Almost all the positive news you get about the housing market comes from people who benefit if you buy or sell: realtors and mortgage lenders like banks. Take their views with an enormous grain of salt.
The Economist magazine, in its annual real estate issue, says Canadian housing is overpriced by more than 20%. I doubt the magazine is biased one way or another.
If you want to know whether a market is frothy look at how much it’s gone up compared to the long-term average. Housing in Canada is up more than 7% a year for the past decade. Obviously it can’t go up much more than inflation or no one would be able to afford a house eventually. Inflation averages about 3%.
This is a terrible time to buy a house and especially a condo. A 10-year bubble doesn’t deflate overnight.
Buyers are only just starting to realize that it’s a buyer’s market. Sellers haven’t figured it out yet. Once they do, and they start tripping over each other to sell before it’s too late, just as buyers did the opposite for three years, house pricing will be rational again.
30-second GM analysis: Government’s loss is your gain
Wednesday, October 27th, 2010GM is going public next month in New York and Toronto. Government spinoffs usually do well (think CN and Petro-Canada). This one will do especially well. The U.S. Treasury Dept. has about $40 billion invested in GM equity, which on the balance sheet is worth $24 billion. The government’s 60% stake is therefore worth about $15 billion.
There is no way the taxpayer will see a return on this investment in the short or even medium term. Even if GM trades at twice book value, the government’s return is negative at first and for a while, and it won’t trade at twice book.
So what’s the government to do? Price it cheaply and flog it to as many retail investors (a.k.a. voters) as possible. After all, if they make money, they won’t mind if the government loses.
GM has been encouraging employees, retirees and dealers to buy stock. And the stock will apparently be split to price each share in the $20-$25 range, according to the Wall Street Journal. They’re aiming squarely at the little guy and they won’t let him lose.
Read this for a little more detail.
Posted in Commentary, Value Investing | No Comments »