Surprising no one, the Bank of Canada chose not to raise interest rates yesterday, maintaining the benchmark overnight rate at 1%, which makes the banks’ prime rate 3%.

From the BoC press release:

The recovery in Canada is proceeding at a moderate pace, although economic activity in the second half of 2010 appears slightly weaker than the Bank projected in its October Monetary Policy Report. In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust. However, net exports were weaker than projected and continued to exert a significant drag on growth. This underlines a previously-identified risk that a combination of disappointing productivity performance and persistent strength in the Canadian dollar could dampen the expected recovery of net exports.

Aptly summarized by Canada Mortgage Trends:

• Global economic “risks have increased”
• “…pressures affecting prices remain largely unchanged”
• Today’s decision “leaves considerable monetary stimulus in place”
• “In the third quarter, household spending was stronger than the Bank had anticipated and growth in business investment was robust.”
• “…net exports were weaker than projected and continued to exert a significant drag on growth”

This is good news for investors and people considering a new home purchase. The fundamentals underlying the recovery in Canada are very strong, and global forces causing the recovery to stretch out a bit will help keep interest rates down longer, with less pressure on inflation.

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Inspired by this weeks’s entertainment, I got thinking about the commonalities of real estate, economics and investment blogs, whatever their slant.

I think there’s a lot we can agree on.

Your house is not a damn ATM

If you put a HELOC (home equity line of credit) on your home, be damn careful what you use it for. Spending it on consumer goods, excessive renovations and entertainment are right out (forget about the 52″ plasma). Reasonable renovations and smart, careful investments can count, but you need to be cautious and a HELOC should never be your sole source of investment funds (see the next point).

Canadians need to save more

Our national savings rate went from better than 10% of after tax income in the early 90′s to only a few percent. We’re not as bad as our friends down south, but this is going to be a potential long term problem for many Canadians as we get older.

Live within your means

This shouldn’t surprise anyone, but it’s not quotes often enough. David Chilton, author of the Wealthy Barber, probably the best book on financial planning for retirement ever written, lives in a house of less than 1,000 sq ft (see the great interview on CBC’s The Hour here). I drive a used VW, live in an older townhouse and don’t really carry any consumer debt. I don’t really see that changing too much, except sizing up as my family grows.

Give money away

No one ever went broke by donating money to charity and it’s an important habit to get into particularly when you don’t have any money. 10% is a great goal, and you should also donate your time. If you want to make sure you’re hitting your 10% goal, try adding up your volunteer time at minimum wage or $10/hr and see what that does. Giving your time and talents to those who need your help when you barely have anything to give teaches us about what’s possible (and trust in God, but that’s another post).

Diversification can be a good safety net

There’s no doubt that your asset mix should reflect your goals and the time in your life. When you’re young (like me) and have few obligations, but high earning potential, you can handle more risk. When you’re getting to be 50-60 you should be looking for some more stable, fixed income assets with a lower risk profile. You should use the advice of a good financial planner. One big caveat on diversification though – as Warren Buffett says, “Wide diversification is only required when investors do not understand what they are doing.” Invest in what you know, and if you’re really serious about investing and building a business, keep to what you know. This leads us to:

Diversification is for the weak

Warren Buffett doesn’t buy tech companies because he doesn’t understand them. I avoid complex market plays (shorts, etc) because I’m not as familiar with them. I buy stocks I know and trust like Coca Cola, Cogent (makes some great fingerprinting hardware) but the majority of my active investing goes into real estate. I gained a lot of knowledge by osmosis, working on a team managing other people’s properties and because I made a point of learning as much as I could. The 3 years since I bought my first property have also been full of some great lessons.
If you really understand tech stocks, or mining, or real estate, put your money there. The nice thing about real estate is everyone has at least a little familiarity with it and we’re all capable of learning. What each person needs to decide (with some help) is what mix of diversification vs. single minded focus is right for them.

