What the heck is going on in Montreal and Ottawa?

Let's go all the way back to August 15, 2008, a relatively wonderful time when Fannie, Freddie and Lehman were still publicly traded and the banking sector was not owned by the US government. I made a series of predictions on the Canadian housing market, that for the most part, have come true.

• Expect to see negative numbers the rest of the year (Yes)
  
• Expect Toronto to go negative soon. When the mainstream media (based primarily in Toronto) gets this, expect to see a flood of housing doom articles. While the doom will be correct, it will be about years late. (Yes)
  
• Expect Ottawa and Montreal to participate in the housing crash by year end (Not clear yet, see below)
  
• Expect to see negative numbers worsen with an occasional upward blip (similar to a bear market rally in the stock market- ie nothing goes down in a straight line) (Yes)
  
• Expect to see bottom calling on these inevitable blips (Yes, plenty of that)
  
• Expect to see a negative 6-9% by year end (-10% in November)

Somehow, despite the incredible worldwide carnage in stock markets and housing markets everwhere, despite the worldwide deleveraging, the Montreal real estate market continues to show 3% YoY growth in real estate prices in November and December. Ottawa showed 7.7% YoY growth in November but went negative in December (-1.2%).

Was I wrong then?

Montreal: The socialist interventionist Quebec economy kept on keeping on. I have heard ludicrous arguments on how Quebec (with its aerospace and infrastructure spending) will make it through relatively unscathed. All three parties in the recent provincial election kept promising more government. What gives? The Quebec economy is the true supertanker economy (using the famous Abby Joseph Cohen phrase from the late 90s- ok, maybe just a tanker since it is not that big). It takes a heck of a long time to get the tanker rolling (it took until 1996 for things to pick up here in Quebec in the last boom) but at the same time, it takes longer to slow things down (similar to much of Europe). Just when you think, decoupling or "we're better than Ontario", we get hit and worse, it takes us years longer to get back up. People here are less invested in the stock market and more likely to have faith in the government to take care of us. People here don't follow events in the rest of Canada or the US as much as they follow what is happening in France.

Finally, I think the impact of a worldwide recession is starting to seep in here as well. Housing sales have been crushed by about 30% in November and December. Yet average prices have moderated only a little and are still nicely positive. I suspect that since few buyers and sellers do anything at all in November/December (most houses are sold in the January to April timeframe here as many people move on July 1st- don't ask), the sales give an indication that something fishy is up, while the few houses that sell are merely following the prices from the past few months.

This spring, when people in La Belle Province fully realize that jobs are being cut here too and that our provincial government is going to run massive deficits that further bankrupt us, I suspect that they will begin to panic as much of the rest of the world has already.

Ottawa: Due to its relatively small size, I suspect that the monthly data is too volatile to use 1 month as a good gauge. However, sales have tanked in November and December. Much of what I said about Quebec applies here too as the federal government has a tanker effect here too. Don't believe all that stuff about how the federal government will protect the local economy. Remember that there were 45,000 government jobs cut in the mid/late 90s. Not surprisely, the housing market in Ottawa stunk at the time (while it sailed along just fine in the rest of Canada). It just takes longer in Ottawa, too. Plus, even in Ottawa, not everyone works in the federal government in Ottawa (high tech) and I suspect that like most Canadians, people in Ottawa save too little and are in too much debt.

Conclusion: The prediction may have been technically wrong, but I suspect that it was just a tad premature .

When do we go to get all 6 NHL markets in Canada negative? It looks as if Ottawa is already negative and only needs January to confirm. I suspect that Montreal will go negative as soon as the housing market hits its busy season in February. By April (when sellers and buyers usually get desperate), I expect to see carnage in the Montreal housing market as buyers will have tons of selection and will either lowball or will still hesitate given the economic backdrop. Sellers will get desperate as the window to sell begins to close.

By February or March, when all 6 are negative, then what will CREA do to spin?