The Budget

[Wilber]

Not any. There are a lot stricter rules about absentee purchases in some countries. But Vancouver and TO are hardly the only cities the Chinese are putting money into. New York and London simply aren't as heavily influenced because they're much larger cities.

New York and London have had these kinds of prices for at least a couple of decades.

[dre]

You don't want to deflate anything, you want to put the brakes on what is already there. Destroying people's equity and making them lose their homes because they can't afford to renew mortgages is not a solution. Someone else losing their home so you can get a deal is not acceptable. By raising the overnight rate, you are putting the brakes on everything, not just housing. Higher down payments is something that could be done but it won't stop cash sales or reduce the number of people who want to live here.

That equity was never real in the first place, and its going to disappear when a correction inevitably happens. That's what an asset bubble is... they call it a bubble because the valuation is not backed by real market fundamentals and it will eventually burst. When it does home owners are going to take a big hit just like they did when the housing bubble burst in the US.

. Destroying people's equity and making them lose their homes because they can't afford to renew mortgages is not a solution

That is the solution and that's exactly whats going to happen.

By raising the overnight rate, you are putting the brakes on everything, not just housing.

That's why it has to be done gradually. That's also why governments are scared to do it.

Higher down payments is something that could be done but it won't stop cash sales or reduce the number of people who want to live here.

Cash sales are only a small part of the problem. The main problem is that interest rates are dangerously low and have been for too long.

[Argus]

New York and London have had these kinds of prices for at least a couple of decades.

Because they are world centers of culture, fashion, media, business and finance. EVERYONE wants to live there.

Edited April 2, 2016 by Argus

[Smallc]

Because they are world centers of culture, fashion, media, business and finance.

And the same is now true of Toronto, though on a somewhat lesser level (and it costs somewhat less to live there). Vancouver is attractive for a different reason.

[BC_chick]

And the same is now true of Toronto, though on a somewhat lesser level (and it costs somewhat less to live there). Vancouver is attractive for a different reason.

All those cities have an economy to match the demand, Vancouver does't. Even Toronto does to some level.

[dre]

No, it is reality. Look at London where you pay millions for a leasehold and have done for years. Places like Vancouver have entered a new universe and they aren't going back.

I'm not saying there won't be corrections, look at 80-81 and it wasn't pretty, but if you think you will ever be able to buy a home in Vancouver for a 2010 price you are dreaming. The only way that will happen is if there is another great depression and then housing prices will be the least of your worries.

Again this is wishful thinking. The market could easily revalue to 2010 prices.

And this suggestion that certain world class cities are somehow immune is fantasy. Here's what happened in New York when the US housing bubble burst. Inflation adjusted prices fell from 2006 levels to 1987 levels.

A 30% correction would put Vancouver home prices close to where they were in 1995. And 30% is probably a conservative estimate. That's the IMF number for all of Canada and prices in Vancouver have ballooned more than in other places.

Edited April 2, 2016 by dre

[Wilber]

You are assuming that Vancouver is in a bubble when it may just be settling into a range where it should be in a world real estate market. The US sub prime meltdown had a lot more going on than just low interest rates and had no lasting effect on values in Canada.

Edited April 2, 2016 by Wilber

[Argus]

And the same is now true of Toronto, though on a somewhat lesser level (and it costs somewhat less to live there). Vancouver is attractive for a different reason.

Nope. Toronto is a Canadian centre for fashion, media, art, business and finance. It's not a WORLD center. I'm not saying it's unimportant, but it's simply not in nearly the same league as New York and London.

[BC_chick]

You are assuming that Vancouver is in a bubble when it may just be settling into a range where it should be in a world real estate market. The US sub prime meltdown had a lot more going on than just low interest rates and had no lasting effect on values in Canada.

The steepness of that curve in the last 2 years is not indicative of thriving 'world class' city. I wish it were, but it's too steep and too fast. That's a bubble.

[Smallc]

Nope. Toronto is a Canadian centre for fashion, media, art, business and finance. It's not a WORLD center. I'm not saying it's unimportant, but it's simply not in nearly the same league as New York and London.

New York and London are, of course, in their own league. Toronto is only two notches below them. You underestimate its importance.

http://www.spottedbylocals.com/blog/alpha-beta-and-gamma-cities/

[Smallc]

All those cities have an economy to match the demand, Vancouver does't. Even Toronto does to some level.