Look Behind the Curtain

There’s a lot of sources for information and opinion. You should do a lot of research on your own, and also pay for other people’s analysis. I trust REIN’s analysis more because they don’t sell real estate. Same deal with the IMF; they couldn’t care less if you or I buy another piece of real estate. I also listen to sources like RBC for their housing affordability index. Sure, they sell mortgages, and more activity in the housing sector is good for them. I think Garth Turner buries his good points in a lot of rhetoric intended to sell more books. Does it make their opinion worthless? No, you just take it with a grain of salt.

There’s a lot we can agree on, and a lot more that bloggers, professionals and friends can be doing to help people out.

Photo credit: Stuseeger

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As many expected, the Bank of Canada raised rates 0.25%, making the overnight rate 1%. Most banks followed suit, making the prime rate 3%.

Here’s the high points from the press release (via Canadian Mortgage Trends)

“…Consumption growth is expected to remain solid and business investment to rise strongly.”

“The Bank now expects the economic recovery in Canada to be slightly more gradual than it had projected…”

“…Financial conditions in Canada have tightened modestly but remain exceptionally stimulative.”

“Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.”

I posted a quick survey the day before the announcement, and here’s what people thought would happen.

It’s a difference of $13 on every $100,000 of mortgage, which is chump change. These are some screaming low rates, and there’s been talk about how the global economy will be growing at a little bit slower pace moving forwards, which also means we’re not as likely to see double-digit interest rates in the near future.

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Here’s some links to help your Friday (or Saturday) go a little faster. I’m going to try and post things like this a little more regular, so please leave a comment and let me know if there’s types of links, news, topics or questions you’d like to see more of!

• From Lovely Listing – NFSWednesday: taking racecar beds to a whole nother level
  The shock absorbers make it perfect for people living in earthquake-prone areas, and the ridiculousness makes certain you’ll never take yourself too seriously.
• Stephen Gordons’ Worthwhile Canadian Initiative – On Canada’s exit strategy
  Our exit strategy appears to be to let the fiscal stimulus package expire in 2011Q1 as planned, and to let monetary policy take up the responsibility of providing whatever remains in the way of counter-cyclical policy. From where I sit, that looks to be the sensible path.
• Mike’s Calgary Real Estate Review – New Zoning Restrictions On Secondary Suites
  Council has erased zoning restrictions on secondary suites for thousands of suburban Calgary houses, a unanimous decision at least one alderman acknowledges he made without understanding the changes he was approving.
• From Canadian Mortgage Trends – Variables Win Long Term But…
  Long story short, variables are still a great bet for many. But, if you:
  • Have a tight budget
  • Are nervous that prime rate could exceed analyst rate estimates in 18-24 months
  • Find an amazing deal on a 5-year fixed
• Mike Sachoff on WebProNews – ApartmentGuide Adds Search Tab To Its Facebook Page
  “A significant portion of ApartmentGuide.com users are between the ages of 18-35, aligning nicely with Facebook’s demographics,” said Arlene Mayfield, president, Apartment Guide. “Further, Facebook had over 150 million U.S. users in July 2010 with that number expected to grow considerably.”
  More sites need to do this. Facebook is huge in Canada.
• Ryan Moeller on Bigger Pockets – 10 Ways to Mitigate Risk and Control the Outcome in Real Estate Investing
  Savvy real estate investors research and use information to make good informed business decisions. By doing this, you can mitigate risk and control the outcome.
• Sara and Sheldon’s Edmonton Real Estate Blog – 1000 Things we Love About Edmonton
  I’m a sucker for lists and Edmonton related stuff, and I love the stuff they write. This one looks to be awesome!
• From Canadian Capitalist – This and That: Napkin drawings, Role of luck and more…
  Check out the first link he has, some great napkin drawings from the NYT.

Photo Credit

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North America is home to a generation of people who have never experienced a recession in their adult lifetime. They’re between 20 and 30, much like myself.

I remember when I was very young, my dad being laid off from construction during the recession which hit in 1984. He’s mentioned it before, but he was unemployed for the better part of 2 years. I’ve had long conversations with him and my grandfather about what it was like to live, work and buy real estate through the cycles of boom, bust and recession.

