A friend of mine is heavily involved in the consumer credit business here in Canada and he’s seeing early warning signs that the Canadian economy is grinding to a halt.Consumer credit drives a surprisingly large amount of business here in Canada. For example, if you were to walk into the showroom of a mom & pop snowmobile dealer in Saskatoon and you bought a snowmobile on a “plan” it very well could be my friend who is financing your purchase plan (y’know, you pay 10% down and you agree to make a low low monthly payment for three years… that’s known as buying on plan).
You might be surprised by what you can buy on a purchase plan. In addition to the obvious ones, like furniture, cars, motorcycles, snowmobiles etc. you can actually have dental work financed, or you can have elective medical treatments financed (can you say “augmentation”).
Anyways, apparently in the past month in particular, buying on credit is suddenly freezing up solid. With the economic downturn you might think the banks (who are his competitors) would be lending like crazy at the outrageous rates that these “buying plans” charge. Well guess again. He tells me that all of the major players in the consumer credit game in Canada are getting out of the business.
And the list includes some massive entities… like GE Capital Canada, HSBC Bank, etc.
The reason even major financial entities like GE Capital are having to quit the leasing and consumer credit business is that they can no longer “securitize” any of their loan portfolios. Securitize is a five dollar finance word for sell. The industry has historically been driven by the ability to sell some of their loan portfolios.
Well it’s completely stalled. So GE Capital Canada and other majors have closed their doors to new business.
So what does this have to do with Vancouver real estate you ask?
It’s like this. My friends customers (the mom & pop snowmobile store, or the the dentist, or the plastic surgeon) are seeing huge declines in their sales levels because their businesses are now “cash only.” As a result, their businesses are hurting. The mom & pops will have to lay-off staff, and cut costs… and it all becomes a vicious cycle.
Canada is not going to be protected from the economic downturn.
Vancouver real estate prices are already inflated in relation to Vancouverites’ average salaries and rents. On a long term basis, real estate prices are driven by the economic circumstances that prevail in the local market. High rents = high prices… and low rents = low prices. Well incomes and rents will be under pressure as the Canadian economy fails… and real estate will fall with the economy.
The weight of gravity on the Vancouver real estate bubble is growing.
Monday, January 19, 2009
Consumer credit
Tuesday, January 13, 2009
Real estate buying strategy
If I was a predator I would know that the ‘ blood trail’ is the place to look for an easy feed. The best deals are not going to be found in the ‘mom and pop’ market who will tend to pull thier listings off the market when they don’t ‘get thier price’.
I would go after the specuvestor multi unit holders and especially the small builders. As a real estate school grad mentioned correctly in an earlier string ‘the builders profit is tied up in the last 25% of the project’ although this number isn’t carved in stone it is on the right track. This isn’t just 25% it is actually ALL THIER CASH .
You want to find someone who “HAS” to sell not someone who’ll only sell ‘IF’. i would pay attention to large projects who may suddenly ‘ blow up’ into recievership.
Single family home builders are particularily vulnerable at this point in the cycle. They simply cannot afford to hold on, the COC loan gets pulled every thirty days after the construction phase is completed, this type of builder has the most to lose. This is where the knives are going cut the deepest. I don’t think we’re at that stage yet. I would look for a small project.
Bottomline, as a hunter you must be very patient, the game is still afoot. I would look at every project and start to inventory, without any offers tendered. Research is power.
Last time I bought an investment property I waited for everything to be in my favour. I walked away from dozens and dozens of ‘deals’. I waited to find a true forced sale which turned out to be a marital breakdown and the occupier being transferred suddenly out of Province and they needed to sell immediatly ( that week). I offered all cash, no subjects and quick ( same week ) completion. I got a HUGE discount. I paid far less than other offers because I could make it happen , no subjects.
I waited for that deal to come along for at least four months and that was in a good market. I made money the day I signed that deal, thats the way it should be. I would have waited six months I don’t care about time.
The low ball offer is not an art it is a tool. If you don’t get the deal so what, walk away and keep looking, theres a deal a minute in real estate.
Baron Rothschild said ” Only buy when theres blood in the streets”, we are not quite at that stage yet, but it’s like a big wave coming into view. For now, sit back on your cash and good credit and wait until desperate sellers are begging you to buy. Be predatory, stay alert and don’t fall for some of the slick spin the developers and governments are puking up. They are desperate , you are not.
Monday, January 12, 2009
Tuesday, October 21, 2008
Stock Market 101
Once upon a time in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort.
The man then announced that he would now pay $20 for each one. This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching. The man increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey, much less catch one.
The man now announced that he would buy monkeys for $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.
While the man was away the assistant told the villagers. 'Look at all these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each.
The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again and once again there were monkeys everywhere.
Thursday, September 18, 2008
Stronger
Two weekends ago, Lyndsay and I did a cycling tour of the Sunshine Coast. We took the ferry to Langdale on Saturday morning, then cycled about 30 km to Sechelt. The purpose of the trip was to attend a wedding reception, and unfortunately we missed most of it due to the longer than anticipated time it took to get to Sechelt.
Because it was starting to get dark after the reception and we would be riding on a highway with no streetlights, we threw our bikes on a shuttle and took the shuttle to Roberts Creek (about halfway back to the ferry), stayed in a B&B overnight, then rode the remaining 15 km back to the ferry terminal on Sunday. We went up and down many hills. I looked at Google Map's terrain prior to the trip and noted all the hills I might encounter, but those were only the super-big inclines and declines. There were many smaller ones that I didn't see on the map.
Here's a map of the Saturday trip, which took about 4 hours. The Sunday return trip took about 1.5 hours.
Since that trip, I've noticed that it's just a bit easier to bike around, especially going up the same hill on my way home from work. I don't have to gear down as far to avoid fatiguing myself.
In just over a week, I'll be moving out of my home and living in West Point Grey. My plan is to bike to work in the morning (~45 min and mostly downhill) and ride the bus back home with the bike on the bus' bike rack, at least for as long as the weather holds out.