That's what I'm saying. Vancouver is a bit of an anomaly.

[dre]

You are assuming that Vancouver is in a bubble when it may just be settling into a range where it should be in a world real estate market. The US sub prime meltdown had a lot more going on than just low interest rates and had no lasting effect on values in Canada.

Vancouver real-estate is a classic speculative bubble, and prices have been driven up by insanely easy credit, and purchasers taking on dangerous levels of debt. Values are completely disconnected from reality. Whats happened to house prices over the last decade is what one would expected if the population and their incomes doubled... but none of that has happened.

Housing values are not connected to the value of "shelter" anymore. They are the result of a huge speculative game.

[BC_chick]

That's what I'm saying. Vancouver is a bit of an anomaly.

Oh wow, we're on par with Geneva according to that link you left. And Karachi! We're not even on the Alpha scale.

Edited April 2, 2016 by BC_chick

[Wilber]

Vancouver real-estate is a classic speculative bubble, and prices have been driven up by insanely easy credit, and purchasers taking on dangerous levels of debt. Values are completely disconnected from reality. Whats happened to house prices over the last decade is what one would expected if the population and their incomes doubled... but none of that has happened.

Housing values are not connected to the value of "shelter" anymore. They are the result of a huge speculative game.

So just wait till the bubble bursts and you are golden. What's the problem?

[eyeball]

Vancouver does not have the same economy as New York, London, or Paris. It doesn't even compare to Toronto or Sydney. I don't know how feasible this will be to be honest.

We like to say we're world class but we're not.

I can't shake the sense that a perception of safety is motivating a lot investors, especially from China. Growing labour unrest due the economic downturn there, a hardening of China's leaders in response to challenges to it's performance could easily cause money to flee. We know Canadians threaten to leave or move their money offshore for economic and or political/ideological reasons and I fail to see why it should be be any different in China.

I also think there are deeper as yet unacknowledged reasons related to quality of life in China especially in terms of their environment. It's probably a fair bet to say much of the heavily industrialized areas of China have been managed much like Flint Michigan has and it's easy to see why people would leave if they had the means.

There's a big influx of money coming into my region right now due to Vancouverites who've cashed in and bought or built a house here, started a little business or retired on the rest. I suspect the same is happening just about everywhere else on the Island and Sunshine Coast too. I predict that quality of life values especially as they relate to the environment will become a bigger and bigger factor in the decisions of where people with means move in the future.

Vancouver is like Elysium and just doesn't need the sort of economy usually associated with attracting money. I don't see any reason not to think this trend will continue and even accelerate and especially if we emerge as climate change winners.

Edited April 2, 2016 by eyeball

[Argus]

And now back to the budget.

Andrew Coyne has a new column out basically saying the budget isn't terrible, but that there's no coherent statement about why we need to have such a huge deficit, nor any guidepost or estimates on how the spending is going to help us. More importantly, he points out, it increases risk. That was the message of an interview on Bloomberg with Sprott School of Business professor Ian Lee. He's all for increasing the GIS but is appalled at reversing Harper's retirement age changes.

Both make the point that Trudeau is using up the fiscal room we have to address upcoming problems, some of which are foreseeable, such as an aging population, and some of which are not. Will one or more of the maritime provinces go bankrupt in the coming years? If so, Canada will have to bail them out. How much are health care costs going to rise as the population ages? Trudeau has added over $10 billion a year to the cost of OAS alone in the coming years by reversing the retirement age changes. Where is that money going to come from as health care costs grow? And what happens if we get another harsh recession?

Both make the point that most of the new spending is on ongoing programs which are unnecessary, not on actual fiscal stimulus.

http://news.nationalpost.com/full-comment/andrew-coyne-a-little-coherence-from-the-liberals-on-the-deficit-please

[Wilber]

Relax Argus, they are only planning on increasing the debt by 100 billion this mandate with no plan to balance if they get re-elected. No worries.

[Argus]

So the parliamentary budget officer is not a fan of the Trudeau budget. The Liberals have changed things to make them LESS transparent, all the while piously using the phrase 'open and transparent' over and over, and have made the job numbers up as they went along, with no substance to them. He said that unlike the tories the liberals have not submitted their job creation figures for outside review, and that they'll create maybe 60,000 not 100,000 jobs. So how do you like your 'open and transparent' government so far?

“The government has made changes to the presentation of its fiscal plan that have made it more difficult for parliamentarians to scrutinize public finances,” the report states.