What occurs to me when I meet young people interested in real estate and business in general is there’s a feeling of invincibility. I noticed it when I was still in Canada, but after spending a fruitless four months trying to find a job in Ireland, I have a new appreciation for the situation.

There’s a number of people who I’ve talked to about the economy who (in a typically Irish fashion, but that’s another topic) are both fairly realistic and nearly without hope. As one landlord said to me:

We (Ireland) gorged like pigs at the trough and now we’re paying the price for it…It’s going to be a decade before things get back to something like normal.”

I also met with several people involved with real estate, investing and the financial services industry. One head of an Irish investment fund, which is more active in the UK and Germany than Ireland described the government as bankrupt. Really, it’s not that far from the truth. It’s a financial situation similar to the US, but with fewer options for creating revenue.

I met young people, lawyers, engineers, scientists, business men and women, many with Masters’ degrees, all looking for work. Easily half of the young professionals I spoke with were actively researching work options in Canada, the US or Australia. It’s just shocking how many people, highly qualified, are totally out of work. It’s just strange to me how many tradespeople are out of work, when I think of the severe shortages we saw in Alberta.

The current Irish government just released a budget that makes some significant cuts, but doesn’t seem to create enough growth or movement to help bring the economy forwards. Their property bailout, NAMA (the National Asset Management Act) will be buying assets at 10-20% above current market value and will either be a great success if it stays the course, or be a huge waste of money and warp the property market for years to come. It’s also the only choice, even if it’s not perfect.

What several people have said is this is a more severe problem than any post-WWII recession in Ireland. I think that combined with the economic changes of the 21st Century and membership in the EU, this time will come to be as significant as the Great Famine or the Revolution of 1912.

It’s been an interesting time to be in Ireland, and it’s given me a lot more perspective on economies and the future.

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This is a very interesting time to be living in Ireland.We’re in the middle of possible recovery from recession, new tax legislation which may completely change the way they tax property, NAMA (the goverment buying up toxic loans) and a national referendum on Lisbon 2, which will determine to what extent Ireland will continue to participate in the European Union.

I got here about two weeks ago and Megan and I are planning on spending a year here. It’s been an interesting experience meeting people and seeing how this country works. Mark Rose from Rose Property Services helped us find a place to live and I had an interesting conversation with him about the events of the last few years. It was a run-up that had many of the hallmarks we recognize in the US and some Canadian markets, but went so far beyond them as to defy description. I can see how things came together to make Ireland’s property 15-23% overvalued. It’s very educational to watch the deflation of the Irish property bubble and see how their government deals with the fallout.

I’m glad I live in Canada but it’s an interesting time to be in Ireland.

(As a side-note, one down side of being here is it’s killed my ability to qualify for mortgages by myself. I had to pass on a killer deal with an assumable mortgage that was $6,000 cash to close. Time for a pint of Guinness.)

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Today’s edition of the Stats Can Daily showed the largest monthly improvement in the unsmoothed composite index in 30 years.

The rate of decline of the leading indicator slowed markedly to 0.1% in May, the smallest of nine consecutive declines. The shift from a 0.9% drop in April to a 0.1% dip in May was the largest monthly change in the index in either direction since December 1965. The turnaround reflected a 2.6% increase in the unsmoothed index, equalling its largest monthly gain in 30 years.

Eight of the ten unsmoothed components rose in May, led by double–digit increases for housing, the stock market and orders for durable goods.

These graphs and stats are both useful for knowing where things are at, as well as for use in JV presentations.

You can get a table of the leading indicators for the last six months here.

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[Ed Note: Today's Guest Post comes for Garth Chapman, a Diamond REIN member and the co-founder of REMA, a Real Estate Management and Analysis software. (Not so shameless plug: I use it!)]

