tax collections. It now appears clear that consumers are not spending the billions of dollars they have saved on gas in recent months. . . . " Wall Street, please copy.
Of course, the consumer can't spend because the ATM is broken, which brings me to Liscio's comment on real estate: "No one offered any evidence that we're passing the bottom in housing. In fact, year-over-year consumption for building materials is drifting further below zero in many states. . . . " Wall Street and Easy Al, please copy.
We've Seen This Macro Movie Before, and It's Rated "R"
Continuing on, the Liscio Report stated that its expectations for tomorrow's retail-sales results "represent a real slowdown from prior quarters. We have a feeling that the dimensions of the retail slowdown haven't been fully appreciated: For the three months ending in October, the average monthly change, ex autos, is minus 0.5%; for the previous three months, it was plus 0.5%. And that, despite some serious declines in gas prices. The first consumer-led recession in about 15 years has certainly not been factored into expectations on Wall Street."
Finally, when I emailed them to share my view that we are entering a recession, here is how they responded: "We note with a shudder that our indexes look a lot the way they did in fall of 2000, especially the weakening and then big drop in the sales-tax survey. The SDI [their proprietary sales-diffusion index] led us into the last recession, and the states that led are very weak right now, as well."
My takeaway here: Consumer-oriented businesses are vulnerable. Which is particularly true for tech businesses with a consumer orientation, because inventories are so high. Virtually all of the chip sector, chip-equipment sector, PC sector, and cellphone sector are teed up to get slaughtered one of these days. It's just a function of when fantasy can no longer carry the day.

and to answer all your questions of why i bought, the canadian housing will not be affected like the U.S. BUT all the good and services will be, it will be a great time to buy furnishings, 52' plasma tv and all the trimmings...jmho...

WOW!!!!! Is this not what I said at the beginning of all of this ECON 101 session??

William, though you like to joust with me, honestly, you and I share the same opinion.....though I think yours is a little more exaggerated than mine.

Jessica

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Disappointing data for October is a bad omen for rest of year, economist says

December 22, 2006
John Ward
canadian press



OTTAWA–Canada's economic growth stagnated in October after shrinking 0.4 per cent in September, and analysts say the disappointing number is a bad omen for the fourth quarter.

"With the weak hand-off in September and no bounceback in October, we're definitely looking for an underwhelming performance from the fourth quarter," Carolyn Kwan, senior economist at the Bank of Nova Scotia, said yesterday.

A stalled economy would add to pressure on the Bank of Canada to cut interest rates in 2007.

Manufacturing and services stood still in October, although energy and utilities showed growth, Statistics Canada said.

The energy sector grew by 0.9 per cent, led by production and distribution of natural gas, a rebound in electricity and a jump in refinery output. But oil production and oil and gas exploration declined.

Mining, excluding oil and natural gas, rose 4.9 per cent.

Manufacturing was down 0.8 per cent as the export-dependent auto and forest products industries felt the pinch of a slowing U.S. economy. Auto makers, parts suppliers and steel makers cut production. New car and truck sales, off steeply in September, were largely unchanged in October.

Manufacturers of wood products registered a seventh decrease since January, with some sawmills slowing down and others shutting temporarily.

Food-products manufacturing also slowed considerably, as did the aerospace industry, which dropped back after a strong gain in September.

Gains in the printing industry and the manufacture of drugs and machinery partly offset losses in other sectors. Of the 21 major manufacturing groups, 12 showed decreases.

"The data releases we got were disappointing across the board," said Kwan.

Derek Burleton, a senior economist at TD Bank, said the numbers fell short of expectations.

"Even the service sector – the pillar of the nation's expansion this year – was unable to churn out a gain for the second straight month," he said.

Economists said the October data bodes ill for the fourth quarter and for growth in the year. Some suggested growth for 2006, which the Bank of Canada had forecast at 2.8 per cent, may not reach 2 per cent.

Although the stalled growth numbers add to the arguments for an interest-rate cut, it may not happen quickly.

The core inflation rate was still above the central bank's 2 per cent target last month.

The consensus is that the bank will shave its key rate to 4 per cent from 4.25 per cent at some time in the second quarter.

a role of the dice on the U.S. housing market,
i would re-think .....going down and going down fast and hard....as i have been saying for the past 3-6 months....this isnt a crap shoot....i have lived in the U.S. for over 10 yrs and have had extensive experience in COASTAL real estate in florida....and have first hand knowledge of the inner-workings of what people were doing to get the "piece of that american dream"...which is now truning into a nightmare....

This will result in long rates going lower as the housing market collapses and i could easily see at a min. 50 basis points and maybe even a full point....in the not to distant future....and thats JMHO for whats it worth

williamb...thought you would find this interesting...from the globe & mail today...

Smaller Canadian lenders hit by U.S. mortgage woes

14/03/07

By Nicole Mordant

VANCOUVER, British Columbia (Reuters) - Canadian firms making home loans to customers that banks have turned down are taking a beating because of woes in the U.S. subprime mortgage market, but company executives and analysts say the punishment is unwarranted.

Shares in Toronto-based Home Capital have fallen 7 percent since late February as news mounts daily of rising defaults at U.S. lenders specializing in making high-risk loans to people with patchy credit records.

Shares of Xceed Mortgage , another higher-risk lender based in Toronto, are down 8 percent since early February.

"The two markets (Canada and the United States) are as different as winter is from summer," said Gerald Soloway, president and chief executive at Home Capital Group Inc. , a mortgage lender to first-time home buyers that banks have deemed too risky.

One major difference, analysts said, is that mortgage interest is tax deductible in the United States but not in Canada.

"So there isn't as great an incentive (in Canada) to borrow up to your eyeballs as there is in the U.S.," said Michael Goldberg, a bank analyst at Desjardins Securities in Toronto.

Soloway also said that in Canada regulated deposit-taking institutions, like Home Capital, can only make loans of up to 75 percent of a house's value, meaning the borrower has to make a downpayment.

By comparison, some U.S. subprime lenders are extending loans covering 105 percent of house values, even covering items such as sale closing costs.

"There is always a significant cushion of equity (for companies like Home Capital). The borrower has a big incentive to solve the problem by getting additional funding," said Desjardins analyst Goldberg.

"The alternate lending market in Canada never went anywhere to the extremes of giving money to non-creditworthy borrowers to buy houses like they did in the United States."

Higher loan-to-value mortgage lending is available in Canada, analysts said, but is mostly dominated by U.S.-based institutions, including Accredited Home Lenders Holding Co. , Wells Fargo & Co. and GMAC, General Motors Corp.'s former finance arm.

Another key difference between the mortgage industry in Canada and the United States is the state of the housing market, with the former remaining at healthy levels compared with the slowdown being experienced south of the border.

That gives mortgage lenders in Canada additional comfort in the event borrowers do default pushing them to repossess and sell a house.

A worsening slowdown in the U.S. housing market could, however, hit Royal Bank of Canada , Toronto-Dominion Bank and Bank of Montreal , who do some lending to the real estate market in the United States, said Darko Mihelic, an analyst at CIBC World Markets.

_________________
Christina Jackson
Mobile Mortgage Specialist
TD Canada Trust
T: 647 292 7597
F: 905 377 1634
P: 866 767 5446
email: christina.jackson@td.com

thanks christina
i do think the worst case scenario is about to unfold in the U.S..

it will be very bad this spring as sellers hit the market in the U.S.

look for rates to drop at a min. of 50 points