The removal of key financial data from this year’s budget has limited the parliamentary watchdog’s ability to report to MPs, according to the report.

http://www.theglobeandmail.com/news/politics/first-trudeau-budget-less-transparent-inflates-job-growth-watchdog-says/article29537855/

Edited April 6, 2016 by Argus

[Smallc]

That's definitely distressing. It seems to be more about the method change than anything. They should be more clear about it and I fault them for that.

I do though, disagree about the $6B cushion. We're in uncertain times, and 2% of the budget set aside as a contingency doesn't seem at all unreasonable. The $1B that Harper set aside seems far more unreasonable.

Edited April 6, 2016 by Smallc

[dre]

So the parliamentary budget officer is not a fan of the Trudeau budget. The Liberals have changed things to make them LESS transparent, all the while piously using the phrase 'open and transparent' over and over, and have made the job numbers up as they went along, with no substance to them. He said that unlike the tories the liberals have not submitted their job creation figures for outside review, and that they'll create maybe 60,000 not 100,000 jobs. So how do you like your 'open and transparent' government so far?

“The government has made changes to the presentation of its fiscal plan that have made it more difficult for parliamentarians to scrutinize public finances,” the report states.

The removal of key financial data from this year’s budget has limited the parliamentary watchdog’s ability to report to MPs, according to the report.

http://www.theglobeandmail.com/news/politics/first-trudeau-budget-less-transparent-inflates-job-growth-watchdog-says/article29537855/

Holy crap! Some real and possibly relevant critisism! And it only took us until page 25!

[dre]

That's definitely distressing. It seems to be more about the method change than anything.

I do though, disagree about the $6B cushion. We're in uncertain times, and 2% of the budget set aside as a contingency doesn't seem at all unreasonable. The $1B that Harper set aside seems far more unreasonable.

I'm still not sure it was wise. The government should be careful about betraying an overly pessimistic view on the economy.

As far as the presentation goes... its good that the PBO pointed this out, but there's no mechanism to force the government to act. Maybe we need a rigid budget presentation format so that all governments are forced to provide the same set of information.

Although I seriously doubt parliamentarians would spend much time "scrutinizing the budget" anyways...

Edited April 6, 2016 by dre

[Smallc]

As far as the presentation goes... its good that the PBO pointed this out, but there's no mechanism to force the government to act. Maybe we need a rigid budget presentation format so that all governments are forced to provide the same set of information.

I've always thought we should be able to see at least each major line item with a change line for each budget, without having to do a pile of work.

I do agree with you about the pessimism though. The government should be promoting prosperity through optimism.

[Argus]

So the parliamentary budget officer just released a new report on the Liberal budget estimates and projections.

According to the report the Liberals are lying about what the deficit was that they inherited. According to the PBO they inherited a tiny surplus, not the $5 billion deficit they claim.

They're also lying about their budget projections for the year. The PBO says that given current spending, it will be about $20 billion, not $30 billion. Of course, my position on this has long been that yes, they're lying, but only to make room for further spending later in the year.

Trudeau's idiot decision to move the retirement age forward again will cost us over $11 billion a year

http://www.ottawacitizen.com/news/national/keeping+retirement+will+cost+2411+billion+year+keep+canada+years/11862974/story.html

[dre]

They're also lying about their budget projections for the year. The PBO says that given current spending, it will be about $20 billion, not $30 billion. Of course, my position on this has long been that yes, they're lying, but only to make room for further spending later in the year.

I pointed that out about 20 pages ago. Its not necessarily that they were lying, but their projections were definately more pessimistic than those of most private sector economists. Its also not necessarily true that they are trying to pave the way for more spending. They may have just been setting the bar low so that later they can announce things are better than expected instead of worse.

Anyhow... astute of you to pick up on this... 6 weeks later.

[Argus]

I pointed that out about 20 pages ago. Its not necessarily that they were lying, but their projections were definately more pessimistic than those of most private sector economists. Its also not necessarily true that they are trying to pave the way for more spending. They may have just been setting the bar low so that later they can announce things are better than expected instead of worse.

Anyhow... astute of you to pick up on this... 6 weeks later.

Don't hurt your shoulder patting yourself on the back so hard, Dre. A lot of people knew they were lying months ago. I said as much when he did his budget projections dance weeks before the budget. But the PBO is a substantial confirmation of it.