This has been our approach to making sure our estate business prospers going forward. We’re always trying to answer the question: What are you doing to adjust your business to our brave new world? Our first major actions began in the summer of 2007:

1. Stay focused and view things from the 10,000 foot level (get out of the forest and above the trees). Don’t be pulled back and forth by the daily news that bombards us. Pay attention to the longer term trends and stats – they will keep you balanced and help you to make better decisions. Pay attention to both the positive and the negative things that are happening around you. Look past the headlines. Be realistic as you evaluate of what is going on. Be positive but don’t be mistaken for Pollyanna. A positive mindset is a powerful ally in getting things done, but must be accompanied by a realistic view on things to allow you to focus on that which is achievable.
2. Analyze your business. What are you doing well, and what not so well. What can you improve on? What must you improve on? Review your financial performance versus budget (your financial expectations). Measure what is significant so you will know what areas to put your time, effort and money into. Know your true numbers (for each property and your whole portfolio) – if you don’t you are not really managing your business, and that means you have put it at risk. Always know your cash position at present and your cashflows going forward – if you don’t you risk running out of cash. Maintain sizeable cash reserves, and/or credit facilities. Cash is King. Long live the King.
3. Review your business plan (the short term and the long term) and adjust it as prudent investors should when the world you operate in changes big time. Be proactive. Don’t be buffeted by the changing seas. Don’t allow yourself to drift. Chart your course.
4. Involve your team and other experts in this process. They are on your team for a reason. Get their input. Ask for their advice. Involve people you respect for their knowledge and experience. Most of your best ideas will come out of those discussions – both your ideas and theirs. And you will awake with eureka moments, both small and big, in the wee hours of the night. That’s a good thing. It means you have engaged your subconscious mind, a very powerful tool.
5. Take a break. Get away and relax. Read some books, go sailing, walking, running, diving, flying, driving – whatever works for you. If you take the right amount of time, all that you have done so far in this process will distill in your mind and you will find clarity.
6. Now act – recession-protect your business. A few examples – refinance your mortgages with longer amortizations, look for ways to increase revenues and decrease vacancies (provide cable TV, internet, other services), add rental units to your properties (suites, garages, parking spaces, coin-op laundry facilities, etc).
7. Do the same for your family/personal life. Your family’s business also needs your attention. Treat your personal finances much like your business finances.
8. Review and repeat. Review what you did to determine how to do it better next time. Do it all again at least once a year. In these times maybe twice is more prudent.
9. Share what you have learned. This will help to make others’ businesses better as was yours. Much more will come back to you than you put out there.

What are you doing to ensure the health of your business?

Originally posted on myREINspace.

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It’s the middle of a recession in that country to the south of us. Things are a little unsettled globally speaking. Buth Jeff Sutherland, reminded us all of some cheerful headlines. 

In the midst of global economic confusion:

Did you know Alberta has a $15.8 BILLION rainy day fund? 

Did you know Alberta will NOT be running a deficit this year?

Did you know Alberta’s revenue for the year is now pegged at $39.9 billion, up $1.3 billion from the budget?

Did you know Alberta has a projected surplus of $2 billion even after taking the last few months conditions into consideration? 

I don’t know about y’all, but I’m smiling.

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The real driver (such as it is) of the current American and global recession is the lack of available credit. It was Benjamin Tal from CIBC who pointed out that Ben Bernanke, the chariman  of the US Federal Reserve is a student of the Great Depression. His diagnosis, (via Ben Tal, which I agree with), is that the fundamental issue, and the one thing that would have lessened the severity of the depression is the constriction of credit. (If you can’t sleep tonight, try Berdanke’s 150-page PhD thesis. You’ll be asleep in no time.)

There are lots of bubble bloggers and pundits out there who rant and rave about how easy or exotic credit is what caused the US recession. Really, it was caused by a number of things. However, the one thing that will make the difference between a 1-2 year recession and a 3-5 year severe recession will be how the credit markets shape up over the next few months.

Credit is essential to business. Yes, the US went too far, with mortgages, ABCP and similar issues. However, without credit, products don’t get shipped, things don’t get built, and people don’t get paid. Credit is the vascular system in which the life-blood of the economy gets pumped. Let’s not fuck it up.

And that’s my rant for today.

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