Monday, November 10, 2008

CREA predicting negative prices for 2009...

CREA predicts a 1% drop for average house prices in 2008 (down from +5%) and a 2% drop for 2009. It predicts a drop in sales activity of 12% in 2008 and 4% in 2009 (probably way too low).

Now, that CREA has gone negative, is it time to stop picking on them? Nope, they are as out of touch (or spinning as well) as ever!

I won't bother with 2008, since the full year 2008 number looks reasonable (mathematically, we started near +10% in January 2008, so it becomes hard to be very negative overall).

However, for 2009, CREA is delusional. Suppose we end December 2008 at -9% as I have suggested. To end up a -2% for the full year, we would probably have to bottom in December 2008 and then get to a around +7% by late 2009. The CREA quote below even hints at this (see part in bold):

"Canadians are definitely concerned by the economic news out of the U.S., and much of that news stems from distress in the U.S. housing market. Canadians should realize that Canada's economy and housing market are in better shape," said Mr. Lindberg. "This means the downturn in consumer confidence will pass and when it does, housing demand will rebound, especially when they realize the window of opportunity to buy at reduced prices and at low interest rates will begin to narrow once economic growth shows signs of rebounding next year."

Wow, they have reduced what is likely the most severe global recession since 1982 to just a few quarter slowdown that will have us magically rebounding next year.

Let's assume that CREA is right and the economy does bottom and rebound in 2009. This rebound would be from much, much lower GDP levels than today. Much, much higher unemployment levels. We are in the low 6%s in unemployment. We were in the 12% range in the early 90s! A return to double digits here is not only possible, but sadly is quite likely. Canada is in recession and it is going to get much worse before it gets better. And if you want to play the 'blame it on the US' bit, as CREA is, you had better get even more bearish, because Q4 2008 is likely to be a -3 or -4%, something we have not seen since the early 1980s. Those US numbers, plus the global credit crunch, GM/Ford, falling commodities, falling stock markets are going to put such a hit on Canadian GDP, it is making my head spin.

My conservative prediction for 2009 average house prices in Canada: -10%. While that sounds very bad, it is not that hard to accomplish. We are likely to end 2008 with YoY numbers close to that. All we have to do is maintain that negative momentum for all of 2009, which given the factors mentioned above is very likely.

CREA knows that there is absolutely no way to get to a -2% next year as the math is very challenging but it feels that it is better to put that number out in the hope that people will believe this number and snap up the "reduced prices". They did this back in May when they predicted a +5%, even as April numbers were lower than that (meaning that the market was supposed to bottom in April). Here is what they said in May:

“The Canadian resale housing market is on a distinctly different path than the
market in the United States,” says CREA President Cal Lindberg. “CREA expects
the growth in average price to slow in 2008, which is reflected in many markets.
This stands in stark contrast to the U.S. housing market, where prices and sales activity are on the decline.

Now that they are admitting that prices and sales activity are on the decline, are we really in "stark contrast" to the U.S. housing market?

1 comment:

Andrew Bell said...

could you please contact me re/ a real estate series we're doing this week, A?


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