Home Builders plead for Flaherty to make housing affordable. Don’t worry, the process to create it is well under way.

Home Builders plead for Flaherty to make housing affordable. Don’t worry, the process to create it is well under way.

Whispers from the Edge of the Rain Forest
Wednesday, August 8, 2012
Check out the tweet above sent out by CKNW this afternoon to promote a segment on one of Vancouver’s foremost talk radio stations.
 
You have to marvel at how the mainstream media is completely on the ‘bursting’ bandwagon these days. No wonder sales are stagnating with these types of media stories. One can only imagine poor Bob Rennie positively tic-twitching up a storm at these developments.
 
Meanwhile the offensive to try and sway Federal Finance Minister Jim Flaherty into backing off on the recent mortgage changes has begun.
 
Peter Simpson, president and CEO of the Greater Vancouver Home Builders’ Association, was using the Georgia Straight newspaper today as the vehicle for his efforts.
 
In a piece titled “Finance Minister Jim Flaherty may intervene in amortization period for home mortgages”, an attempt is made to create the impression that Flaherty is closely monitoring the situation and he will review what impact the new amortization period is having… with an eye to raising amortizations again. Simpson says:
“I hope he looks at markets where affordability is already an issue, like Vancouver.”
To Simpson the dreadful real estate market is of major concern.
 
Builders are trying to rationalize that during the summer months, home sales traditionally slow down. But this summer’s sales have been horrendous. And there is valid concern that if the monthly sales volume continues to tank after the Labour Day weekend, the situation will become dire for home builders.
 
And so Simpson is trying to frame the issue as an economic threat for the government.
“The real threat to the economy is if a real-estate slowdown leads to a sharp reduction in housing starts. That’s because new-home construction stimulates the sale of appliances, carpets, and other products. For every housing start, there are 2.8 person years of employment that are create.That’s direct and indirect jobs.”
Simpson is hoping to create public pressure on Flaherty and the prime minister so that they will have to assess whether to take action.
“If it continues to fall, they’re going to have to take a good hard look at what their actions have caused — and be prepared to make some adjustments. I don’t know what those adjustments are.”
What he’s hoping for is that the government will go back to increasing the amortization periods for CMHC insurance.
 
And it just goes to show the level to which so many have become addicted to the crack cocaine of easy credit.
 
The problem is Flaherty and the Conservatives know all too well that they cannot turn back.
 
The easing that began when amortizations were originally raised from 25 to 30 then 35 and finally 40 years were an attempt to get us through a financial crisis that was supposed to be over by now.
 
The average recession lasts 5 years, max.
 
But this isn’t your average recession.
 
And our real estate bubble wasn’t created out of economic growth and the spinoffs of increased jobs and higher incomes.
 
Our current state of affairs were created with debt. And that debt has reached outrageous, unsustainable levels.
 
The latest changes to the rules governing mortgage were made when Flaherty returned from Europe and got a glimpse of how serious the world economic situation is.And no amount of petty, partisan media ploys is going to move the government on this issue.
 
Simpson decries the changes and pleads “affordability” are the reason government should restore the real estate liquidity punch bowl.
 
The good news for Simpson is that a collapsing real estate market means the wise developers (those not caught flat-footed by the storm that is coming) will be able to pick up properties at massive discounts soon.
 
And there is no better way of building “affordable” housing than by having initial real estate costs plummet.
 
See Peter ? Problem solved.

But I don’t think that’s going to do it for Mr. Simpson. Somehow I suspect Peter is actually more concerned about asset price-protection than he is about seeing “affordability” come into play.

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COMMENT:
This is an ugly era in history, if one studies history.
Past recessions usually “ran out of gas” …..naturally….and the economy would go into a hibernation mode. It was a more normal cycle, highs and lows, peaks and valleys, but not as extreme.
Usually interest rates, based on the demand for money would rise, which would also act as a damper on speculation.
However, money was literally given away in this more recent economic ” boom”  and created a huge bubble…irrational prices based on the greater fool theory……whereby parties literally BET that prices would never go down as a ” given” ….and that the added delusion was that parties could speculate and make huge capital gains by literally doing nothing but line up for “pre-sales”.
Peter Simpson would gain more credibility if he simply admitted that this fantasy is over, the bubble is imploding, everybody fasten their seatbelts should get prepared, it will get nasty. Housing prices in all categories in all areas is collapsing….any new building simply dilutes the current values.
Construction companies will go broke…tradesmen will lose their jobs. The Gov’t the Banks and the Construction industry have obviously colluded  to create this mess.
The actual value formula is a given Residential Unit, usually a Single Family Home  is generally worth 3 X’s the average family income aka a 3:1 ratio. aka the family annual income is $ 100,000, the average home should be worth $ 300,000.
However, in Vancouver the ratio is close to 10:1
There is NOTHING to say that housing prices could not only collpase to this, it could be much worse. We could easily be like the US which apparently has 40 million empty homes no-one wants.
Why does Mr. Simpson want to make a dire situation worse…..in a rather convoluted way..his association should build homes..tear them down , rebuild, tear them down….then repeat…THAT makes more sense than continuing on the same path.
In essence within the last 5-10 years there was an orgy of building  greed and subsequent debt that has for all intents and purposes wiped -out value demand and jobs for years to come.  
The only fix is a dose of bitter medicine..but how long this will last is anyone’s guess .
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